As filed with the Securities and Exchange Commission on June 19, 1997
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TRIANGLE BANCORP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 6022 56-1764546
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
-------------------------
4300 GLENWOOD AVENUE
RALEIGH, NORTH CAROLINA 27612
(919) 881-0455
(Address, including ZIP Code, and telephone number, including area
code, of registrant's principal executive offices)
-------------------------
ALEXANDER M. DONALDSON, ESQ. HENRY H. RALSTON, ESQ.
SENIOR VICE PRESIDENT With ROBINSON BRADSHAW & HINSON
TRIANGLE BANCORP, INC. Copy 101 NORTH TYRON STREET
4300 GLENWOOD AVENUE to: SUITE 1900
RALEIGH, NORTH CAROLINA 27612 CHARLOTTE, NORTH CAROLINA 28246-1900
(919) 881-0455 (704) 377-2536
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE
SECURITIES TO THE PUBLIC: As soon as practicable after
the Registration Statement becomes effective.
If the securities being registered on this Form are
being offered in connection with the formation of a
holding company and there is compliance with
General Instruction G, check the following box. [ ]
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================== ======================== ====================== ======================== =======================
Title of Each Proposed Maximum
Class of Securities Proposed Maximum Aggregate Amount of
to be Registered Amount to be Offering Price Per Offering Price(2) Registration Fee
Registered(1) Share
========================== ======================== ======================= ======================== =======================
<S> <C> <C> <C> <C>
Common Stock 2,420,500 Not Applicable $20,087,598 $6,087.15
========================== ======================== ======================= ======================== =======================
</TABLE>
(1) This Registration Statement covers (i) the maximum number of shares
of common stock of the Registrant which is expected to be issued in connection
with the transaction and (ii) the maximum number of shares of common stock
reserved for issuance under various option plans of Bank of Mecklenburg, the
obligations of which will be assumed by the Registrant upon consummation of the
transaction but which may be issued prior to consummation of the transaction.
(2) In accordance with Rule 457(f), the registration fee is based upon
the book value as of May 31, 1997 ($9.48) of a share of the common stock of Bank
of Mecklenburg.
THIS REGISTRATION STATEMENT COVERS ADDITIONAL SHARES OF THE COMMON
STOCK OF THE REGISTRANT WHICH MAY BE ISSUED TO PREVENT DILUTION RESULTING FROM A
STOCK SPLIT, STOCK DIVIDEND OR SIMILAR TRANSACTION INVOLVING THE COMMON STOCK OF
THE REGISTRANT, PURSUANT TO RULE 416.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
TRIANGLE BANCORP, INC.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501 OF REGULATION S-K
<TABLE>
<CAPTION>
Item of Form S-4 Caption in Prospectus/Proxy Statement
PART I - INFORMATION REQUIRED IN THE PROSPECTUS
A. INFORMATION ABOUT THE TRANSACTION
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus........................... Facing Page of Registration Statement; Cross-Reference
Sheet; Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus
Table of Contents; Available Information; Incorporation
of Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information.................................. Summary - Special Meeting of Mecklenburg Shareholders, -
Parties to the Merger, - Structure and Terms of the
Merger, - Conditions to Consummation of the Merger, -
Required Regulatory Approval, - Certain Federal Income
Tax Consequences, - Appraisal Rights of Dissenting
Shareholders, - Triangle Stock and Mecklenburg Stock;
Comparative Per Share Data; Selected Consolidated
Financial Data
4. Terms of the Transaction........................... The Merger; Summary - Mecklenburg Stock and Triangle
Stock; Comparison of Mecklenburg Stock and Triangle
Stock; Appendix I
5. Pro Forma Financial Information.................... Pro Forma Combined Condensed Financial Information
6. Material Contacts with the Company Being Acquired..
The Merger - Background of and Reasons for the Merger;
The Merger - Interest of Certain Persons in the Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters...... Not Applicable
8. Interest of Named Experts and Counsel.............. Legal and Tax Matters
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Comparison of Mecklenburg Stock and Triangle Stock -
Indemnification of and Elimination of Director Liability
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants........ Available Information; Incorporation of Certain Documents
by Reference; Summary; Information About Triangle
11. Incorporation of Certain Information by Reference.. Incorporation of Certain Documents by Reference
<PAGE>
12. Information with Respect to S-2 or S-3 Registrants. Not Applicable
13. Incorporation of Certain Information by Reference.. Not Applicable
14. Information with Respect to Registrants Other Than S-3
or S-2 Registrants................................. Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies.......... Not Applicable
16. Information with Respect to S-2 or S-3 Companies... Incorporation of Certain Documents by Reference;
Information About Mecklenburg; Selected Consolidated
Financial Data; Summary - Mecklenburg Stock and Triangle
Stock; Comparison of Mecklenburg Stock and Triangle Stock
17. Information with Respect to Companies Other than S-3 or
S-2 Companies...................................... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations are
to be Solicited.................................... Summary; Special Meeting of Mecklenburg Shareholders;
Special Meeting of Triangle Shareholders, - The Merger -
Interest of Certain Persons in the Merger; The Merger -
Appraisal Rights of Dissenting Shareholders; Information
About Triangle; Information about Mecklenburg; Appendix IV
19. Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Offer. Not Applicable
</TABLE>
[LETTERHEAD OF TRIANGLE BANCORP]
August __, 1997
To the Shareholders of Triangle Bancorp, Inc.:
You are cordially invited to attend a Special Meeting of the Shareholders
("Special Meeting") of Triangle Bancorp, Inc. ("Triangle") to be held at
____________, Raleigh, North Carolina at ___p.m., local time, on ____, September
__, 1997, notice of which is enclosed.
At the Special Meeting, you will be asked to consider and vote on a proposal to
approve an Agreement and Plan of Reorganization and Merger, dated as of April
25, 1997 (the "Agreement"), between Triangle and Bank of Mecklenburg
("Mecklenburg"). The Agreement provides for the merger of Mecklenburg with and
into a subsidiary of Triangle, with Mecklenburg being the surviving corporation
(the "Merger"). Thereafter, it is intended that Mecklenburg will be operated as
a wholly-owned subsidiary of Triangle. Upon consummation of the Merger, each
share of Mecklenburg common stock ("Mecklenburg Stock") issued and outstanding
will be exchanged for 1.0 share of Triangle common stock ("Triangle Stock"),
with cash being paid in lieu of issuing fractional shares. At the Special
Meeting, you also will be asked to consider and vote on a proposal to approve an
amendment to Article III, Section 2 of Triangle's Bylaws to increase the maximum
number of directors of Triangle from 26 to 28. Enclosed are the (i) Notice of
Special Meeting of Shareholders, (ii) Joint Proxy Statement/Prospectus, (iii)
proxy card for the Special Meeting, (iv) Mecklenburg's Annual Report to
Shareholders for the year ended December 31, 1996, and (v) Mecklenburg's
Quarterly Report on Form F-4 for the three months ended March 31, 1997. The
Joint Proxy Statement/Prospectus describes in more detail the Agreement and the
Merger and the proposed Bylaw amendment. Please read these materials carefully
and consider thoughtfully the information set forth in them.
The Board of Directors of Triangle has unanimously approved the Agreement and
consummation of the Merger contemplated thereby, and unanimously recommends that
you vote FOR approval of the Agreement. Wheat, First Securities, Inc.,
Triangle's financial advisor, has advised the Board of Directors of Triangle
that, in its opinion, as of __________, 1997, the exchange ratio of 1.0 share of
Triangle Stock for each share of Mecklenburg Stock is fair to the shareholders
of Triangle from a financial point of view.
It is important to understand that approval of the Agreement will require the
affirmative vote of a majority of the votes entitled to be cast at the Special
Meeting by holders of the issued and outstanding shares of Triangle common
stock. Accordingly, whether or not you plan to attend the Special Meeting, you
are urged to complete, sign and return promptly the enclosed proxy card. If you
attend the Special Meeting, you may vote in person if you wish, even if you
previously have returned your proxy card. The proposed Merger and your vote on
this matter is of great importance.
<PAGE>
ON BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO VOTE FOR APPROVAL OF THE
AGREEMENT AND FOR APPROVAL OF THE AMENDMENT TO THE BYLAWS BY MARKING THE
ENCLOSED PROXY CARD "FOR" PROPOSALS 1 AND 2.
We look forward to seeing you at the Special Meeting.
Sincerely,
Michael S. Patterson
President and Chief Executive Officer
<PAGE>
[LETTERHEAD OF BANK OF MECKLENBURG]
August __, 1997
To the Shareholders of Bank of Mecklenburg:
You are cordially invited to attend a Special Meeting of the Shareholders
("Special Meeting") of Bank of Mecklenburg ("Mecklenburg") to be held at
Charlotte, North Carolina at ___p.m., local time, on ____, September __, 1997,
notice of which is enclosed.
At the Special Meeting, you will be asked to consider and vote on a proposal to
approve an Agreement and Plan of Reorganization and Merger, dated as of April
25, 1997 (the "Agreement"), between Mecklenburg and Triangle Bancorp, Inc.
("Triangle"). The Agreement provides for the merger of Mecklenburg with and into
a subsidiary of Triangle, with Mecklenburg being the surviving corporation (the
"Merger"). Thereafter, it is intended that Mecklenburg will be operated as a
wholly-owned subsidiary of Triangle. Upon consummation of the Merger, each share
of Mecklenburg common stock ("Mecklenburg Stock") issued and outstanding will be
exchanged in an anticipated tax-free exchange for 1.0 share of Triangle common
stock ("Triangle Stock"), with cash being paid in lieu of issuing fractional
shares. Enclosed are the (i) Notice of Special Meeting of Shareholders, (ii)
Joint Proxy Statement/Prospectus, (iii) proxy card for the Special Meeting, (iv)
Mecklenburg's Annual Report to Shareholders for the year ended December 31,
1996, and (v) Mecklenburg's Quarterly Report on Form F-4 for the three months
ended March 31, 1997. The Joint Proxy Statement/Prospectus describes in more
detail the Agreement and the Merger, including a description of the conditions
to consummation of the Merger and the effects of the Merger on the rights of
Mecklenburg shareholders. Please read these materials carefully and consider
thoughtfully the information set forth in them.
The Board of Directors of Mecklenburg has unanimously approved the Agreement and
consummation of the Merger contemplated thereby, believes that the proposal to
approve the Agreement and the Merger is in the best interest of Mecklenburg and
its shareholders, employees, depositors, customers, suppliers and community, and
unanimously recommends that you vote FOR approval of the Agreement. Equity
Research Services, Inc., Mecklenburg's financial advisor, has advised the Board
of Directors of Mecklenburg that, in its opinion, as of _________, 1997, the
exchange ratio of 1.0 share of Triangle Stock for each share of Mecklenburg
Stock is fair to Mecklenburg shareholders from a financial point of view.
It is important to understand that approval of the Agreement will require the
affirmative vote of two-thirds of the votes entitled to be cast at the Special
Meeting by holders of the issued and outstanding shares of Mecklenburg common
stock. Thus, a failure to vote will have the same effect as a vote against the
Agreement. Accordingly, whether or not you plan to attend the Special Meeting,
you are urged to complete, sign and return promptly the enclosed proxy card. If
you attend the Special Meeting, you may vote in person if you wish, even if you
previously have returned your proxy card. The proposed Merger and your vote on
this matter is of great importance.
<PAGE>
ON BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO VOTE FOR APPROVAL OF THE
AGREEMENT BY MARKING THE ENCLOSED PROXY CARD "FOR" PROPOSAL 1.
Sincerely,
John H. Ketner, Jr.
President and Chief Executive Officer
<PAGE>
TRIANGLE BANCORP, INC.
4300 GLENWOOD AVENUE
RALEIGH, NORTH CAROLINA 28612
TELEPHONE: (704) 881-0455
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
SEPTEMBER __, 1997
NOTICE is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of Triangle Bancorp, Inc. ("Triangle") will be held at ___ p.m., local
time, on _______, September ___, 1997 at __________________, Raleigh, North
Carolina for the following purposes:
1. PROPOSAL TO APPROVE PROPOSED MERGER. To consider and vote on a
proposal to approve the Agreement and Plan of Reorganization and Merger, dated
as of April 25, 1997, and the related Plan of Merger (collectively, the
"Agreement"), by and between Triangle and Bank of Mecklenburg ("Mecklenburg")
and the transactions contemplated pursuant to the Agreement, which include,
among other matters, (i) at the effective time, Mecklenburg will merge with and
into a subsidiary of Triangle, with Mecklenburg being the surviving corporation
and thereby becoming a wholly-owned subsidiary of Triangle (the "Merger"), and
(ii) each outstanding share of the common stock, $2.00 par value per share, of
Mecklenburg will be converted into 1.0 share of the common stock, no par value
per share, of Triangle, all as more fully described in the accompanying Joint
Proxy Statement/Prospectus; and
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE BYLAWS. To consider and vote
on a proposal to amend Article III, Section 2 of Triangle's Bylaws to increase
the maximum number of directors from 26 to 28.
3. OTHER BUSINESS. To transact such other business as may properly come
before the Special Meeting or any adjournments thereof.
Shareholders of record at the close of business on ________, 1997 are entitled
to notice of, and to vote at, the Special Meeting and any adjournments thereof.
The Board of Directors unanimously recommends that the shareholders vote to
approve the Agreement and to approve the amendment to the Bylaws.
APPROVAL OF THE MERGER REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF THE
OUTSTANDING SHARES OF TRIANGLE STOCK. Each Triangle shareholder is invited to
attend the Special Meeting in person. However, to insure that a quorum is
present at the Special Meeting, each shareholder is urged to complete, date,
sign and return promptly the enclosed proxy in the enclosed pre-paid envelope.
If you return the enclosed proxy, you may still attend the Special Meeting and
vote in person, in which case your returned proxy will be void.
By Order of the Board of Directors
Michael S. Patterson, President and Chief
Executive Officer
Dated: August __, 1997
<PAGE>
BANK OF MECKLENBURG
2000 RANDOLPH ROAD
CHARLOTTE, NORTH CAROLINA 28207
TELEPHONE: (704) 375-2265
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
SEPTEMBER __, 1997
NOTICE is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of Bank of Mecklenburg ("Mecklenburg") will be held at ___ p.m., local
time, on _______, September ___, 1997 at __________________, Charlotte, North
Carolina for the following purposes:
1. PROPOSAL TO APPROVE PROPOSED MERGER. To consider and vote on a
proposal to approve the Agreement and Plan of Reorganization and Merger, dated
as of April 25, 1997, and the related Plan of Merger (collectively, the
"Agreement"), by and between Triangle Bancorp, Inc. ("Triangle") and Mecklenburg
and the transactions contemplated pursuant to the Agreement, which include,
among other matters, (i) at the effective time, Mecklenburg will merge with and
into a subsidiary of Triangle, with Mecklenburg being the surviving corporation
and thereby becoming a wholly-owned subsidiary of Triangle (the "Merger"), and
(ii) each outstanding share of the common stock, $2.00 par value per share (the
"Mecklenburg Stock"), of Mecklenburg will be converted into 1.0 share of the
common stock, no par value per share, of Triangle, all as more fully described
in the accompanying Joint Proxy Statement/Prospectus; and
2. OTHER BUSINESS. To transact such other business as may properly come
before the Special Meeting or any adjournments thereof.
Under North Carolina law, each holder of Mecklenburg Stock has the right to
dissent from the Merger and to demand payment of the fair value of his or her
shares in the event the Merger is approved and consummated. The right of any
such shareholder to dissent is contingent upon strict compliance with the
requirements of Chapter 55, Article 13 of the North Carolina Business
Corporation Act ("Article 13"). The full text of Article 13 is attached as
Appendix IV to the Joint Proxy Statement/Prospectus which accompanies this
Notice and is incorporated herein by reference.
Shareholders of record at the close of business on ________, 1997 are entitled
to notice of, and to vote at, the Special Meeting and any adjournments thereof.
The Board of Directors unanimously recommends that the shareholders vote to
approve the Agreement.
APPROVAL OF THE MERGER REQUIRES THE AFFIRMATIVE VOTE OF HOLDERS OF NOT LESS THAN
TWO-THIRDS OF THE OUTSTANDING SHARES OF MECKLENBURG STOCK. Each Mecklenburg
shareholder is invited to attend the Special Meeting in person. However, to
insure that a quorum is present at the Special Meeting, each shareholder is
urged to complete, date, sign and return promptly the enclosed proxy in the
enclosed pre-paid envelope. If you return the enclosed proxy, you may still
attend the Special Meeting and vote in person, in which case your returned proxy
will be void.
By Order of the Board of Directors
John H. Ketner, Jr., President and Chief
Executive Officer
Dated: August __, 1997
<PAGE>
PROSPECTUS
TRIANGLE BANCORP, INC.
UP TO 2,420,500 SHARES
COMMON STOCK, NO PAR VALUE
-------------------------
JOINT PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
BANK OF MECKLENBURG
TO BE HELD ON SEPTEMBER ___, 1997
FOR SPECIAL MEETING OF SHAREHOLDERS
TRIANGLE BANCORP, INC.
TO BE HELD ON SEPTEMBER ___, 1997
This Prospectus of Triangle Bancorp, Inc. ("Triangle"), a bank holding
company organized under the laws of the State of North Carolina, relates to the
shares of common stock, no par value per share, of Triangle ("Triangle Stock"),
that are issuable to the shareholders of Bank of Mecklenburg ("Mecklenburg"), a
commercial bank organized under the laws of the State of North Carolina, upon
consummation of the proposed merger described herein, pursuant to which (i)
Mecklenburg will be merged with and into a subsidiary of Triangle, with
Mecklenburg being the surviving corporation and thereby becoming a wholly-owned
subsidiary of Triangle (the "Merger"), and (ii) each outstanding share of common
stock, $2.00 par value per share, of Mecklenburg ("Mecklenburg Stock") will be
converted into 1.0 share of Triangle Stock pursuant to the terms of an Agreement
and Plan of Reorganization and Merger, dated as of April 25, 1997, and the
related Plan of Merger (collectively, the "Agreement"), by and between Triangle
and Mecklenburg. A copy of the Agreement is attached hereto as Appendix I.
Mecklenburg shareholders are entitled to their statutory dissenters'
rights in accordance with North Carolina law. See "THE MERGER-Appraisal Rights
of Dissenting Shareholders." In lieu of issuing fractional shares of Triangle
Stock, cash will be distributed to each Mecklenburg shareholder otherwise
entitled to receive a fractional share in an amount equal to that fraction
multiplied by the "market value" of one whole share of Triangle Stock. See "THE
MERGER -Terms of the Merger".
Upon the consummation of the Merger, except as described herein with
respect to rights of dissenting shareholders, each share of Mecklenburg Stock
outstanding immediately prior to the consummation of the Merger will cease to be
outstanding and will be converted into 1.0 share of Triangle Stock, and any
options to purchase Mecklenburg Stock remaining unexercised upon consummation of
the Merger will be converted into options to purchase 1.0 share of Triangle
Stock per share of Mecklenburg Stock, less any resulting fractional share. As
of_____, 1997, based on the closing sale price of Triangle Stock of $____ on the
Nasdaq National Market, 1.0 share of Triangle Stock would be worth $_____. See
"THE MERGER - Structure of the Merger", and "- Terms of the Merger".
<PAGE>
This Prospectus also serves as the Proxy Statement of Mecklenburg and
is being furnished by Mecklenburg in connection with the solicitation of proxies
to be used at the special meeting of shareholders of Mecklenburg, including any
adjournments thereof (the "Mecklenburg Special Meeting"), to be held on
________, September __, 1997. At the Mecklenburg Special Meeting, shareholders
of Mecklenburg will be asked to approve the Agreement.
This Prospectus also serves as the Proxy Statement of Triangle and is
being furnished by Triangle in connection with the solicitation of proxies to be
used at the special meeting of shareholders of Triangle, including any
adjournments thereof (the "Triangle Special Meeting") to be held on _____,
September ___, 1997. At the Triangle Special Meeting, shareholders of Triangle
will be asked to approve the Agreement and to approve an amendment to Triangle's
Bylaws to increase the maximum number of directors of Triangle from 26 to 28.
This Joint Proxy Statement/Prospectus and related materials enclosed
herewith are being mailed to the shareholders of Mecklenburg and Triangle on or
about August _, 1997.
The address of Triangle's principal executive office is 4300 Glenwood
Avenue, Raleigh, North Carolina 27612 (telephone number (919) 881-0455). The
address of Mecklenburg's principal executive office is 2000 Randolph Road,
Charlotte, North Carolina 28207 (telephone number (704) 375-2265).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR THE FEDERAL DEPOSIT
INSURANCE CORPORATION NOR HAS THE COMMISSION, ANY STATE SECURITIES COMMISSION OR
THE CORPORATION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is August ___, 1997.
ii
<PAGE>
No person is authorized to give any information or to make any
representation other than those contained in this Joint Proxy
Statement/Prospectus, and, if given or made, such information or representation
should not be relied upon as having been authorized by Triangle or Mecklenburg.
This Joint Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint Proxy
Statement/Prospectus in any jurisdiction in which such offer is not authorized
or to or from any person to whom it is unlawful to make such offer or
solicitation. The information contained or incorporated by reference in this
Joint Proxy Statement/Prospectus regarding Triangle has been furnished by
Triangle and the information contained or incorporated by reference in this
Joint Proxy Statement/Prospectus regarding Mecklenburg has been furnished by
Mecklenburg. Neither the delivery of this Joint Proxy Statement/Prospectus nor
any distribution of the securities being offered hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of Triangle or Mecklenburg since the date of this Joint Proxy
Statement/Prospectus or the information contained herein or in the documents
incorporated herein by reference is correct as of anytime subsequent to the date
hereof.
THE SHARES OF TRIANGLE STOCK BEING OFFERED TO MECKLENBURG'S
SHAREHOLDERS ARE NOT DEPOSITS OF ANY BANK OR OTHER FINANCIAL INSTITUTION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
THE SECURITIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL INVESTED.
----------------------
TABLE OF CONTENTS
Page
Available Information................................................
Incorporation of Certain Documents by Reference......................
Summary..............................................................
Selected Consolidated Financial Data.................................
Comparative Per Share Data...........................................
Special Meeting of Mecklenburg Shareholders..........................
Record Date and Voting Rights...............................
Voting and Revocation of Proxies............................
Solicitation of Proxies.....................................
Recommendation .............................................
Special Meeting of Triangle Shareholders.............................
Record Date and Voting Rights............................
Voting and Revocation of Proxies.........................
Solicitation of Proxies..................................
Recommendation...........................................
The Merger...........................................................
Parties to the Merger.......................................
Structure of the Merger.....................................
iii
<PAGE>
Terms of the Merger.........................................
Exchange Rate......................................
Treatment of Fractional Shares.....................
Closing and Effective Time.........................
Conduct of Business Pending the Merger.............
Conditions to Consummation of the Merger...........
Required Regulatory Approvals......................
Amendment and Waivers..............................
Termination of the Agreement.......................
Background of and Reasons for the Merger....................
Background.........................................
Reasons for the Merger.............................
Recommendation of the Mecklenburg Board of Directors........
Recommendation of Triangle Board of Directors...............
Opinion of Mecklenburg Financial Advisor....................
Comparable Transactions.........................
History of Stock Trading........................
Comparison of Mecklenburg and Triangle to the
Industry......................................
Comparison of Investment and Other
Characteristics of
Mecklenburg and Triangle................
Pro Forma Transaction Analysis..................
Relative Contribution ..........................
Control Premiums................................
Opinion of Triangle Financial Advisor.......................
Comparable Transaction Analysis.................
Impact Analysis.................................
Discounted Dividends Analysis...................
Certain Federal Income Tax Consequences.....................
Accounting Treatment........................................
Interest of Certain Persons in the Merger...................
Expenses and Fees...........................................
Distribution of Triangle Certificates.......................
Resale of Triangle Stock....................................
Appraisal Rights of Dissenting Shareholders.................
Pro Forma Combined Condensed Financial Information...................
Capitalization.......................................................
Information about Triangle...........................................
General.....................................................
Triangle Stock..............................................
Security Ownership of Management............................
Legal Proceedings...........................................
Pending Branch Acquisition..................................
Trust Preferred Securities Offering.........................
Information about Mecklenburg........................................
General.....................................................
Mecklenburg Stock...........................................
Security Ownership of Management and Principal
Shareholders..............................................
Comparison of Mecklenburg Stock and Triangle Stock...................
Capital Structure...........................................
Governing Law ..............................................
Voting......................................................
Preemptive Rights ..........................................
State Law Anti-Takeover Provisions..........................
Business Combinations and Changes in Control................
Amendment of Articles of Incorporation......................
Amendment of Bylaws ........................................
Share Purchase and Option Plans for Affiliates..............
Redemption of Stock.........................................
iv
<PAGE>
Transferability by Certain Persons..........................
Assessments; Impairment of Capital..........................
Number, Election and Removal of Directors...................
Indemnification and Elimination of Director Liability.......
Dividend Policy.............................................
Certain Regulatory Matters...........................................
General.....................................................
Bank Holding Company Regulation.............................
Bank Regulation.............................................
Dividends...................................................
Capital Requirements........................................
Legislation and Governmental Policies.......................
Monetary Policy and Economic Controls.......................
The Proposed Bylaw Amendment.........................................
Legal and Tax Matters................................................
Experts..............................................................
Other Matters........................................................
Shareholder Proposals................................................
Appendix I - Agreement and Plan of Reorganization and Merger.........I-1
Appendix II - Fairness Opinion of Equity Research Services, Inc......II-1
Appendix III - Fairness Opinion of Wheat, First Securities, Inc.....III-1
Appendix IV - North Carolina Law Regarding Dissenters' Rights........IV-1
v
<PAGE>
AVAILABLE INFORMATION
Triangle is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files proxy statements, reports and other information with the
Securities and Exchange Commission (the "Commission"). Proxy statements, reports
and other information concerning Triangle can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC 20549; and at the Chicago Regional
Office, Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511; and at the New York Regional Office, 13th Floor, 7
World Trade Center, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, NW, Washington, D.C. 20549, at prescribed rates.
Triangle has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Triangle Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, which may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of the prescribed fees.
Mecklenburg also is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Federal Deposit Insurance Corporation ("FDIC"). Such
reports, proxy statements and other information filed by Mecklenburg may be
obtained from the FDIC at prescribed rates by addressing written requests for
such copies to the FDIC, Registration and Disclosure Section, 550 17th Street,
N.W., Washington, D.C. 20429. In addition, such documents may be inspected and
copied at the public reference facilities of the FDIC at 1776 F Street, N.W.,
Room F-643, Washington, D.C. 20006. Lastly, certain of such documents are
exhibits to the Registration Statement and may be inspected and copied at the
public reference facilities maintained by the Commission at the addresses set
forth above.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Triangle with the
Commission are incorporated by reference into this Joint Proxy
Statement/Prospectus: (i) Triangle's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996; (ii) Triangle's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1997; and (iii) Triangle's Current Reports
on Form 8-K dated April 1, 1997, May 16, 1997, and May 23, 1997. The following
documents previously filed by Mecklenburg with the FDIC (all of which are
exhibits to the Registration Statement) are incorporated by reference into this
Joint Proxy Statement/Prospectus: (i) Mecklenburg's Annual Report on Form F-2
for the fiscal year ended December 31, 1996; (ii) Mecklenburg's Quarterly Report
on Form F-4 for the quarterly period ended March 31, 1997; and (iii)
Mecklenburg's Current Report on Form F-3 dated April 1, 1997.
In addition, all of the documents filed by Triangle pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the dates, the
Mecklenburg Special Meeting and the Triangle Special Meeting have been finally
adjourned shall be deemed to be incorporated by reference herein. Any statements
contained in a document incorporated or deemed to be incorporated by reference
herein will be deemed to be modified or superseded for purposes of this Joint
Proxy Statement/Prospectus to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part hereof.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE OTHER
DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS
RELATED TO TRIANGLE OR MECKLENBURG, INCLUDING EXHIBITS WHICH ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO THOSE DOCUMENTS, BUT EXCLUDING EXHIBITS NOT
SPECIFICALLY INCORPORATED BY REFERENCE IN THOSE DOCUMENTS, ARE AVAILABLE TO EACH
PERSON INCLUDING ANY BENEFICIAL OWNER TO WHOM A COPY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DELIVERED WITHOUT CHARGE, FOR TRIANGLE UPON REQUEST FROM
THE SECRETARY, TRIANGLE BANCORP, INC., 4300 GLENWOOD AVENUE, RALEIGH, NORTH
CAROLINA 27612, TELEPHONE (919) 881-0455, OR FOR MECKLENBURG UPON REQUEST FROM
THE PRESIDENT, BANK OF MECKLENBURG, 2000 RANDOLPH ROAD, CHARLOTTE, NORTH
CAROLINA 28207, TELEPHONE (704) 375-2265. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS BEFORE THE MECKLENBURG SPECIAL MEETING AND THE TRIANGLE SPECIAL
MEETING, ANY SUCH REQUESTS SHOULD BE MADE BY SEPTEMBER __, 1997.
The documents are available without charge, but persons requesting
copies of exhibits to such documents which are specifically incorporated by
reference in such documents will be charged the cost of reproduction and
mailing.
MECKLENBURG'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 AND QUARTERLY REPORT ON FORM F-4 FOR THE THREE MONTHS ENDED
MARCH 31, 1997 ACCOMPANY THIS JOINT PROXY STATEMENT/PROSPECTUS.
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION RELATING TO THE
MECKLENBURG SPECIAL MEETING, THE TRIANGLE SPECIAL MEETING, THE AGREEMENT AND THE
MERGER DESCRIBED HEREIN AND IS NOT INTENDED TO BE A SUMMARY OF ALL MATERIAL
INFORMATION RELATING TO TRIANGLE, MECKLENBURG, THE AGREEMENT OR THE MERGER AND
IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, INCLUDING THE APPENDICES HERETO, AND IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. AS USED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, THE TERMS "TRIANGLE" AND "MECKLENBURG" REFER TO THE
RESPECTIVE CORPORATIONS AND, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE
SUBSIDIARIES OF TRIANGLE. SHAREHOLDERS ARE URGED TO READ CAREFULLY THE ENTIRE
JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING THE APPENDICES.
SPECIAL MEETING OF MECKLENBURG SHAREHOLDERS
The Mecklenburg Special Meeting will be held on ________, September __,
1997, at ____ p.m., local time, at ______, Charlotte, North Carolina. At the
Mecklenburg Special Meeting, holders of Mecklenburg Stock will vote upon (i) a
proposal to approve the Agreement, and (ii) such other business as may properly
come before the Special Meeting.
The affirmative vote of at least two-thirds of the outstanding shares
of Mecklenburg Stock entitled to vote at the Mecklenburg Special Meeting is
required for approval of the Agreement.
On ________, 1997, the record date of shareholders of Mecklenburg
entitled to notice of and to vote at the Mecklenburg Special Meeting (the
"Mecklenburg Record Date"), there were _______ shares of Mecklenburg Stock
outstanding. As of June 30, 1997, directors and executive officers of
Mecklenburg and their affiliates owned and were entitled to vote approximately
____% of the outstanding shares of Mecklenburg Stock. The directors and
executive officers of Mecklenburg and their affiliates are expected to vote
their shares in favor of the proposal to approve the Agreement. See "SPECIAL
MEETING OF MECKLENBURG SHAREHOLDERS."
VOTING OF PROXIES. The persons named to represent Mecklenburg's
shareholders as proxies at the Mecklenburg Special Meeting are H. Perrin
Anderson, John T. Roper, and Allan W. Singer. Shares of Mecklenburg Stock
represented by each appointment of proxy which is properly executed and returned
by a Mecklenburg shareholder, and not revoked, will be voted by the proxies in
accordance with the directions contained therein. If no directions are given,
such shares will be voted by the proxies "FOR" approval of the Agreement and the
transactions contemplated therein. On such other matters that may properly come
before the Mecklenburg Special Meeting, the proxies will be authorized to vote
in accordance with their judgment on such matters. See "SPECIAL MEETING OF
MECKLENBURG SHAREHOLDERS-Voting and Revocation of Proxies."
REVOCATION OF APPOINTMENTS OF PROXY. Any Mecklenburg shareholder who
executes an appointment of proxy has the right to revoke it at any time before
it is exercised by filing with the Secretary of Mecklenburg either an instrument
revoking it or a duly executed appointment of
<PAGE>
proxy bearing a later date, or by attending the Mecklenburg Special Meeting and
announcing his or her intention to vote in person. See "SPECIAL MEETING OF
MECKLENBURG SHAREHOLDERS-Voting and Revocation of Proxies."
PROXY SOLICITATION EXPENSES. Except under certain circumstances
involving a wrongful breach or termination of the Agreement, Mecklenburg will
pay the expenses associated with the Mecklenburg Special Meeting, including the
costs of preparing, assembling and mailing this Joint Proxy
Statement/Prospectus. See "THE MERGER - Terms of the Merger - Termination of the
Agreement." In addition to the use of the mail, appointments of proxy may be
solicited personally or by telephone by Mecklenburg's officers, directors and
employees, none of whom will be compensated separately for any such solicitation
activities. Mecklenburg also has hired Corporate Investor Services, Inc., a
proxy solicitation firm, to assist in the solicitation of proxies for use at the
Mecklenburg Special Meeting. For its services, Corporate Investor Services, Inc.
will be paid a fee of $3,200 plus $3.00 per shareholder contacted, for a total
fee of approximately $4,500.
SPECIAL MEETING OF TRIANGLE SHAREHOLDERS
The Triangle Special Meeting will be held on ________, September __, 1997, at
____ p.m., local time, at ______, Raleigh, North Carolina. At the Triangle
Special Meeting, holders of Triangle Stock will vote upon (i) a proposal to
approve the Agreement, (ii) a proposal to approve an amendment to Article III,
Section 2 of Triangle's Bylaws to increase the maximum number of directors from
26 to 28 (the "Bylaw Amendment"), and (iii) such other business as may properly
come before the Special Meeting.
The affirmative vote of a majority of the outstanding shares of
Triangle Stock entitled to vote at the Triangle Special Meeting is required for
approval of the Agreement. The affirmative vote of 75% of the eligible votes
present, in person or by proxy, at the Triangle Special Meeting is necessary for
approval of the Bylaw Amendment.
On ________, 1997, the record date of shareholders of Triangle entitled
to notice of and to vote at the Triangle Special Meeting (the "Triangle Record
Date"), there were _______ shares of Triangle Stock outstanding. As of December
31, 1996, directors and executive officers of Triangle and their affiliates
owned and were entitled to vote approximately 10.1% of the outstanding shares of
Triangle Stock. The directors and executive officers of Triangle and their
affiliates are expected to vote their shares in favor of the proposal to approve
the Agreement and to approve the Bylaw Amendment. See "SPECIAL MEETING OF
TRIANGLE SHAREHOLDERS."
VOTING OF PROXIES. The persons named to represent Triangle's
shareholders as proxies at the Triangle Special Meeting are ____________,
________________, and ______. Shares of Triangle Stock represented by each
appointment of proxy which is properly executed and returned by a Triangle
shareholder, and not revoked, will be voted by the proxies in accordance with
the directions contained therein. If no directions are given, such shares will
be voted by the proxies "FOR" approval of the Agreement and the transactions
contemplated therein and "FOR" approval of the Bylaw Amendment. On such other
matters that may properly come before the Triangle Special Meeting, the proxies
will be authorized to vote in accordance with
<PAGE>
their judgment on such matters. See "SPECIAL MEETING OF TRIANGLE
SHAREHOLDERS-Voting and Revocation of Proxies."
REVOCATION OF APPOINTMENTS OF PROXY. Any Triangle shareholder who
executes an appointment of proxy has the right to revoke it at any time before
it is exercised by filing with the Secretary of Triangle either an instrument
revoking it or a duly executed appointment of proxy bearing a later date, or by
attending the Triangle Special Meeting and announcing his or her intention to
vote in person. See "SPECIAL MEETING OF TRIANGLE SHAREHOLDERS-Voting and
Revocation of Proxies."
PROXY SOLICITATION EXPENSES. Except under certain circumstances
involving a wrongful breach or termination of the Agreement, Triangle will pay
the expenses associated with the Triangle Special Meeting, including the costs
of preparing, assembling and mailing this Joint Proxy Statement/Prospectus. See
"THE MERGER - Terms of the Merger - Termination of the Agreement." In addition
to the use of the mail, appointments of proxy may be solicited personally or by
telephone by Triangle's officers, directors and employees, none of whom will be
compensated separately for any such solicitation activities.
PARTIES TO THE MERGER
Triangle, a North Carolina corporation, is a bank holding company
registered with the Board of Governors of the Federal Reserve System (the
"Federal Reserve") under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). Triangle's business consists primarily of owning all of the
outstanding shares of Triangle Bank. Triangle Bank is a North Carolina-chartered
commercial bank and is a member bank of the Federal Reserve. Triangle Bank
provides full-service commercial and consumer banking services from its 46
branches in 30 cities located throughout eastern North Carolina. As of March 31,
1997, Triangle had consolidated assets of $1.01 billion, consolidated deposits
of $879 million, and consolidated shareholders' equity of $88 million. The
executive offices of Triangle and Triangle Bank are located at 4300 Glenwood
Avenue, Raleigh, North Carolina 27612 (telephone (919) 881-0455). See "THE
MERGER-Parties to the Merger-Triangle."
Mecklenburg is a North Carolina-chartered, commercial bank under the
supervision of the North Carolina Commissioner of Banks (the "Commissioner")
and, prior to ________, 1997, the FDIC. On ______________, 1997, Mecklenburg
became a Federal Reserve member bank and thereupon came under the supervision of
the Federal Reserve rather than the FDIC. Mecklenburg provides full-service
commercial and consumer banking services through three branches in Charlotte,
North Carolina, which is in Mecklenburg County. As of March 31, 1997,
Mecklenburg had assets of $274 million, deposits of $196 million, and
shareholders' equity of $20 million. The executive offices of Mecklenburg are
located at 2000 Randolph Road, Charlotte, North Carolina 28207 (telephone number
(704) 375-2265). See "THE MERGER-Parties to the Merger-Mecklenburg."
<PAGE>
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND.
Mecklenburg. Since its opening in 1989, Mecklenburg has operated as a
community bank serving Mecklenburg County, North Carolina. Mecklenburg's
community-oriented banking philosophy generally has allowed it to compete
effectively and profitably with the other banking institutions in its local
market. Since Mecklenburg's inception, however, competition has dramatically
increased with other types of financial institutions offering services
traditionally offered only by banks and there has been an increase in public
demand for a broader range of services from community banks. Providing such
services and products requires significant amounts of advanced technology and
highly skilled personnel, and Mecklenburg would have to expend significant
amounts of capital to invest in the equipment, software and personnel necessary
to remain competitive and independent. These factors, in addition to changing
banking regulations and other factors affecting the banking industry, have
contributed to a continuing trend toward consolidation among financial
institutions.
In late 1996 and early 1997, Mecklenburg was approached by several
financial institutions about the possibility of those institutions acquiring or
merging with Mecklenburg. In response to those contacts, and based on continuing
discussions about the best long-term strategy for Mecklenburg, the Board of
Directors of Mecklenburg (the "Mecklenburg Board") hired Orr Management Company
("Orr Management") in late February 1997 to advise the Mecklenburg Board and its
Executive Committee about long-term strategy and to help assess whether
Mecklenburg should remain independent or consider combining with another
institution. Orr Management contacted various banking institutions, including
Triangle, and, after receiving expressions of interest from several of those
institutions, Orr Management was authorized to solicit formal bids to acquire or
combine with Mecklenburg. Five institutions submitted bids in response to this
solicitation and Orr Management recommended to the Executive Committee that
Mecklenburg accept the proposal from Triangle to acquire Mecklenburg. The
Mecklenburg Board unanimously agreed to accept Triangle's proposal and
Mecklenburg and Triangle executed a letter of intent on March 27, 1997. During
the following weeks, Mecklenburg and Triangle conducted due diligence
investigations of each other's business and operations and negotiated the
Agreement. On April 22, 1997, based in part on the verbal fairness opinion
issued by its financial advisor, Equity Research Services, Inc. ("Equity
Research"), the Mecklenburg Board concluded the proposed acquisition of
Mecklenburg by Triangle upon the terms of the Agreement would be in the best
interest of Mecklenburg's shareholders, employees, depositors, customers,
suppliers, and community and unanimously approved the Agreement.
For its services to Mecklenburg, Orr Management will receive a fee of
$250,000 which will be paid at the Effective Time.
Triangle. As a result of Triangle's acquisitions during the last four
years, Triangle's management determined that a well executed acquisition plan in
concert with internal growth would allow Triangle to achieve certain benefits
while maintaining loan quality and safe and sound operations. In particular,
management believed a well executed acquisition plan could (i) provide
opportunities to achieve economies of scale that would increase Triangle's
efficiency and profitability; (ii) improve Triangle's ability to compete with
the many financial institutions doing business in Triangle's market area; (iii)
result in an institution better able to respond to
<PAGE>
technological changes; (iv) enable the resulting institution to better
respond to the needs of its customers and the communities it serves; and (v)
allow the shareholders of Triangle (including the former shareholders of
acquired institutions) to participate in a financial institution with greater
financial resources, a more expansive banking network and a larger market area.
After the Merger, Triangle will remain a well-capitalized institution and will
be the ninth largest commercial bank in North Carolina, based on assets, with a
greater capacity to compete with larger banks in its market areas. Further,
Triangle Bank will expand its market area into the thriving Charlotte, North
Carolina market. To assist in its deliberations on the Merger, Triangle hired
its financial advisor, Wheat, First Securities, Inc., Richmond, Virginia ("Wheat
First"), to render an opinion that the Exchange Rate is fair from a financial
point of view, to Triangle shareholders. Based on these considerations and the
fairness opinion of Wheat First, Triangle's Board of Directors unanimously
approved the Agreement.
REASONS FOR THE MERGER.
Mecklenburg. In reaching its conclusion that the Merger is fair to, and
in the best interests of, Mecklenburg's shareholders, the Mecklenburg Board
consulted with financial, legal, accounting and other advisors, as well as
Mecklenburg's management, and considered a number of factors. The Mecklenburg
Board did not assign any relative or specific weight to the factors considered.
These factors included, among others: the Mecklenburg Board's review of the
business, operations, earnings and financial condition of Mecklenburg and
Triangle, the enhanced opportunities for operating efficiencies and expanded
customer service and growth that the Merger will make possible, and the
respective contributions the parties would bring to a combined institution; a
variety of factors affecting and relating to the overall strategic focus of
Mecklenburg and Triangle; larger historical trading volume, potential liquidity
and dividend history of Triangle Stock; the expectation that the Merger
generally will be a tax-free transaction to Mecklenburg and its shareholders
(see "THE MERGER--Certain Federal Income Tax Consequences"); and the current and
prospective economic and competitive environments facing financial institutions,
including Mecklenburg.
Triangle. The Board of Directors of Triangle constantly analyzes
opportunities to expand its business and geographic markets by entry into new
banking markets, whether by acquisition or de novo branching. Triangle considers
the market served by Mecklenburg to be an attractive area for expansion. While
Triangle could enter this market through de novo branching, the Merger provides
the opportunity to expand Triangle's business without incurring the initial
losses that are normally associated with de novo branching and to gain the
advantages of commencing business in this market with Mecklenburg's existing
deposit base, established customer relationships and proven management and
staff.
For a more detailed discussion of the background of and reasons for the
Merger, see "THE MERGER Background of and Reasons for the Merger."
<PAGE>
STRUCTURE AND TERMS OF THE MERGER
Subject to the terms and conditions of the Agreement, at the effective
time of the Merger (the "Effective Time"), Mecklenburg will be merged with and
into a subsidiary of Triangle. Mecklenburg will be the surviving corporation
resulting from the Merger, operating as a North Carolina commercial bank under
Mecklenburg's articles of incorporation and bylaws existing immediately prior to
the Merger. Following the Merger, Mecklenburg will be operated as a wholly-owned
subsidiary of Triangle. See "THE MERGER-Structure of the Merger."
At the Effective Time, with the exception of shares surrendered in
connection with the exercise of dissenters rights by Mecklenburg shareholders,
each issued and outstanding share of Mecklenburg Stock will be converted into
the right to receive 1.0 share of Triangle Stock (the "Exchange Rate"). Any
options to purchase Mecklenburg Stock remaining unexercised upon consummation of
the Merger will be converted into options to purchase 1.0 share of Triangle
Stock per share of Mecklenburg Stock, rounded down to the nearest whole share.
As of _______, 1997, based on the closing sale price of Triangle Stock of $_____
on the Nasdaq National Market, 1.0 share of Triangle Stock would be worth
$_____. See "THE MERGER-Appraisal Rights of Dissenting Shareholders." Each
Mecklenburg shareholder will receive one share of Triangle Stock equal to the
number of shares of Mecklenburg Stock owned by such shareholder multiplied by
the Exchange Rate. Any fractional shares resulting from the Merger will not be
issued and shareholders of Mecklenburg will instead receive cash in lieu of the
issuance of fractional shares. Each share of Mecklenburg Stock automatically
will be canceled by virtue of the Merger. See "THE MERGER - Terms of the Merger
- - Exchange Rate."
As of the Mecklenburg Record Date there were ______ shares of Mecklenburg Stock
outstanding which would be converted into _________ shares of Triangle Stock,
assuming no shareholder exercises his or her right to dissent under Chapter 53,
Article 13 of the North Carolina Business Corporation Act ("Article 13"). Also
as of the Mecklenburg Record Date there were outstanding unexercised options
covering _________ shares of Mecklenburg Stock which would be converted into
options covering ______ shares of Triangle Stock.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF MECKLENBURG
The Mecklenburg Board believes that the Merger is in the best interests
of Mecklenburg and its shareholders and has unanimously approved the Agreement.
THE MECKLENBURG BOARD UNANIMOUSLY RECOMMENDS THAT MECKLENBURG SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE AGREEMENT.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF TRIANGLE
The Board of Directors of Triangle believes that the Merger is in the
best interests of Triangle and its shareholders and has unanimously approved the
Agreement. TRIANGLE DIRECTORS UNANIMOUSLY RECOMMEND THAT TRIANGLE SHAREHOLDERS
VOTE FOR THE APPROVAL OF THE AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
<PAGE>
Mecklenburg has received a written opinion of Equity Research, an
independent financial advisory firm, that, as of the date of the Agreement and
on the basis of the matters referred to therein, the Exchange Rate is fair, from
a financial point of view, to the holders of Mecklenburg Stock. After its review
of a variety of relevant factors, Equity Research rendered to the Mecklenburg
Board its fairness opinion dated April 25, 1997, which was reissued on August
__, 1997 (the "Mecklenburg Fairness Opinion"). A copy of the Mecklenburg
Fairness Opinion is attached to this Joint Proxy Statement/Prospectus as
Appendix II and should be read in its entirety for information with respect to
the assumptions made and other matters considered by Equity Research in
rendering its opinion. For its services, Mecklenburg agreed to pay Equity
Research a fee of $18,000. Such fee was paid to Equity Research upon the
issuance of the Mecklenburg Fairness Opinion. See "THE MERGER - Opinion of
Mecklenburg Financial Advisor."
Triangle has received a written opinion of Wheat First, a nationally
recognized investment banking firm regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
that, as of the date of the Agreement and on the basis of the matters referred
to therein, the Exchange Rate is fair, from a financial point of view, to the
holders of Triangle Stock. After its review of a variety of relevant factors,
Wheat First rendered to Triangle's Executive Committee its oral opinion
on April 23, 1997, and its written opinion dated August __, 1997 (the "Triangle
Fairness Opinion"). A copy of the Triangle Fairness Opinion is attached to this
Joint Proxy Statement/Prospectus as Appendix III and should be read in its
entirety for information with respect to the assumptions made and other matters
considered by Wheat First in rendering its opinion. For its services, Triangle
agreed to pay Wheat First a fee of $150,000 plus out-of-pocket expenses, of
which $50,000 was paid upon execution of the Agreement and the remainder of
which fee will be paid at the Effective Time. See "THE MERGER - Opinion of
Triangle Financial Advisor."
CONDITIONS TO CONSUMMATION OF THE MERGER
In addition to required regulatory and shareholder approvals,
consummation of the Merger is conditioned upon the fulfillment of certain other
conditions described in the Agreement, unless waived by the party entitled to
the benefits of such provision, including without limitation, (i) receipt of an
opinion to the effect that, among other things, for federal income tax purposes
the Merger will constitute a tax-free "reorganization" as defined in Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"),
(ii) receipt of the Mecklenburg Fairness Opinion and the Triangle Fairness
Opinion, (iii) receipt by Triangle of assurances in form and content
satisfactory to Triangle from Coopers & Lybrand L.L.P. to the effect that the
Merger may be treated as a pooling-of-interests for accounting purposes, and
(iv) certain other conditions customary in a transaction of this nature. See
"THE MERGER - Conditions to Consummation of the Merger."
REQUIRED REGULATORY APPROVALS
The Merger is subject to the approval of the Federal Reserve and the
Commissioner. Applications for such approvals have been filed. Triangle and
Mecklenburg have no reason to believe that the Merger will not be approved by
the Federal Reserve and the Commissioner. The Merger may not be consummated
until the thirtieth (or possibly the fifteenth day if the Federal Reserve so
approves) following the date of Federal Reserve approval during which time the
<PAGE>
United States Department of Justice (the "DOJ") may challenge the Merger on
antitrust grounds. There can be no assurance that the DOJ will not challenge the
Merger. See "THE MERGER - Terms of the Merger."
CONDUCT OF BUSINESS PENDING MERGER
The Agreement provides that, prior to the Effective Time, Mecklenburg
will conduct its business in the regular and usual course consistent with past
practices, and maintain and preserve intact its business organization, officers
and employees and business relationships. Further, except as permitted by the
Agreement, Mecklenburg will refrain from taking certain actions relating to the
operation of its business without the prior approval of Triangle. See "THE
MERGER-Terms of the Merger-Conduct of Business Pending the Merger."
AMENDMENT, WAIVERS, AND TERMINATION
The Agreement may be terminated and the Merger abandoned, at any time
prior to the Effective Time, (i) by the mutual agreement of the Boards of
Directors of Triangle and Mecklenburg or (ii) by either Triangle or Mecklenburg:
(A) if the Effective Time shall not have occurred on or before January 31, 1998;
(B) if any appropriate regulatory authority has denied approval of the Merger;
(C) in the event of a material breach by the other party of any representation,
warranty, covenant or other agreement contained in the Agreement, which breach
is not cured within 30 days after written notice thereof is given by the
non-breaching party; or (D) Mecklenburg's or Triangle's shareholders do not
approve the Merger. See "THE MERGER - Terms of the Merger Termination of the
Agreement." In addition, the Agreement may be terminated and the Merger
abandoned by Triangle: (A) if, after testing, Mecklenburg faces environmental
liabilities in excess of $100,000; (B) Mecklenburg fails to take action
necessary to elect Michael S. Patterson, President and Chief Executive Officer
of Triangle, and Debra L. Lee, Executive Vice President and Chief Financial
Officer of Triangle, to the Mecklenburg Board effective immediately after the
Effective Time; or (C) upon valuation of Mecklenburg's securities and
derivatives portfolio five days prior to the Effective Time if the sale of such
portfolio on such date would result in a loss on Mecklenburg's income statement
in excess of $250,000. See "THE MERGER - Terms of the Merger - Termination of
the Agreement." Such termination and abandonment would not require the approval
of the shareholders of any party to the Agreement. To the extent permitted by
law, the Agreement may be amended upon the written agreement of Triangle and
Mecklenburg without the approval of shareholders; provided, however, that the
provisions of the Agreement relating to the manner or basis in which the shares
of Mecklenburg Stock will be converted into Triangle Stock may not be amended
after the Mecklenburg Special Meeting or the Triangle Special Meeting without
the requisite approval of the holders of the issued and outstanding shares of
Mecklenburg Stock and Triangle Stock entitled to vote thereon. See "THE MERGER -
Terms of Merger - Amendment and Waiver"
INTEREST OF CERTAIN PERSONS IN THE MERGER
In the Merger, Cy N. Bahakel, Chairman of the Board of Directors of
Mecklenburg, will be nominated or appointed to the Board of Directors of
Triangle for a term of two years. For such service, Mr. Bahakel will be paid in
accordance with Triangle's normal practices. The remaining members of the
Mecklenburg Board, other than those who choose not to serve, will remain
<PAGE>
directors of Mecklenburg and each such director will be paid in accordance with
Mecklenburg's normal practices.
Pursuant to an employment agreement dated January 28, 1997 between
Mecklenburg and John H. Ketner, Jr., President of Mecklenburg, upon the
consummation of the Merger, Mr. Ketner will have the right to terminate his
employment agreement and receive a severance payment in an amount equal to Mr.
Ketner's base salary for the full two years preceding the Merger (an
aggregate amount of $242,000). In addition, Mr. Ketner shall be entitled to
continued hospitalization, health, dental and medical insurance benefits
for two years after such termination.
To assist Triangle on a post-Merger basis, Triangle anticipates
entering into an agreement with John H. Ketner Jr., President of Mecklenburg as
of the Effective Time. The agreement would provide that Mr. Ketner is to remain
as President of Mecklenburg until March 31, 1998 or, should a new president of
Mecklenburg be hired prior to March 31, 1998, to consult with Mecklenburg until
March 31, 1998 to assist in post-Merger matters. If Mr. Ketner remains in either
position until March 31, 1998, he will be paid $25,000 on that date.
Subject to availability of positions, Triangle will make a good faith
effort to cause Mecklenburg to continue employment of employees of Mecklenburg
in their current positions with Mecklenburg. Employees of Mecklenburg who are
not offered positions with Mecklenburg after the Merger shall receive severance
compensation mutually agreed upon by Mecklenburg and Triangle.
The Agreement contains provisions relating to indemnification of the
present and former directors and officers of Mecklenburg to the same extent
currently provided by Mecklenburg to its directors and officers should
Mecklenburg be merged into any subsidiary of Triangle. Additionally, options to
purchase shares of Mecklenburg Stock held by directors and officers of
Mecklenburg will be converted into options to purchase shares of Triangle Stock
by multiplying the number of shares of Mecklenburg Stock subject to such options
by the Exchange Rate. The per share exercise price under each option shall be
adjusted by dividing the per share exercise price of the option by the Exchange
Rate.
For a more detailed discussion of these items, See "THE MERGER -
Interest of Certain Persons in the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
As a condition of the consummation of the Merger, Triangle has received
the opinion (the "Tax Opinion") of Coopers & Lybrand L.L.P., tax advisors to
Triangle, concerning the tax consequences of the Merger. It is expected that
shareholders of Mecklenburg will recognize no gain or loss as a result of the
Merger, except with respect to cash received pursuant to the perfection of
dissenters' rights or with respect to the payment of cash in lieu of the actual
issuance of fractional shares of Triangle Stock. The tax basis of the Triangle
Stock received by Mecklenburg shareholders will generally equal the tax basis of
the Mecklenburg Stock surrendered, and the holding period of the Triangle Stock
received will generally include the holding period of the Mecklenburg Stock
surrendered. See "THE MERGER - Certain Federal Income Tax Consequences."
<PAGE>
IT IS RECOMMENDED THAT EACH MECKLENBURG SHAREHOLDER CONSULT HIS OR HER OWN TAX
ADVISOR CONCERNING THE FEDERAL AND ANY APPLICABLE FOREIGN, STATE, AND LOCAL
INCOME TAX CONSEQUENCES OF THE MERGER.
ACCOUNTING TREATMENT
The Agreement requires that the Merger qualify to be treated as a
pooling-of-interests for accounting and financial reporting purposes. Generally,
if the number of fractional shares of Triangle Stock resulting from the Merger
for which cash is paid in effecting the Merger, and shares held by Mecklenburg
shareholders who exercise their dissenters' rights together would represent more
than the 10% of the shares issued by Triangle in connection with the Merger,
then the Merger will not qualify for the pooling-of-interests method of
accounting. In such event, or if for any other reason the Merger could not be
accounted for as a pooling-of-interests, Triangle or Mecklenburg would be
entitled to terminate the Agreement and abandon the Merger. See "THE MERGER -
Accounting Treatment."
EFFECTS OF THE MERGER ON RIGHTS OF SHAREHOLDERS
Following the Merger, the Articles of Incorporation and Bylaws of
Triangle, Triangle Bank and Mecklenburg will remain in full force and effect
without change. However, shareholders of Mecklenburg will be shareholders of
Triangle after the Merger. The provisions of the Articles of Incorporation and
Bylaws of Triangle differ in certain respects from the provisions of the
Articles of Incorporation and Bylaws of Mecklenburg. For a comparison of the
rights of shareholders under the Articles of Incorporation and Bylaws of
Triangle and the Articles of Incorporation and Bylaws of Mecklenburg, see
"COMPARISON OF MECKLENBURG STOCK AND TRIANGLE STOCK." The Merger will not affect
the rights of shareholders of Triangle.
RESALES OF TRIANGLE STOCK RECEIVED IN MERGER
The shares of Triangle Stock into which Mecklenburg Stock will be
converted in the Merger will be freely transferable by the holders thereof
except in the case of shares held by persons who may be deemed to be
"affiliates" of Triangle or Mecklenburg under applicable federal securities
laws. Generally, Mecklenburg's affiliates include its directors, executive
officers, principal shareholders and other persons who may be deemed to
"control" Mecklenburg. (See "THE MERGER-Resale of Triangle Stock").
CERTAIN PROVISIONS THAT MAY BE DEEMED TO HAVE AN ANTI-TAKEOVER EFFECT
The Articles of Incorporation and Bylaws of Triangle contain several
provisions that may be deemed to have an "anti-takeover" effect in that they
would discourage or prevent an acquisition of Triangle unless the potential
acquiror has obtained the approval of Triangle's Board of Directors. Triangle's
Board of Directors believes that an unsolicited, nonnegotiated takeover proposal
could seriously disrupt the business and management of Triangle and cause
Triangle great expense. Although the Board of Directors of Triangle believes
these provisions are beneficial to Triangle shareholders, such provisions may
tend to discourage some acquisition proposals by potential acquirers. See
"COMPARISON OF MECKLENBURG STOCK AND TRIANGLE STOCK." The Merger will not effect
the rights of shareholders of Triangle.
<PAGE>
DISTRIBUTION OF TRIANGLE CERTIFICATES
As soon as practicable after the consummation of the Merger,
First-Citizens Bank & Trust Company, Raleigh, North Carolina, Triangle's
transfer agent (the "Exchange Agent"), will mail to each holder of record of
Mecklenburg Stock (other than dissenting shareholders) a letter of transmittal
and instructions for its use in effecting the surrender of the certificates in
exchange for certificates representing shares of Triangle Stock.
See "THE MERGER - Distribution of Triangle Certificates."
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
Subject to certain conditions, each Mecklenburg shareholder has the
right under Article 13 of the North Carolina Business Corporation Act ("NCBCA")
to "dissent" from the Merger and receive the "fair value" of the shareholder's
shares of Mecklenburg Stock in cash ("Dissenters' Rights"). Any Mecklenburg
shareholder may give to Mecklenburg before the vote is taken on the Merger
written notice of his or her intent to demand payment for his or her shares if
the Merger is effected. A vote against the Merger will not be deemed to satisfy
the notice requirement. Such shareholder must not vote his or her shares in
favor of the Merger. ANY HOLDER OF MECKLENBURG STOCK WHO RETURNS A SIGNED PROXY
BUT FAILS TO PROVIDE INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH SHARES ARE TO
BE VOTED WILL BE DEEMED TO HAVE VOTED IN FAVOR OF THE MERGER AND WILL NOT BE
ENTITLED TO ASSERT DISSENTERS' RIGHTS OF APPRAISAL. No later than ten days after
the Merger is effected, Mecklenburg must send to each shareholder exercising
Dissenters' Rights by registered or certified mail a written dissenters' notice
stating when the payment demand must be sent and where certificates for shares
must be deposited and setting a date by which Mecklenburg must receive the
payment demand which shall not be fewer than 30 nor more than 60 days after the
date such notice is mailed. The shareholder sent such notice must demand payment
and deposit certificates in accordance with the terms of the notice. A
Mecklenburg shareholder who (i) submits, before the vote is taken on the Merger,
written notice of intent to demand payment for the shareholder's shares, (ii)
does not vote in favor of the Agreement, (iii) demands payment and deposits the
shareholder's share certificates by the date set forth in and in accordance with
the terms and conditions of a "dissenter's notice" sent to such shareholder, and
(iv) otherwise satisfies the requirements specified in Appendix IV to this Joint
Proxy Statement/Prospectus, will be offered the amount Mecklenburg estimates to
be the fair value of the shareholder's shares of Mecklenburg Stock, plus accrued
interest to the date of payment, and will be paid such amount in cash provided
the shareholder agrees in writing to accept such amount in full satisfaction of
the shareholder's demand. In order to exercise Dissenters' Rights, a Mecklenburg
shareholder must follow carefully all steps prescribed in Appendix IV. See "THE
MERGER - Appraisal Rights of Dissenting Shareholders" and Appendix IV.
As no entity is merging into Triangle, Triangle's shareholders do not
have Dissenters' Rights in the Merger.
<PAGE>
MARKET FOR TRIANGLE STOCK AND MECKLENBURG STOCK
Transactions in Triangle Stock are quoted on the Nasdaq National
Market. As of the Triangle Record Date, there were _________ shares of Triangle
Stock outstanding and held by approximately _____ holders of record.
Mecklenburg Stock is not traded on any exchange. Mecklenburg Stock
prices are reported over-the-counter in the "pink sheets" by the National Daily
Quotation System. As of the Mecklenburg Record Date, there were _______ shares
of Mecklenburg Stock outstanding and held by approximately _____ holders of
record.
The following table sets forth quarterly information on the price range
of Triangle Stock and Mecklenburg Stock for the periods indicated and shows the
high and low sale prices as quoted by the Nasdaq National Market and the high
and low sales prices as known to management of Mecklenburg, respectively. The
sale prices shown are without retail markups, markdowns or commissions.
TRIANGLE STOCK MECKLENBURG STOCK(1)
HIGH LOW HIGH LOW
1997
1st Quarter ................ $20.50 $16.00 $17.00 $13.00
2nd Quarter ................
1996
1st Quarter ................ $16.00 $13.88 $11.50 $11.00
2nd Quarter ................ $15.00 $13.50 $11.75 $11.50
3rd Quarter ................ $15.25 $13.50 $13.00 $11.50
4th Quarter ................ $16.38 $14.50 $13.00 $13.00
1995
1st Quarter ................ $10.75 $9.125 $11.75 $9.50
2nd Quarter ................ $10.75 $9.00 $9.625 $9.50
3rd Quarter ................ $14.75 $10.00 $10.00 $9.50
4th Quarter ................ $15.25 $11.75 $10.75 $10.00
- ---------------------------------------------------------------------------
(1) Mecklenburg Stock prices are reported over-the-counter in the "pink sheets"
by the National Daily Quotation System published by the National Quotation
Bureau, Inc. Quotations do not necessarily represent actual transactions in
Mecklenburg Stock and should not be taken to indicate the existence of any
established trading market.
On March 26, 1997, the last full business day preceding the public
announcement of the Merger, the last sale price for a share of Triangle Stock
was $18.75. The last sale price of Mecklenburg Stock prior to the announcement
of the Merger and known to management was $14.00 for 2,000 shares on March 10,
1997. On _______, 1997, the latest practical date for which such prices were
available, the last sale price of a share of Triangle Stock was $_____ and the
last sale price of Mecklenburg Stock since the announcement of the Merger and
known to management of Mecklenburg was $_____ for ____ shares on _______, 1997.
<PAGE>
DIVIDENDS
Triangle paid its first cash dividend on Triangle Stock on September
30, 1994 in the form of a quarterly dividend of $0.04 per share. Prior to the
formation of Triangle, Triangle Bank had not declared or paid any dividends
since its organization in 1988. Under North Carolina law, Triangle Bank was not
permitted to pay dividends until three years after it was organized. Therefore,
Triangle Bank was first able to pay dividends under North Carolina law on
January 5, 1991.
The holders of Triangle Stock are entitled to receive dividends when
and if declared by Triangle's Board of Directors out of funds legally available
therefor. There can be no assurance that after the Merger any dividends will be
declared or paid or, if declared and paid, continued in the future. The
declaration and payment of dividends will depend upon business conditions,
operating results, capital and reserve requirements, and the Triangle Board of
Directors' consideration of other relevant factors. Subject to the foregoing, it
is currently Triangle's intent to continue to pay quarterly cash dividends. The
principal sources of funds for the payment of dividends by Triangle are
dividends from Triangle Bank. See "CERTAIN REGULATORY MATTERS - Dividends" for
information regarding certain restrictions on the payment of dividends by
Triangle Bank to Triangle.
The holders of Mecklenburg Stock are entitled to receive dividends when
and if declared by the Board of Directors out of funds legally available
therefor. Mecklenburg paid its first cash dividend on Mecklenburg Stock on May
10, 1994 in the form of a quarterly dividend of $0.03 per share. Under North
Carolina law, Mecklenburg was not permitted to pay dividends until three years
after it was organized. Therefore, Mecklenburg was first able to pay dividends,
under North Carolina law on July 12, 1992. Pursuant to the terms of the
Agreement, Mecklenburg may continue to pay, but may not increase, its
quarterly cash dividend at the rate of $0.03 per share. Like Triangle, the
payment of cash dividends by Mecklenburg is limited by certain regulatory
restrictions, and is dependent upon its business conditions, operating results,
capital and reserve requirements, and its Board of Directors' consideration of
other relevant factors. See "INFORMATION ABOUT MECKLENBURG - Mecklenburg Stock."
There can be no assurance that, in the absence of the consummation of the
Merger, dividends would be paid by Mecklenburg in the future.
At March 31, 1997, under dividend restrictions imposed by federal and
state laws, and without obtaining regulatory approvals, Triangle Bank could
declare approximately $22 million in cash dividends and Mecklenburg could
declare approximately $4 million in cash dividends. Sources of cash available to
Triangle for the payment of cash dividends are cash on hand at Triangle, cash
made available to Triangle from Triangle Bank in the form of dividends to
Triangle, and borrowed funds. Except for the receipt of cash in exchange for
shares of Triangle Stock in connection with the exercise of outstanding options
and warrants, Triangle does not generate cash other than the dividends received
from Triangle Bank and earnings on investments. After giving effect to the
Merger, at March 31, 1997, Triangle Bank and Mecklenburg could declare
approximately $26 million in cash dividends on a combined basis, which amount in
turn would be available to Triangle.
<PAGE>
The following table sets forth the cash dividends paid per share for
the indicated periods.
TRIANGLE(1) MECKLENBURG
-------- -----------
1997
1st Quarter $.10 $.03
2nd Quarter $.12 $.03
1996
1st Quarter $.07 $.03
2nd Quarter $.08 $.03
3rd Quarter $.08 $.03
4th Quarter $.10 $.03
1995
1st Quarter $.04 $.03
2nd Quarter $.04 $.03
3rd Quarter $.06 $.03
4th Quarter $.06 $.03
(1) The dividends shown are dividends historically paid by Triangle on shares
of Triangle Stock outstanding on the date declared without restating such
dividends to reflect acquisitions of other entities by Triangle which were
accounted for as pooling-of-interests.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected historical consolidated
financial information for Triangle and Mecklenburg. This information has been
derived from the audited and unaudited consolidated financial statements of
Triangle and Mecklenburg, including the related notes thereto, incorporated
herein by reference and should be read in conjunction therewith. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." For a discussion of recent
and pending transactions, see "PRO FORMA COMBINED CONDENSED INFORMATION" and
"INFORMATION ABOUT TRIANGLE - Pending Branch Acquisition" and
"INFORMATION ABOUT TRIANGLE - Trust Preferred Securities Offering."
TRIANGLE BANCORP, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993(1) 1992
---- ---- ---- ---- ---- ---- ----
AT PERIOD END
<S> <C> <C> <C> <C> <C> <C> <C>
Loans Outstanding - Net $ 671,749 $587,369 $639,718 $559,707 $467,842 $395,398 $274,895
Investment Securities Available for 163,684 144,192 146,086 127,904 102,427 -- --
Sale
Investment Securities Held to 90,396 80,128 97,112 76,285 75,899 173,198 127,951
Maturity
Total Assets 1,009,600 897,386 971,105 853,926 742,438 681,131 470,615
Total Deposits 879,494 763,082 847,764 714,590 636,276 583,571 407,890
Advances from FHLB 20,000 14,500 10,000 19,500 10,500 5,500 --
Shareholders' Equity $88,156 $80,590 $86,896 $79,407 $68,306 $65,304 $50,487
SUMMARY OF OPERATIONS
Net Interest Income $10,600 $9,442 $40,256 $35,101 $30,601 $21,213 $18,990
Provision for Loan Losses 500 312 2,100 428 1,250 2,147 1,905
Noninterest Income 1,988 2,048 8,494 8,066 5,758 6,278 4,558
Noninterest Expenses 7,261 7,145 29,169 30,719(2) 28,719 20,492 18,035
Net Income $3,042 $2,547 $11,301 $7,858 $4,182 $3,855 $3,122
PER SHARE DATA
Primary Earnings per Share $0.28 $0.24 $1.05 $0.74 $0.41 $0.47 $0.38
Fully Diluted Earnings per Share $0.28 $0.24 $1.04 $0.73 $0.41 $0.47 $0.38
Book Value $8.40 $7.72 $8.30 $7.62 $6.70 $6.62 $6.27
Cash Dividends $0.10 $0.07 $0.31 $0.17 $0.07 $0.02 $0.01
SELECTED RATIOS
Net Income to Average Assets 1.25% 1.18% 1.22% 1.00% 0.60% 0.78% 0.69%
Net Income to Average Equity 14.01% 12.69% 13.63% 10.63% 6.21% 7.25% 6.33%
Shareholders' Equity/Assets 8.73% 8.98% 8.95% 9.30% 9.20% 9.59% 10.73%
</TABLE>
(1) December 1993, Triangle Bank merged with New East Bancorp ("New East") and
New East's five bank subsidiaries. This acquisition was accounted for as a
purchase and added approximately $131 million in assets to Triangle.
(2) Increased primarily due to merger expenses.
<PAGE>
BANK OF MECKLENBURG
CONSOLIDATED SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
AT PERIOD END (Unaudited)
Loan Outstanding-Net .......... $123,019 $ 88,963 $112,681 $ 79,850 $58,262 $54,340 $47,269
Securities Available for Sale . 80,325 118,632 140,424 88,619 54,318 -- --
Securities Held to Maturity ... 1,000 14,715 1,000 13,167 10,528 40,173 32,244
Trading Assets ................ 54,447 -- -- -- -- -- --
Total Assets .................. 273,512 243,587 270,289 200,231 135,545 110,769 89,885
Total Deposits ................ 196,160 165,147 177,988 130,288 101,112 90,731 71,036
Advances from the Federal
Home Loan Bank ............ 46,500 40,000 48,000 40,000 10,000 -- --
Other Borrowed Funds........... 8,183 18,618 23,018 10,292 8,741 4,104 3,710
Shareholder's Equity .......... $ 19,572 $ 17,504 $ 18,840 $ 17,463 $ 14,581 $ 15,056 $ 14,376
SUMMARY OF OPERATIONS
Net Interest Income ........... $ 1,413 $ 1,245 $ 5,381 $ 4,355 $ 3,810 $ 3,194 $ 2,590
Provision for Loan Losses ..... 44 95 230 95 49 125 215
Non-interest Income ........... 430 414 1,408(1) 379 98 160 91
Non-interest Expense .......... 888 867 3,552 2,883 2,404 2,261 2,076
Net Income .................... $ 534 $ 467 $ 1,919 $ 1,256 $ 1,002 $ 680 $ 344
PER SHARE DATA
Net Income .................... $ .25 $ .22 $ .91 $ .59 $ .48 $ .33 $ .17
Book Value (2) (3)........... 9.24 8.26 8.94 8.15 7.68 7.30 6.97
Cash Dividends ................ $ .03 $ .03 $ .12 $ .12 $ .10 $ -- $ --
SELECTED RATIOS
Net Income to Average
Assets .................. .84% .90% .77% .79% .83% .72% .44%
Net Income to Average
Equity (3)............... 11.30% 10.96% 10.73% 7.57% 6.45% 4.63% 2.43%
Shareholder's Equity/
Assets (3)............... 7.21% 7.19% 7.01% 8.62% 11.98% 13.59% 15.99%
</TABLE>
(1) Includes $1.2 million in gain on sales of securities.
(2) Adjusted for five-four stock split to shareholders of record on May 16,
1995 and on May 11, 1993.
(3) Excludes net unrealized gains or losses on available-for-sale securities.
<PAGE>
COMPARATIVE PER SHARE DATA
The following unaudited consolidated financial information reflects certain
comparative per share data relating to (i) net income and book value per common
share for Triangle and Mecklenburg on a historical basis; (ii) net income and
book value per common share on a pro forma basis for Triangle after giving
effect to the Merger; and (iii) net income and book value per common share on a
pro forma equivalent basis for Mecklenburg assuming that the Merger had been
effected for the periods presented and had been accounted for as a
pooling-of-interests. The data presented should be read in conjunction with and
has been derived from historical consolidated financial statements of Triangle
and Mecklenburg and the related notes thereto incorporated herein by reference
and in conjunction with the unaudited pro forma combined condensed financial
information, including the related notes thereto, included elsewhere in this
Prospectus/Proxy Statement. The pro forma comparative per share information
presented is not necessarily indicative of what the actual financial results
would have been had such transaction been completed at each of the periods
presented and is not indicative of future financial position or future results.
See "PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION" and "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
THREE MONTHS YEAR ENDED
ENDED MARCH 31 DECEMBER 31
-------------- ------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Per Common Share:
Primary Earnings Per Share:
Triangle - historical: ....................$ .28 $ .24 $1.05 $ .74 $ .41
Mecklenburg - historical .................. .25 .22 .91 .59 .48
Triangle/Mecklenburg pro forma combined: .. .28 .23 1.03 72 .42
Mecklenburg pro forma equivalent: ......... .28 .23 1.03 .72 .42
Fully Diluted Earnings Per Share:
Triangle - historical: ................... .28 .24 1.04 .73 .41
Mecklenburg - historical: .............. .25 .22 .91 .59 .48
Triangle/Mecklenburg pro forma combined: .. .28 .23 1.02 .71 .42
Mecklenburg pro forma equivalent: ........ .28 .23 1.02 .71 .42
Cash Dividends:
Triangle - historical: ................... .10 .07 .31 .17 .07
Mecklenburg - historical: .............. .03 .03 .12 .12 .10
Triangle/Mecklenburg pro forma combined: ... .09 .06 .28 .16 .07
Mecklenburg pro forma equivalent: ........ .09 .06 .28 .16 .07
Book Value: At 3/31/97 At 12/31/96
Triangle - historical: ................... $ 8.40 $ 8.30
Mecklenburg - historical: .............. 9.24 8.94
Triangle/Mecklenburg pro forma combined: .. 8.54 8.41
Mecklenburg pro forma equivalent: ........ 8.54 8.41
<PAGE>
Market Value per Share (1)(2):
At March 26, 1997
Triangle Stock .................................................. $ 18.75
Mecklenburg Stock................................................ $ 14.00
Equivalent pro forma Mecklenburg Stock (giving effect to
Merger only).................................................. $ 18.75
- ----------------------
(1) The closing price for Triangle Stock is the closing sale price on
the Nasdaq National Market on the indicated dates. The price for Mecklenburg
Stock is the last sale price known to management.
(2) Equivalent pro forma amounts are calculated by multiplying the
Triangle Stock market value by the Exchange Rate.
<PAGE>
SPECIAL MEETING OF MECKLENBURG SHAREHOLDERS
This Joint Proxy Statement/Prospectus is being furnished to
shareholders of record of Mecklenburg Stock as of the close of business on____,
1997, in connection with the solicitation of proxies by the Mecklenburg Board
for use at the Mecklenburg Special Meeting to be held on _____, September __,
1997, at ____ p.m., local time, at _____________, Charlotte, North Carolina and
at any adjournments thereof to consider and take action upon (i) a proposal to
approve the Agreement and (ii) such other business as may properly come before
the Mecklenburg Special Meeting. Each copy of this Joint Proxy
Statement/Prospectus being furnished to the holders of record of Mecklenburg
Stock is accompanied by a form of proxy for use at the Mecklenburg Special
Meeting.
HOLDERS OF MECKLENBURG STOCK ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
RECORD DATE AND VOTING RIGHTS
The Mecklenburg Board has fixed the close of business on_____, 1997
(the "Mecklenburg Record Date") as the record date for the determination of
shareholders of Mecklenburg entitled to receive notice of and to vote at the
Mecklenburg Special Meeting. As of the Mecklenburg Record Date, there were
_______ shares of Mecklenburg Stock issued and outstanding held by approximately
_____ holders of record. Each share of Mecklenburg Stock issued and outstanding
as of the Mecklenburg Record Date is entitled to one vote on each of the matters
to be decided at the Mecklenburg Special Meeting. The affirmative vote of at
least two-thirds of the total shares of Mecklenburg Stock issued and outstanding
is necessary for approval of the Agreement. Because the affirmative vote of at
least two-thirds of the total shares issued and outstanding is required,
abstentions, broker non-votes and shares otherwise not voted in the affirmative
will have the same effect as votes against the Agreement.
As of June 30, 1997, the directors and executive officers of
Mecklenburg and their affiliates owned and were entitled to vote approximately
____% of the Mecklenburg Stock. The directors and executive officers are
expected to vote their shares in favor of the proposal to approve the Agreement.
Information as to the stock holdings of such persons is included in the section
of this Joint Proxy Statement/Prospectus entitled "INFORMATION ABOUT MECKLENBURG
- - Security Ownership of Management and Principal Shareholders."
VOTING AND REVOCATION OF PROXIES
The shares of Mecklenburg Stock represented by properly executed
proxies received in time for the Mecklenburg Special Meeting will be voted as
directed by the shareholders, unless such proxies are revoked as described
below. If no instructions are given, such proxies will be voted FOR
approval of the proposal to approve the Agreement. If any other matter
is properly brought before the Mecklenburg Special Meeting, such
proxies will be voted in the discretion of a majority of the proxy
holders named in the Mecklenburg proxy card. Management of Mecklenburg
is not aware of any other business to be presented at the Mecklenburg
Special Meeting.
<PAGE>
Any shareholder may revoke a proxy at any time before it is voted by
attending and voting in person at the Mecklenburg Special Meeting or by giving a
written notice of revocation to the Secretary of Mecklenburg provided such
notice is actually received prior to the vote of shareholders. A later dated
proxy that is actually voted at the Mecklenburg Special Meeting also will revoke
an earlier dated proxy. A proxy will not be revoked by the death or incapacity
of the shareholder executing it unless, before the shares are voted, notice of
such death or incapacity is filed with the Secretary of Mecklenburg or with any
other person authorized to tabulate votes on behalf of Mecklenburg. Whether or
not you plan to attend the Mecklenburg Special Meeting, please complete, sign
and return the enclosed proxy card.
SOLICITATION OF PROXIES
Proxies may be solicited by the directors, officers and employees of
Mecklenburg by mail, in person or by telephone or telegraph. Such persons will
receive no additional compensation for such services. In addition, Mecklenburg
has hired Corporate Investor Services, Inc., a proxy solicitation firm, to
assist in the solicitation of proxies for use at the Mecklenburg Special
Meeting. For its services, Corporate Investor Services, Inc. will be paid a fee
of $3,200 plus $3.00 per shareholder contacted, for a total fee of approximately
$4,500. Mecklenburg may make arrangements with brokerage firms and other
custodians, nominees, and fiduciaries, if any, for the forwarding of
solicitation materials to the beneficial owners of Mecklenburg Stock held of
record by such persons. Any such brokers, custodians, nominees, and fiduciaries
will be reimbursed for the reasonable out-of-pocket expenses incurred by them
for such services. Except under certain circumstances involving a wrongful
breach or termination of the Agreement by Triangle, Mecklenburg will pay all
expenses of its solicitation of proxies and of holding the Mecklenburg Special
Meeting. This Joint Proxy Statement/Prospectus, Notice of the Mecklenburg
Special Meeting and form of proxy, are first being mailed to shareholders of
Mecklenburg on or about _________, 1997. (See "THE MERGER - Terms of the Merger
- - Termination of the Agreement.")
RECOMMENDATION
The Mecklenburg Board has unanimously approved the Agreement and the
Merger, believes that the proposal to approve the Agreement and the Merger is in
the best interest of Mecklenburg and its shareholders, employees, depositors,
customers, suppliers and community, and unanimously recommends that Mecklenburg
shareholders vote FOR approval of the Agreement and the Merger. In making its
recommendation, the Mecklenburg Board has considered, among other things, the
Mecklenburg Fairness Opinion that Triangle's proposal is fair to Mecklenburg
shareholders from a financial point of view.
<PAGE>
SPECIAL MEETING OF TRIANGLE SHAREHOLDERS
This Joint Proxy Statement/Prospectus is being furnished to
shareholders of record of Triangle Stock as of the close of business on____,
1997, in connection with the solicitation of proxies by the Board of Directors
of Triangle for use at the Triangle Special Meeting to be held on _____,
September __, 1997, at ____ p.m., local time, at _____________, Raleigh, North
Carolina and at any adjournments thereof to consider and take action upon (i) a
proposal to approve the Agreement, (ii) a proposal to approve the Bylaw
Amendment, and (iii) such other business as may properly come before the
Triangle Special Meeting. Each copy of this Joint Proxy Statement/Prospectus
being furnished to the holders of record of Triangle Stock is accompanied by a
form of proxy for use at the Triangle Special Meeting.
HOLDERS OF TRIANGLE STOCK ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
RECORD DATE AND VOTING RIGHTS
Triangle's Board of Directors has fixed the close of business on_____,
1997 (the "Triangle Record Date") as the record date for the determination of
shareholders of Triangle entitled to receive notice of and to vote at the
Triangle Special Meeting. As of the Triangle Record Date, there were _______
shares of Triangle Stock issued and outstanding held by approximately _____
holders of record. Each share of Triangle Stock issued and outstanding as of the
Triangle Record Date is entitled to one vote on each of the matters to be
decided at the Triangle Special Meeting.
The affirmative vote of a majority of the total shares of Triangle
Stock issued and outstanding is necessary for approval of the Agreement. Because
the affirmative vote of a majority of the total shares issued and outstanding is
required, abstentions, broker non-votes and shares otherwise not voted in the
affirmative will have the same effect as votes against the Agreement.
The affirmative vote of 75% of the eligible votes present, in person or
by proxy, at the Triangle Special Meeting is necessary for approval of the Bylaw
Amendment. The failure of a shareholder to vote, including abstentions and
broker non-votes, will have no effect as the vote is determined only by shares
actually voted, not by shares outstanding.
As of December 31, 1996, the directors and executive officers of
Triangle and their affiliates owned and were entitled to vote approximately
10.1% of the Triangle Stock. The directors and executive officers are expected
to vote their shares in favor of the proposal to approve the Agreement and to
approve the Bylaw Amendment. Information as to the stock holdings of such
persons is included in the section of this Joint Proxy Statement/Prospectus
entitled "INFORMATION ABOUT TRIANGLE - Security Ownership of Management."
VOTING AND REVOCATION OF PROXIES
The shares of Triangle Stock represented by properly executed proxies
received in time for the Triangle Special Meeting will be voted as directed by
the shareholders, unless such proxies are
<PAGE>
revoked as described below. If no instructions are given, such proxies will be
voted "FOR" approval of the proposal to approve the Agreement and "FOR" approval
of the proposal to approve the Bylaw Amendment. If any other matter is properly
brought before the Triangle Special Meeting, such proxies will be voted in the
discretion of a majority of the proxy holders named in the Triangle proxy card.
Management is not aware of any other business to be presented at the Triangle
Special Meeting.
Any shareholder may revoke a proxy at any time before it is voted by
attending and voting in person at the Triangle Special Meeting or by giving a
written notice of revocation to the Secretary of Triangle provided such notice
is actually received prior to the vote of shareholders. A later dated proxy that
is actually voted at the Triangle Special Meeting also will revoke an earlier
dated proxy. A proxy will not be revoked by the death or incapacity of the
shareholder executing it unless, before the shares are voted, notice of such
death or incapacity is filed with the Secretary of Triangle or with any other
person authorized to tabulate votes on behalf of Triangle. Whether or not you
plan to attend the Triangle Special Meeting, please complete, sign and return
the enclosed proxy card.
SOLICITATION OF PROXIES
Proxies may be solicited by the directors, officers and employees of
Triangle by mail, in person or by telephone or telegraph. Such persons will
receive no additional compensation for such services. Triangle may make
arrangements with brokerage firms and other custodians, nominees, and
fiduciaries, if any, for the forwarding of solicitation materials to the
beneficial owners of Triangle Stock held of record by such persons. Any such
brokers, custodians, nominees, and fiduciaries will be reimbursed for the
reasonable out-of-pocket expenses incurred by them for such services. Except
under certain circumstances involving a wrongful breach or termination of the
Agreement by Triangle, Triangle will pay all expenses of its solicitation of
proxies and of holding the Triangle Special Meeting. This Joint Proxy
Statement/Prospectus, Notice of the Triangle Special Meeting and form of proxy,
are first being mailed to shareholders of Triangle on or about _________, 1997.
(See "THE MERGER - Terms of the Merger - Termination of the Agreement.")
RECOMMENDATION
The Triangle Board of Directors has unanimously approved the Agreement
and the Merger, believes that the proposal to approve the Agreement and the
Merger is in the best interest of Triangle and its shareholders, and
unanimously recommends that Triangle shareholders vote FOR approval of the
Agreement and the Merger. In making its recommendation, the Triangle Board of
Directors has considered, among other things, the Triangle Fairness Opinion
that Triangle's proposal is fair to Triangle shareholders from a financial
point of view.
THE MERGER
The following information describes certain of the important terms and
conditions of the Agreement and the Merger. This description does not purport to
be complete and is qualified in its entirety by reference to the Agreement, the
Mecklenburg Fairness Opinion, the Triangle Fairness Opinion, and Article 13, all
of which are attached hereto as Appendices to this Joint Proxy
Statement/Prospectus. Mecklenburg and Triangle shareholders are urged to read
these materials in their entirety.
PARTIES TO THE MERGER
TRIANGLE. Triangle, a North Carolina corporation, is a bank holding
company registered with the Federal Reserve under the BHC Act. Triangle owns all
of the outstanding shares of Triangle Bank, a state commercial bank under the
supervision of the Commissioner and the Federal Reserve. Triangle Bank provides
full-service commercial and consumer banking services from its 46 branches in 30
cities located throughout central and eastern North Carolina. As of March 31,
1997, Triangle had consolidated assets of $1.01 billion, consolidated
deposits of $879 million, and
<PAGE>
consolidated shareholders' equity of $88 million. The executive offices of
Triangle and Triangle Bank are located at 4300 Glenwood Avenue, Raleigh, North
Carolina 27612 (telephone number (919) 881-0455).
MECKLENBURG. Mecklenburg is a North Carolina-chartered commercial bank
under the supervision of the Commissioner and, until ___________, 1997 when it
became a Federal Reserve member bank, the FDIC. As a Federal Reserve member
bank, Mecklenburg now is under the supervision of the Federal Reserve in
addition to that of the Commissioner. Mecklenburg became a Federal Reserve
member bank in anticipation of the Merger as Triangle Bank is also a Federal
Reserve member bank. Mecklenburg provides full-service commercial and consumer
banking services through three branches in Charlotte, North Carolina. As of
March 31, 1997, Mecklenburg had assets of $274 million, deposits of $196
million, and shareholders' equity of $20 million. The executive offices of
Mecklenburg are located at 2000 Randolph Road, Charlotte, North Carolina 28207
(telephone number (704) 375-2265).
STRUCTURE OF THE MERGER
Subject to the terms and conditions of the Agreement, at the Effective
Time, Mecklenburg will be merged with and into a subsidiary of Triangle.
Mecklenburg will be the surviving corporation resulting from the Merger,
operating as a North Carolina banking corporation under its articles of
incorporation and bylaws as existing immediately prior to the Merger. Following
the Merger, Mecklenburg will be operated as a wholly-owned subsidiary of
Triangle. At the Effective Time, the issued and outstanding shares of
Mecklenburg Stock will be converted into the right to receive shares of Triangle
Stock at the Exchange Rate. See "- Terms of the Merger - Exchange Rate." Each
share of Mecklenburg Stock issued and outstanding at the Effective Time will be
automatically canceled by virtue of the Merger. With the exception of the
issuance of additional shares of Triangle Stock in connection with the Merger,
the issued and outstanding shares of Triangle Stock will not be changed as a
result of the Merger. See "- Terms of the Merger."
Mecklenburg maintains a stock option plan for employees and a stock
option plan for directors (the "Mecklenburg Option Plans") under which it has
granted options to purchase shares of Mecklenburg Stock (the "Mecklenburg
Options"). At March 31, 1997, Mecklenburg Options to purchase a total of 301,555
shares of Mecklenburg Stock were outstanding. All such Mecklenburg Options will
be converted into options to purchase Triangle Stock at the Effective Time and
thereafter shall provide for the purchase of that number of shares of Triangle
Stock equal to the product of the number of shares of Mecklenburg Stock subject
to the Mecklenburg Option immediately prior to the Effective Time multiplied by
the Exchange Rate and rounded down to the nearest whole number. The per share
exercise price immediately prior to the Effective Time shall be adjusted by
dividing such per share price by the Exchange Rate. See "- Terms of the
Merger - Exchange Rate."
After the Effective Time, the holders of record of shares of
Mecklenburg Stock will have voting rights and dividend rights with respect to
that number of shares of Triangle Stock for which the shares of Mecklenburg
Stock that such persons owned immediately prior to the Effective Time are
exchanged.
For a discussion of the rights of dissenting shareholders see "-
Appraisal Rights of Dissenting Shareholders."
<PAGE>
TERMS OF THE MERGER
EXCHANGE RATE. Subject to the rights of Mecklenburg shareholders who
dissent from the Merger and seek appraisal rights, shares of Mecklenburg Stock
issued and outstanding immediately prior to the Effective Time will be converted
into the right to receive shares of Triangle Stock at the Exchange Rate as
provided in the Agreement. The Exchange Rate is 1.0. As of July 30, 1997, based
on the closing sale price of Triangle Stock of $_____ on the Nasdaq National
Market, 1.0 share of Triangle Stock would be worth $_____. Each Mecklenburg
shareholder will receive a number of shares of Triangle Stock equal to the
number of shares of Mecklenburg Stock owned by such shareholder multiplied by
the Exchange Rate. No fractional shares will be issued but Mecklenburg
shareholders, in lieu of the issuance of fractional shares, will receive cash as
determined in the Agreement.
TREATMENT OF FRACTIONAL SHARES. No fraction of a share of Triangle
Stock will be issued in connection with the Merger. Each Mecklenburg shareholder
(and each holder of a Mecklenburg Option) who otherwise would be entitled to
receive a fraction of a share of Triangle Stock upon the conversion of that
shareholder's shares of Mecklenburg Stock at the Effective Time (or upon the
exercise of the Mecklenburg Option) shall receive, in lieu thereof, cash
(without interest) in an amount equal to that fraction multiplied by the Market
Value of one whole share of Triangle Stock at the Effective Time (or, in the
case of a Mecklenburg Option, on the date of exercise). As used above, Market
Value shall be equal to the closing sale price of Triangle Stock as quoted on
the Nasdaq National Market (as reported by THE WALL STREET JOURNAL or, if not so
reported, by any other authoritative source) on the trading day three days
preceding the Closing Date (or, in the case of a Mecklenburg Option, the date of
exercise). As of _______, 1997, the closing sale price of Triangle Stock on the
Nasdaq National Market was $____. No Mecklenburg shareholders will be entitled
to any dividend or other distribution or any voting or other rights as a
shareholder with respect to any fractional share of Triangle Stock.
CLOSING AND EFFECTIVE TIME. The Merger will not be consummated unless
and until the Agreement and the transactions contemplated thereby are approved
by the requisite vote of the shareholders of Mecklenburg and Triangle, the
required regulatory approvals are received, and the other conditions to the
Merger are satisfied (or waived to the extent permitted by applicable law). The
Agreement provides that the closing of the Merger shall occur on a date
specified by Triangle after the expiration of all required waiting periods
following receipt of the required regulatory approvals, but in no event more
than 30 days after the expiration of all such required waiting periods. The
Effective Time shall occur not later than ten days after the closing. The Merger
will become effective on the date and at the time on which Articles of Merger
shall have been accepted for filing by the North Carolina Secretary of State (or
such later date and time as may be specified in the Articles of Merger). The
Effective Time is currently anticipated to occur in October 1997.
Upon consummation of the Merger, Mecklenburg will become the
wholly-owned subsidiary of Triangle and will be operated as such for a period of
at least three years after the Effective Time, unless Triangle decides that
operation of Mecklenburg as a separate bank subsidiary would impose a financial
or administrative burden on Triangle. After the Merger, Mecklenburg's offices
will remain offices of Mecklenburg.
CONDUCT OF BUSINESS PENDING THE MERGER. The Agreement provides that,
during the period from April 25, 1997 (the date the Agreement was executed) to
the Effective Time, except as
<PAGE>
provided in the Agreement, Mecklenburg will conduct its business in the
regular and usual course consistent with past practice, and maintain and
preserve intact its business organization, officers and employees and business
relationships. The Agreement further provides that Triangle may enter into
agreements to acquire other financial institutions prior to the Effective Time.
In addition to other restrictions described elsewhere herein, the
Agreement provides that, prior to the Effective Time and except in the ordinary
course of its business or as otherwise required by applicable law or regulation,
Mecklenburg may not, among other prohibited actions, (i) incur indebtedness for
borrowed money, (ii) sell, transfer, mortgage, pledge or otherwise dispose of
any of its properties or assets, or acquire any significant assets, (iii)
increase the compensation or benefits of any of its employees, (iv) settle any
claim, action or proceeding against it involving monetary damages, (v) make any
change in its capital stock, or issue, sale, purchase, redeem or retire shares
of such stock, (vi) amend its charter or bylaws, (vii) grant or issue any
additional stock options, (viii) enter into any new employment agreements or
adopt any new employee benefit plans, (ix) change its accounting practices, (x)
acquire or open any new branch offices, or (xi) enter into any contract other
than in the ordinary course of its business.
CONDITIONS TO CONSUMMATION OF THE MERGER. Consummation of the Merger is
subject to various conditions described in the Agreement, including without
limitation: (i) approval of the Agreement by Mecklenburg's shareholders; (ii)
receipt of all required regulatory approvals without the imposition by any
regulatory agency of a condition to any such approval that is considered by
Triangle or Mecklenburg to be materially disadvantageous or burdensome or to
impact the economic or business benefits of the Merger so adversely that it
would not be advisable to consummate it; (iii) receipt of the Tax Opinion; and
(iv) receipt of the Mecklenburg Fairness Opinion and the Triangle Fairness
Opinion.
Triangle's and Mecklenburg's separate obligations under the Agreement
are subject to various other conditions described in the Agreement, unless
waived by the party entitled to the benefits of such provision, including
without limitation: (i) the absence of a material adverse change in the
financial condition, results of operations or business of the other party; (ii)
compliance by the other party with all laws and regulations applicable to the
transactions described in the Agreement; (iii) the absence of any violation or
breach by the other party of any of its obligations, covenants, agreements,
representations or warranties under the Agreement; and (iv) the receipt of
certain certificates and opinions of the other party's senior officers and legal
counsel.
Additionally, Triangle's obligations are subject to certain additional
conditions, unless waived by Triangle, including without limitation: (i) receipt
of a written agreement as to certain matters from persons who are considered
"affiliates" of Mecklenburg (see " - Resale of Triangle Stock"); and (ii)
receipt by Triangle of assurances from Coopers & Lybrand L.L.P. in form and
content satisfactory to Triangle to the effect that the Merger may be treated as
a "pooling-of-interests" for accounting purposes.
REQUIRED REGULATORY APPROVALS. The Merger and the transactions
contemplated by the Agreement are contingent upon receipt of the following
approvals:
Federal Reserve. On ____ 1997, Mecklenburg became a member of the
Federal Reserve System of which Triangle also is a member. Because Mecklenburg
is a Federal Reserve member bank and will be the resulting bank following the
Merger, the Merger is subject to the approval of
<PAGE>
the Federal Reserve under the Bank Merger Act, which prohibits the
merger or consolidation of any Federal Reserve member bank with any other
depository institution without Federal Reserve approval. Triangle has made
application to the Federal Reserve and has no reason to believe that the Federal
Reserve will not approve the Merger.
North Carolina Commissioner of Banks. Because Mecklenburg and the
subsidiary which will merge with and into Mecklenburg are North
Carolina-chartered commercial banks, the Merger is also subject to the approval
of the Commissioner. North Carolina law prohibits the merger or consolidation of
any state bank with any other depository institution without the approval of the
Commissioner. Triangle has made application to the Commissioner and has no
reason to believe that the Commissioner will not approve the Merger.
Other Approvals. Triangle and Mecklenburg are not aware of any other
governmental approvals or actions that may be required for consummation of the
Merger except those described above. Should any such approval or action be
required, it is presently contemplated that such approval or action would be
sought. There can be no assurance, however, that any such approval or action, if
needed, could be obtained and, if obtained, would not be conditioned in a manner
that would cause the parties to abandon the Merger.
AMENDMENT AND WAIVERS. Prior to the Effective Time, any provision of
the Agreement (other than provisions relating to regulatory approvals,
shareholder approvals and other approvals required by law) may be waived by the
party entitled to the benefits of such provision. Additionally, the Agreement
may be amended, modified or supplemented by Triangle and Mecklenburg at any time
prior to the Effective Time, and whether before or after approval by
Mecklenburg's or Triangle's shareholders, by an agreement in writing approved by
a majority of members of their respective Boards of Directors. However, except
as otherwise provided in the Agreement, following approval of the Agreement by
Mecklenburg's or Triangle's shareholders, no such amendment may change the
Exchange Rate without approval of such change by Mecklenburg's and Triangle's
shareholders.
TERMINATION OF THE AGREEMENT. The Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time, whether before or
after approval by Mecklenburg's or Triangle's shareholders, upon the mutual
agreement of Triangle and Mecklenburg, and may be terminated by either Triangle
or Mecklenburg if, among other things: (i) the other party shall have violated
or failed to perform fully any of its obligations, covenants or agreements in
any material respect; (ii) any of the other party's representations or
warranties shall have been false or misleading in any material respect when
made, or if there has occurred any event or development or there exists any
condition or circumstance which has caused or, with the lapse of time or
otherwise, may or could cause any such representations or warranties to become
false or misleading; (iii) Mecklenburg's or Triangle's shareholders fail to
ratify and approve the Agreement; or (iv) any condition to the obligations of
the terminating party is not satisfied or effectively waived, or the Merger has
not become effective by January 31, 1998 (or such later date as shall be
mutually agreeable to Triangle and Mecklenburg).
Additionally, Triangle may terminate the Agreement if, based on the
advice of its legal counsel or consultants, it believes Mecklenburg or Triangle,
as the owner of Mecklenburg, could incur or become responsible or liable at any
time or over a period of time in an amount equal to or greater than $100,000 for
expenses or monetary damages on account of any and all remediation,
<PAGE>
corrective action or damages relating to any discharge, disposal, release or
emission by any person of any "hazardous substance" (as defined in the
Agreement) on, from or relating to any real property belonging to Mecklenburg or
serving as collateral for any of Mecklenburg's loans, or relating to any
condition or event with respect to any such real property which constitutes a
violation of any "environmental laws" (as defined in the Agreement).
Additionally, Triangle may terminate the Agreement if, based upon a
valuation of Mecklenburg's securities and derivatives portfolio to be done five
days prior to the Effective Time, the portfolio were to be sold and the sale
would result in a loss on Mecklenburg's income statement in excess of $250,000.
In the event of the termination and abandonment of the Merger pursuant
to the termination provisions of the Agreement, the Agreement will become void
and have no effect, except that certain provisions of the Agreement relating to
expenses, indemnification and confidentiality of information obtained pursuant
to the Agreement or in connection with the negotiation thereof will survive any
such termination and abandonment.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND.
Mecklenburg. Since its opening in 1989, Mecklenburg has operated as a
community bank serving Charlotte and Mecklenburg County, North Carolina.
Mecklenburg's community-oriented banking philosophy generally has allowed it to
compete effectively and profitability with other banking institutions in its
local market. Since Mecklenburg's inception, however, competition has
dramatically increased with other types of financial institutions offering
services traditionally offered only by banks, and there has been an increase in
public demand for a broader range of services from community banks. Providing
these services and products requires significant amounts of advanced technology
and highly skilled personnel, and Mecklenburg would have to expend significant
amounts of capital to invest in the equipment, software and personnel necessary
to remain competitive and independent. These factors, in addition to changing
banking regulations and other factors affecting the banking industry, have
contributed to a continuing trend toward consolidation among financial
institutions.
In late 1996 and early 1997, Mecklenburg was approached by several
financial institutions about the possibility of those institutions acquiring or
merging with Mecklenburg. In response to those contacts, and based on continuing
discussions about the best long term strategy for Mecklenburg, the Mecklenburg
Board hired Orr Management in late February 1997 to advise the Board and its
Executive Committee about long-term strategy and to help asses whether
Mecklenburg should remain independent or consider combining with another
institution. In order to determine what prospects existed for Mecklenburg to
merge with another institution, Orr Management contacted at least 17 banking
institutions, including Triangle, that it considered to be likely candidates to
combine with or acquire Mecklenburg. After receiving expressions of interest
from several institutions, Orr Management was authorized to solicit formal bids
to combine with or acquire Mecklenburg. Five institutions submitted bids in
response to this solicitation, and Orr Management recommended to the Executive
Committee that Mecklenburg accept the proposal from Triangle to merge with
Mecklenburg. The Executive Committee presented Triangle's proposal to the
Mecklenburg Board, which unanimously agreed to accept the proposal and
<PAGE>
authorized Mecklenburg's management to execute a letter of intent on March 27,
1997. During the following weeks, Mecklenburg and Triangle conducted due
diligence investigations of each other's business and operations and negotiated
a definitive merger agreement. During this time, the Mecklenburg Board engaged
Equity Research as financial advisor to provide financial advice and to opine,
from a financial point of view, as to the fairness to Mecklenburg's shareholders
of the final, definitive offer by Triangle.
On April 22, 1997, the Mecklenburg Board considered the proposed
definitive Agreement. At this meeting, the Mecklenburg Board considered the
terms of the proposed Agreement, the strategic and financial goals of
Mecklenburg and Triangle, the financial prospects for the combination of
Mecklenburg and Triangle, and the degree of possibility that significantly
better proposals could be obtained from other companies. The Mecklenburg Board
received reports on due diligence investigations of Triangle and a valuation
report on Triangle conducted by Equity Research. In addition, Equity Research
rendered its opinion that the proposed Merger is fair, from a financial point of
view, to the shareholders of Mecklenburg.
Based on these considerations, the Board concluded that the proposed
acquisition of Mecklenburg by Triangle upon the terms of the Agreement would be
in the best interest of Mecklenburg's shareholders, employees, depositors,
customers, suppliers and community and unanimously approved the Agreement.
Triangle. As a result of Triangle's acquisitions during the last four
years, Triangle's management determined that a well executed acquisition plan in
concert with internal growth would allow Triangle to achieve certain benefits
while maintaining loan quality and safe and sound operations. In particular,
management believed a well executed acquisition plan could (i) provide
opportunities to achieve economies of scale that would increase Triangle's
efficiency and profitability; (ii) improve Triangle's ability to compete with
the many financial institutions doing business in Triangle's market area; (iii)
result in an institution better able to respond to technological changes; (iv)
enable the resulting institution to better respond to the needs of its customers
and the communities it serves; and (v) allow the shareholders of Triangle
(including the former shareholders of acquired institutions) to participate in a
financial institution with greater financial resources, a more expansive banking
network and a larger market area. After the Merger, Triangle will remain a
well-capitalized institution and will be the ninth largest commercial bank in
North Carolina, based on assets, with a greater capacity to compete with larger
banks in its market area. Further, Triangle will expand its market area into
Mecklenburg County.
REASONS FOR THE MERGER.
Mecklenburg. In considering the proposed Merger, the Mecklenburg Board
was attracted to the prospect of affiliating with an institution that has
greater financial resources and a larger banking network with a greater array of
services and higher lending limits. Further, the Mecklenburg Board considered it
important to recognize the contribution of its employees to the profitability of
Mecklenburg. Since the proposed Merger would involve the addition of a new
market for Triangle, the Merger would offer a greater likelihood of maintaining
Mecklenburg's existing branch and employee structure when compared to an
acquisition by a banking institution with existing branches and personnel in
Mecklenburg's market area.
<PAGE>
In evaluating the Merger and determining whether to approve the
Agreement, the Mecklenburg Board consulted with financial, legal, accounting and
other advisors as well as Mecklenburg's management, and considered a number of
factors. In addition to those discussed above, and without assigning any
relative or specific weight to any factors, the Mecklenburg Board considered the
following:
(i) The assessment of Triangle's business, operations, earnings,
prospects and financial condition, and enhanced opportunities for growth,
operating efficiencies and expanded customer services expected to result from
the Merger;
(ii) The advice and recommendation of Orr Management that a merger with
Triangle is in the best long-term interests of Mecklenburg;
(iii) The opinion of Mecklenburg's financial advisor, Equity Research,
that the Merger is fair, from a financial point of view, to the shareholders of
Mecklenburg;
(iv) A variety of factors affecting and relating to the overall
strategic focus of Mecklenburg and Triangle, including similarities in business
outlook, approach and corporate culture;
(v) The expectation that the Merger will be a tax-free transaction to
Mecklenburg and its shareholders (see "-- Certain Federal Income Tax
Consequences");
(vi) The larger average trading volume and potential for greater
liquidity offered by the Triangle Stock to be received by Mecklenburg's
shareholders in the Merger;
(vii) By affiliation with Triangle on the terms proposed in the
Agreement, the dividends, earnings and book value per share of Mecklenburg
Stock would be significantly increased; and
(viii) The current and prospective economic and competitive environment
facing financial institutions, including Mecklenburg, and the likelihood of a
continuing trend of consolidation in the financial services industry.
Triangle. The Board of Directors of Triangle constantly analyzes
opportunities to expand its business and geographic markets by entry into new
banking markets, whether by acquisition or de novo branching. Triangle's
particular interest in the Merger results from the opportunity to enter into
Mecklenburg's geographic market that Triangle considers to be an attractive area
for expansion. Triangle currently operates no branches in Mecklenburg County,
North Carolina. While Triangle could enter this market through de novo
branching, the Merger provides the opportunity to expand Triangle's business
without incurring the initial losses that are normally associated with de novo
branching and to gain the advantages of commencing business in these markets
with Mecklenburg's existing deposit base, established customer relationships and
proven management and staff.
RECOMMENDATION OF THE MECKLENBURG BOARD OF DIRECTORS
FOR THE REASONS DESCRIBED ABOVE, THE MECKLENBURG BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF MECKLENBURG VOTE FOR APPROVAL OF
THE AGREEMENT.
<PAGE>
RECOMMENDATION OF THE TRIANGLE BOARD OF DIRECTORS
FOR THE REASONS DESCRIBED ABOVE, THE TRIANGLE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF TRIANGLE VOTE FOR APPROVAL OF
THE AGREEMENT.
OPINION OF MECKLENBURG FINANCIAL ADVISOR
Equity Research was retained as financial advisor to Mecklenburg in
connection with the Merger and, on April 25, 1997, rendered an opinion to the
Mecklenburg Board that, as of that date, the Exchange Rate was fair, from a
financial point of view, to Mecklenburg's shareholders. Equity Research has
updated the Mecklenburg Fairness Opinion to August ___, 1997. Equity Research
did not participate in the negotiations between Mecklenburg and Triangle. The
full text of Equity Research's Fairness Opinion is included as Appendix II to
this Joint Proxy Statement/Prospectus and should be read in its entirety with
respect to the procedures followed, assumptions made, matters considered and the
qualifications and limitations on the review undertaken by Equity Research in
connection with the Mecklenburg Fairness Opinion.
The Mecklenburg Fairness Opinion is solely directed to the Mecklenburg
Board and addresses only the fairness, from a financial point of view, of the
Exchange Rate. It does not address Mecklenburg's underlying business decision to
effect the Merger, nor does it constitute a recommendation to any Mecklenburg
shareholder as to how such shareholder should vote with respect to the Merger or
as to any other matter.
The Mecklenburg Fairness Opinion was one of many factors taken into
consideration by the Mecklenburg Board in making its determination to approve
the Agreement and the receipt of the Mecklenburg Fairness Opinion is a condition
precedent to Mecklenburg's consummation of the Merger. The Mecklenburg Fairness
Opinion does not address the relative merits of the Merger as compared to
alternative business strategies that might exist for Mecklenburg or the effect
of any other business combination in which Mecklenburg might engage.
Equity Research is a North Carolina-based corporation primarily engaged
in: (i) performing valuations of, and valuations related to, closely held and
publicly traded companies and (ii) conducting research on the performance and
investment characteristics of publicly-traded companies and publishing such
analysis in the form of reports which are made available to the respective
companies and the investment community. All reports generated by Equity Research
for the purpose of investor relations are designated "Investor Relations
Reports" and Equity Research receives a fee (from the company whose securities
are described) for producing such reports. The reports do not contain a purchase
or investment rating but do consider certain investment characteristics of the
respective company's securities. In addition, Equity Research regularly fields
inquiries from brokers, shareholders and others who have questions about the
respective company.
In connection with the services including and related to the "Investor
Relations Reports", the majority of Equity Research's clients are banks that are
located in North Carolina. Until September 30, 1995, one of Equity Research's
clients was Triangle. Equity Research's engagement by Triangle began on January
17, 1993 and during the period of its engagement, Equity Research provided for
the production of the above-mentioned "Investor Relations Reports" and fielded
questions about Triangle as discussed above.
<PAGE>
Equity Research was selected by Mecklenburg as its financial advisor
because of its knowledge of and experience in valuations and capital markets and
expertise in the commercial banking industry. No instructions were given or
limitations imposed by Mecklenburg upon Equity Research regarding the scope of
its investigation or the procedures it followed in rendering its opinion. Equity
Research does not trade in the securities of either Mecklenburg or Triangle for
its own account or for its clients.
In connection with rendering the Mecklenburg Fairness Opinion, Equity
Research, among other things, (i) reviewed the financial terms of the Agreement;
(ii) reviewed drafts of the Joint Proxy Statement/Prospectus; (iii) reviewed and
analyzed the financial position and performance of Mecklenburg and Triangle as
reflected in certain information provided to it for this purpose by their
respective managements; (iv) reviewed historical stock prices of Mecklenburg and
Triangle as well as, to the extent possible, trading activity in their common
stock; (v) reviewed information including but not limited to, annual reports to
shareholders, Forms 10-K and Forms F-2, quarterly reports to shareholders, Forms
10-Q and Forms F-4, proxy statements, Uniform Bank Performance Reports and Call
Reports, and made a general and financial comparison of the two companies to one
another, as well as to comparable institutions; and (vi) analyzed the terms of
other control transactions involving whole bank mergers of commercial banks in
the Southeast. Equity Research also analyzed overall market, economic and other
financial considerations as well. In providing the Mecklenburg Fairness Opinion,
Equity Research relied, without independent verification, on the accuracy and
completeness of the financial and other information provided to it or that was
publicly available and did not independently verify such information.
The following is a summary of certain aspects of the analysis performed
by Equity Research in connection with the Mecklenburg Fairness Opinion.
COMPARABLE TRANSACTIONS. As part of its analysis, Equity Research
reviewed other transactions involving whole-bank acquisitions that had occurred
in the Southeast. Specifically, Equity Research considered more than 250
transactions that occurred between January 1, 1991 and April 25, 1997 in the
following states: North Carolina, South Carolina, Virginia, Georgia, Tennessee
and Alabama. For each of the transactions, Equity Research considered various
factors in an attempt to develop a group of banks which were comparable to
Mecklenburg. These factors included, but were not limited to, asset size,
capital ratios, level of profitability (measured both by return on average
assets as well as return on average equity) and asset quality. Equity Research
also analyzed the type of consideration provided to the seller (stock, cash or
both) and excluded any transactions which had not closed.
Based on its analysis, Equity Research identified 30 transactions which
involved selling companies that it believed had size, financial and other
characteristics that were, on the whole, similar to Mecklenburg. Equity Research
then looked at the terms of those transactions and considered the prices paid
for those institutions based on a variety of ratios in comparison to the price
to be paid to Mecklenburg shareholders in the Merger. Equity Research used
financial data as of December 31, 1996 for purposes of calculating Mecklenburg's
respective ratios and a price of $18.75 per share (the closing price on March
26, 1997) for Triangle Stock for purposes of calculating the value of the
transaction to Mecklenburg's shareholders. The closing price of Triangle Stock
on April 25, 1997 was $19.50.
<PAGE>
The range of multiples to stated book value for the 30 above mentioned
transactions was from 135% of book value to 304% of book value. The median price
paid was 209% of stated book value. The comparable figure for Mecklenburg was
210%, slightly higher than the median.
On the basis of tangible book value, the range of multiples was higher
than the multiples of stated book value - from a low of 156% of tangible book
value to a high of 308% of tangible book value. The median multiple of tangible
book value for the 30 transactions was 213%. The comparable figure for
Mecklenburg was 221%, slightly higher than the median.
Likewise, the multiple of trailing 12 month earnings was slightly
higher for Mecklenburg than for the median of the 30 transactions. While the
median price paid on the 30 acquisitions was 19.9 times trailing 12 month
earnings, it was 20.6 times for Mecklenburg. The price to be paid to Mecklenburg
shareholders in the Merger as a percentage of assets was slightly lower than the
median, while it was higher on the basis of deposits. Additionally, the tangible
book premium (excess of the consideration to be received in the transaction less
the tangible book value) as a percentage of core deposits was higher for
Mecklenburg. For the 30 transactions, the median price paid as a percentage of
assets was 18.5% versus 15.6% for Mecklenburg. The median percentage of deposits
was 20.8% versus 23.6% for Mecklenburg. The median tangible book premium as a
percentage of core deposits was 12.7% for the 30 transactions, versus 17.9% for
Mecklenburg. While not all of the multiples in the Mecklenburg transaction were
higher than the medians, they were within a range Equity Research would consider
reasonable.
HISTORY OF STOCK TRADING. Equity Research reviewed the trading history
of Triangle and compared its relative performance to broader market averages for
the period from September 30, 1991 (the earliest date for which it was able to
obtain reliable data) through March 31, 1997. Mecklenburg had no formal market
for its stock and historical pricing data was quite limited. As a result, Equity
Research focused most of its analysis on the price performance of Triangle
Stock. Since closing prices for Triangle Stock as of the end of each quarter
were not available for part of the period considered (it was not listed on
Nasdaq until 1994), Equity Research used the average of the high and low prices
during certain quarters as approximations of the closing price for those
quarters. Based on the above, Triangle Stock increased in value from $5.45 at
September 30, 1991 to $19.125 at March 31, 1997 representing an increase of more
than 251%. It should be noted that these increases only represent
approximations, particularly in light of assumptions Equity Research made which
are discussed above, and should not be interpreted as being actual or exact
percentages of appreciation.
Equity Research compared the trading history of Triangle Stock to three
indices. First, it compared the stock performance of Triangle to the S&P 500.
The S&P 500 index increased at an annual rate of 13.0% between September 30,
1991 and March 31, 1997 (versus 25.5% for Triangle). Equity Research also
compared the stock price performance of Triangle to the S&P Regional Bank index.
This index is represented by approximately 18 regional banks located throughout
the nation. From September 30, 1991 through December 31, 1996 (the most recently
published data available), the index increased at an annual rate of 19.3%
(versus Triangle's 23.3% annual increase over the same period). While the index
is a better benchmark for comparison to Triangle's stock price performance than
is the S&P 500, it still contains many banking institutions which are
significantly larger than Triangle. Equity Research therefore constructed an
index represented by approximately 10 smaller regional banking institutions.
<PAGE>
These institutions were located in North Carolina, South Carolina, Georgia and
Virginia and generally had total assets of less than $1 billion. The annual
growth rate in the index between September 30, 1991 and March 31, 1997 was
22.1%, slightly less than Triangle's 25.5% annual return over the same period.
COMPARISON OF MECKLENBURG AND TRIANGLE TO THE INDUSTRY. Equity Research
also compared Mecklenburg and Triangle to a group of publicly-traded commercial
banks operating in the Southeast. Equity Research considered factors including,
but not limited to, asset size, capitalization, asset quality and reserve
coverage, dividend yield, profitability ratios and valuation measures. Equity
Research's analysis indicated that Triangle Stock trades at multiples of
earnings and book value which are slightly higher than the medians of the group,
although Triangle's multiples were slightly closer to the average for the group.
Triangle had a slightly lower level of capitalization, as measured by its equity
to assets ratio, and had a lower level of nonperforming assets than the median
for the 21 banks used in the analysis. Reserve coverage, as measured by the
ratio of the allowance for loan losses to total nonperforming assets, was
significantly higher than the median. Return on average assets was slightly
below the median of the group, while return on average equity was slightly
higher than the median of the group.
Equity Research also compared Mecklenburg to a set of institutions,
although because of Mecklenburg's smaller size, these institutions were
generally smaller than those with which Triangle was compared. Mecklenburg had a
significantly lower level of nonperforming assets and, like Triangle, its
reserve coverage was higher than the median for the group. Its level of
profitability was slightly below the median for the 37 institutions included in
the sample. Based on a price for Mecklenburg Stock of $14.00 per share (the
latest known trading price for Mecklenburg Stock before the proposed Merger was
announced), the price to earnings ratio was slightly lower than the median for
the group, as was the price to book value. Based on the $18.75 per share price
offered to Mecklenburg's shareholders (calculated as Triangle's stock price of
$18.75 per share at the time of the announcement times the Exchange Ratio of
1.0), the multiples of earnings and book value would exceed the medians for the
group.
COMPARISON OF INVESTMENT AND OTHER CHARACTERISTICS OF MECKLENBURG AND
TRIANGLE. Equity Research also considered as part of its analysis differences in
the operating performance, financial condition and the investment
characteristics of Mecklenburg and Triangle. Specific considerations included,
but were not limited to, (i) relative levels of profitability and the components
of those profits; (ii) the composition of the balance sheet; (iii) asset quality
and reserve coverage; (iv) capitalization; (v) management depth; (vi) price
appreciation and liquidity of common stocks; (vii) dividend policy; (viii)
deposit market share; (ix) primary market demographics; and (x) trends in many
of these and other factors.
As part of this analysis, Equity Research compared growth rates of
Triangle and Mecklenburg from 1994 through 1996, as well as for the year ended
December 31, 1996. Among Equity Research's conclusions were that both banks had
experienced rapid growth in earnings, although Triangle's earnings per share had
higher sustained growth. Mecklenburg's growth in deposits and loans was higher
in the 1994 - 1996 as well as the 1995 - 1996 time periods. Mecklenburg had a
slightly higher percentage of deposits in its markets than did Triangle. Most of
the demographic measures Equity Research considered were favorable for
Triangle's and Mecklenburg's primary markets. Triangle also had a more liquid
stock, as defined
<PAGE>
by trading volume, superior historical appreciation, and its
dividend represented a significantly higher yield, based on market prices for
their respective stocks.
PRO FORMA TRANSACTION ANALYSIS. Equity Research also considered certain
pro forma effects on Triangle resulting from the acquisition of Mecklenburg.
Specific considerations included, but were not limited to, the impact of the
merger on Triangle's assets, net loans, deposits, equity, equity per share,
earnings, as well as other selected measures. Equity Research also considered
the anticipated impact of the Merger on projected earnings and profitability
ratios, based largely on representations made to it by Mecklenburg and Triangle.
These projections and the pro forma analysis are based on data available at the
time the projections were made and the analysis performed and should not be
construed as necessarily being indicative of the actual impact of the Merger on
Triangle when consummated.
According to the terms of the Agreement, Mecklenburg will merge into a
subsidiary of Triangle. The transaction will be a tax-free stock-for-stock
exchange which is structured as an exchange of 1.0 share of Triangle Stock for
each share of Mecklenburg Stock. Based on Mecklenburg's total outstanding number
of shares as of December 31, 1996 (approximately 2,118,000) and an Exchange
Ratio of 1.0, the total number of shares of Triangle Stock anticipated to be
issued in the Merger is approximately 2,118,000. This number of shares would
represent approximately 16.8% of the total outstanding stock of Triangle after
the Merger.
RELATIVE CONTRIBUTION. Equity Research also analyzed the relative
contributions of Mecklenburg and Triangle to the (i) assets; (ii) deposits;
(iii) net loans; (iv) stockholders' equity; and (v) earnings of the pro forma
combined entities as of December 31, 1996. Equity Research also analyzed the
contribution to projected 1997 earnings of the pro forma combined companies.
Mecklenburg contributed 21.8% of assets as of December 31, 1996. Mecklenburg
contributed 17.4% of deposits, 15.0% of net loans and 17.8% of equity. For the
year ended December 31, 1996, Mecklenburg would have contributed 14.5% to
earnings. Mecklenburg would contribute 15.2% to projected earnings for fiscal
1997. Equity Research excluded from these projections any restructuring charges
and transaction costs since these amounts would generally be nonrecurring.
Although this level of projected earnings did not include the branches that are
to be acquired by Triangle, Mecklenburg would have contributed a lower
percentage of earnings had the operations of the acquired branches been included
in 1997 pro forma earnings. While Mecklenburg would be contributing these
percentages of assets, equity, deposits and earnings, its shareholders would own
approximately 16.8% of the outstanding stock of the combined entity, as was
stated above.
CONTROL PREMIUMS. Another measure Equity Research considered in
arriving at its opinion was the premium of the purchase price over the
pre-announcement price of Mecklenburg's stock price. As was stated previously,
trading activity in Mecklenburg's stock was quite limited. According to
management at Mecklenburg, the most recent trade of which it was aware (which
preceded the announcement of the transaction) occurred at $14.00 per share.
Based on the price of Triangle Stock on the date of the announcement ($18.75),
the value of the consideration offered to Mecklenburg's shareholders was $18.75
per share, which would imply a control premium of 33.9% from the $14.00 price.
Numerous studies have been performed to quantify the premiums paid in
control transactions involving publicly traded stocks. While Equity Research
believes Mecklenburg's
<PAGE>
trading activity is more limited than most of the stocks included in
such studies, Equity Research nevertheless considered these studies in its
analysis. Control premiums may be influenced by many factors, such as trading
liquidity, concentration of ownership, relative attraction of the acquiree as
well as other factors. Based on the studies, control premiums have generally
been between 20% and 50% (i.e., the price paid in the acquisition was 20% to 50%
higher than the pre-announcement price). Accordingly, the premium being paid for
Mecklenburg is within the typical range of premiums. It should be noted that the
studies referred to above reflect control premiums for a broad cross-section of
firms and are not necessarily limited to the financial services industry.
The preparation of the Mecklenburg Fairness Opinion requires the
consideration of the most appropriate methods of financial analysis and their
applications. The applications of that analysis consider many factors, all of
which considered together result in a final opinion of fairness or not. As a
result, the evaluation is not susceptible to partial analysis. Accordingly, none
of the above analysis should be considered as a single determinant of fairness
but should be construed as part of an overall analysis.
In its analysis, Equity Research made numerous assumptions with respect
to business conditions, economic conditions, projections of Mecklenburg's and
Triangle's performance, as well as other matters, many of which are beyond
Mecklenburg's and Triangle's control. Any estimates contained in Equity
Research's analysis are not necessarily indicative of future results or values,
nor do any estimates of value purport to be appraisals or reflect prices at
which securities could actually be bought or sold.
Pursuant to a letter agreement dated April 7, 1997, Mecklenburg engaged
Equity Research to render the Mecklenburg Fairness Opinion and agreed to pay
Equity Research $18,000 for its services. Mecklenburg also agreed to reimburse
Equity Research for its reasonable out-of-pocket expenses and to indemnify
Equity Research against certain liabilities, including certain liabilities under
federal securities laws.
OPINION OF TRIANGLE FINANCIAL ADVISOR
Triangle retained Wheat First to act as its financial advisor in
connection with the Merger and to render an oral and a written opinion to the
Triangle Board of Directors as to the fairness, from a financial point of view,
to the holders of Triangle Stock, of the Exchange Rate. Wheat First is a
nationally recognized investment banking firm regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. The Triangle Board of Directors selected Wheat
First to serve as its financial advisor in connection with the Merger on the
basis of such firm's expertise. Wheat First regularly publishes research reports
regarding the financial services industry and the businesses and securities of
publicly owned companies in that industry, including Triangle. In the ordinary
course of its business, Wheat First and its affiliates may actively trade in the
equity securities of Triangle for its account and the accounts of its customers,
and therefore may from time to time hold long or short positions in such
security.
Representatives of Wheat First attended the meeting of the Triangle
Executive Committee on April 23, 1997 at which the Merger Agreement was
considered and approved. At the meeting,
<PAGE>
Wheat First issued an oral opinion that, as of such date, the Exchange Rate was
fair, from a financial point of view, to the holders of Triangle Stock. A
written opinion dated as of the date of this Joint Proxy Statement/Prospectus
has been delivered to the Triangle Board of Directors to the effect that, as of
such date, the Exchange Rate is fair, from a financial point of view, to the
holders of Triangle Stock.
The full text of Wheat First's opinion, dated as of August ______,
1997, which sets forth certain assumptions made, matters considered and
limitations on review undertaken, is attached as Appendix III to this Joint
Proxy Statement/Prospectus, is incorporated herein by reference, and should be
read in its entirety in connection with this Joint Proxy Statement/Prospectus.
The summary of the opinion of Wheat First set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the opinion.
No limitations were imposed by the Triangle Board of Directors upon Wheat First
with respect to the investigations made or procedures followed by it in
rendering the Triangle Fairness Opinion. Wheat First's opinion is directed only
to the fairness, from a financial point of view, of the Exchange Rate to the
holders of Triangle Stock and does not constitute a recommendation to any
shareholder of Triangle as to how such shareholder should vote on the Merger.
In arriving at its opinion, Wheat First reviewed certain publicly
available business and financial information relating to Triangle and
Mecklenburg and certain other information provided to it, including the
following: (i) Triangle's Annual Reports to Stockholders, Annual Reports on Form
10-K and related financial information for the three fiscal years ended December
31, 1996; (ii) Triangle's Quarterly Reports on Form 10-Q and related financial
information for the quarter ended March 31, 1997; (iii) Triangle's Proxy
Statement dated March 21, 1997; (iv) Mecklenburg's Annual Reports to
Stockholders, Annual Reports on Form F-2 and related financial information for
the three fiscal years ended December 31, 1996; (v) certain financial data
provided by management of Mecklenburg for the quarter ended March 31, 1997; (vi)
Mecklenburg's Proxy Statement dated March 24, 1997; (vii) certain publicly
available information with respect to historical market prices and trading
activities for the Triangle Stock and the Mecklenburg Stock and for certain
publicly traded financial institutions which Wheat First deemed relevant; (viii)
certain publicly available information with respect to banking companies and the
financial terms of certain other mergers and acquisitions which Wheat First
deemed, relevant; (ix) the Merger Agreement; (x) certain estimates of the cost
savings and revenue enhancements and divestitures projected by Triangle and
Mecklenburg for the combined company; (xi) other financial information
concerning the businesses and operations of Triangle and Mecklenburg, including
certain audited financial information and certain internal financial analyses
and forecasts for Triangle and Mecklenburg prepared by senior managements of
these companies; and (xii) such financial studies, analyses, inquiries and other
matters as Wheat First deemed necessary. In addition, Wheat First met with
members of the senior managements of Triangle and Mecklenburg to discuss the
business and prospects of each company.
In connection with its review, Wheat First relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
publicly available, including representations and warranties of Triangle and
Mecklenburg included in the Merger Agreement, and Wheat First has not assumed
any responsibility for independent verification of such information. Wheat First
relied upon the managements of Triangle and Mecklenburg as to the reasonableness
and achievability of their financial and operational forecasts and projections,
and the assumptions and bases therefor, provided to Wheat First, and assumed
that such forecasts and projections reflect the best currently available
estimates and judgements of such management and
<PAGE>
that such forecasts and projections will be realized in the amounts and in the
time periods currently estimated by such managements. Wheat First also assumed,
without independent verification, that the aggregate allowances for loan losses
and other contingencies for Triangle and Mecklenburg are adequate to cover such
losses. Wheat First did not review any individual credit files of Triangle and
Mecklenburg, nor did it make an independent evaluation or appraisal of the
assets or liabilities of Triangle and Mecklenburg. Wheat First also assumed that
the Merger will be consummated in accordance with the terms and conditions of
the Agreement in due course without unnecessary delay.
Additionally, Wheat First considered certain financial and stock market
data of Triangle and Mecklenburg and compared that data with similar data for
certain publicly-held financial institutions and considered the financial terms
of certain other comparable transactions that recently have been announced or
effected, as further discussed below.
In connection with rendering its opinion, Wheat First performed a
variety of financial analyses. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Moreover, the evaluation of the
fairness, from a financial point of view, of the Exchange Rate to holders of
Triangle Stock was to some extent a subjective one based on the experience and
judgement of Wheat First and not merely the result of mathematical analysis of
financial data. Accordingly, notwithstanding the separate factors summarized
below, Wheat First believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying its opinion. The ranges of valuations
resulting from any particular analysis described below should not be taken to be
Wheat First's view of the actual value of Triangle or Mecklenburg.
In performing its analyses, Wheat First made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Triangle or Mecklenburg. The
analyses performed by Wheat First are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold. In rendering its opinion, Wheat First assumed
that in the course of obtaining the necessary regulatory approvals for the
Merger, no conditions will be imposed that will have a material adverse effect
on the contemplated benefits of the Merger, on a pro forma basis, to Triangle.
Wheat First's opinion is just one of the many factors taken into
consideration by the Triangle Board of Directors in determining to approve the
Merger Agreement. Wheat First's opinion does not address the relative merits of
the Merger as compared to any alternative business strategies that might exist
for Triangle, nor does it address the effect of any other business combination
in which Triangle might engage.
The following is a summary of the analyses performed by Wheat First in
connection with its oral opinion delivered to the Triangle Executive Committee
on April 23, 1997:
<PAGE>
COMPARABLE ACQUISITIONS ANALYSIS. Wheat First performed an analysis of
premiums paid in twelve selected recently completed whole-bank acquisitions with
deal values between $23 and $55 million in Virginia and North Carolina announced
between August 30, 1995 and April 23, 1997 (the "Selected Transactions").
Multiples of book value, trailing twelve months earnings and annualized latest
quarter earnings were compared to the multiples and premiums implied by the
consideration offered to Mecklenburg in the Merger. The Selected Transactions
included the following pending and completed transactions: United
Bankshares/First Patriot Bankshares Corporation; LSB Bankshares/Old North State
Bank; FCFT, Inc./Blue Ridge Bank; CCB Financial Corporation/Salem Trust Company;
MainStreet Bankgroup/Hanover Bank; Centura Banks/FirstSouth Bank; MainStreet
Bankgroup/FNB of Clifton Forge; Centura Banks/First Commercial Holding
Corporation; F&M National Corporation/FB&T Financial Corporation; United
Carolina Bancshares Corporation/Triad Bank; First Charter Corporation/Bank of
Union.
Based on the market value of Triangle Stock on April 22, 1997, and
financial data for Mecklenburg as of March 31, 1997, the analysis yielded ratios
of the implied consideration based on the Exchange Rate offered by Triangle to
Mecklenburg: (i) to book value of 211.04% compared to an average of 253.11%, a
minimum of 177.74%, and a maximum of 303.85% for the Selected Transactions; and
(ii) to trailing twelve months earnings per share multiple of 20.74 times
compared to an average of 21.55 times, a minimum of 17.19 times, and a maximum
of 28.84 times for the Selected Transactions; and (iii) to latest quarter
earnings per share annualized of 19.50 times compared to an average of 19.19
times, a minimum of 16.38 times, and a maximum of 24.58 times for the Selected
Transactions.
The following comparisons were based on financial data as of and for
the three-month period ended March 31, 1997, for Mecklenburg and the twelve
months reporting period prior to the announcement of each transaction for each
acquiree in the Selected Transactions. Mecklenburg had : (i) equity to assets of
7.16% compared to an average of 9.69%, a minimum of 7.04%, and a maximum of
19.74% for the Selected Transaction acquirees; (ii) nonperforming assets to
total assets of 0.00% compared to an average of 0.38%, a minimum of 0.00%, and a
maximum of 1.10% for the Selected Transaction acquirees; (iii) returns on
average assets before extraordinary items of 0.84% compared to an average of
1.22%, a minimum of 0.92%, and a maximum of 2.12% for the Selected Transaction
acquirees; and (iv) returns on average equity before extraordinary items of
11.30% compared to an average of 12.63%, a minimum of 9.39%, and a maximum of
15.94% for the Selected Transaction acquirees; and (v) an efficiency ratio of
48.18% compared to an average of 62.33% of 36.78%, and a maximum of 78.05% for
the Selected Transaction acquirees.
In addition, Wheat First performed an analysis of the market valuations
prior to the transaction announcement of the acquirors in the Selected
Transactions. The following comparisons were based on financial data as of March
31, 1997, for Triangle and the twelve months reporting period prior to the
announcement of each transaction for each acquiror in the Selected Transactions:
Triangle had (i) market price to book value of 222.95% versus an average of
187.54% for the Selected Transaction acquirors; and (ii) market price to latest
twelve months earnings per share of 17.36 times versus an average of 13.40 times
for the Selected Transaction acquirors.
IMPACT ANALYSIS. Wheat First estimated the impact of the transaction to
Triangle's book value and 1997 estimated earnings per share assuming that the
Merger qualifies as a pooling-of-interests for accounting and financial
reporting purposes. Utilizing financial data as of March 31,
<PAGE>
1997 for both Triangle and Mecklenburg, Wheat First noted that the transaction
should result in 0.56% dilution to Triangle's book value per share, 0.64%
accretion to Triangle's 1997 estimate earnings per share (the consensus of
investment research analysts' estimates as compiled by nationally recognized
earnings estimate services) assuming expense savings of 13.3% of Mecklenburg's
latest quarter expenses annualized, and that the expense savings were realized
for the full year.
DISCOUNTED DIVIDENDS ANALYSIS. Using discounted dividends analysis,
Wheat First estimated the present value of the future stream of dividends that
Mecklenburg could produce over the next five years, under various circumstances,
assuming the company performed in accordance with the earnings forecasts of
management and an assumed level of expense savings were achieved. Wheat First
then estimated the terminal values for Mecklenburg Stock at the end of the
period by applying multiples ranging from 15 times to 18 times earnings
projected in year five. The dividend streams and terminal values were then
discounted to present values using different discount rates (ranging from 14% to
16%) chosen to reflect different assumptions regarding the required rates of
return to holders or prospective buyers of Mecklenburg Stock. This discounted
dividend analysis indicated reference ranges of between $18.93 and $24.28 per
share for Mecklenburg Stock. These values compare to the implied consideration
based on the Exchange Rate offered by Triangle to Mecklenburg in the Merger of
$19.50 based on the market value of Triangle Stock on April 22, 1997.
No company or transaction used as a comparison in the above analysis is
identical to Triangle, Mecklenburg or the Merger. Accordingly, an analysis of
the results of the foregoing necessarily involves complex considerations and
judgements concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies used for comparison in the above analysis.
The Triangle Fairness Opinion, dated as of August ____, 1997, is based
solely upon the information available to Wheat First and the economic, market
and other circumstances as they existed as of such date. Events occurring after
that date could materially affect the assumptions and conclusions contained in
the Triangle Fairness Opinion. Wheat First has not undertaken to reaffirm or
revise the Triangle Fairness Opinion or otherwise comment on any events
occurring after the date thereof.
As compensation for Wheat First's services, Triangle has agreed to pay
Wheat First a financial advisory fee equal to $150,000 payable as follows:
$50,000 upon the execution of the Agreement and $100,000 upon the date of
closing of the Merger. Triangle also has agreed to reimburse Wheat First for its
out-of-pocket expenses incurred in connection with the activities contemplated
by its engagement, regardless of whether the Merger is consummated. Triangle has
further agreed to indemnify Wheat First against certain liabilities, including
certain liabilities under federal securities laws. The payment of the above fees
is not contingent upon Wheat First rendering a favorable opinion with respect to
the Merger. Triangle has retained Wheat First to provide financial advisory
services from time to time, for which it received financial advisory fees in
customary amounts.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
<PAGE>
The following is a summary of the federal income tax consequences of
the Merger generally applicable to Mecklenburg and its shareholders under the
Code. It does not include consequences of state, local or other tax laws or
special consequences to particular Mecklenburg shareholders having special
situations. Accordingly, each Mecklenburg shareholder is urged to consult with
his or her own tax advisor regarding specific tax consequences of the Merger.
As a condition of the consummation of the Merger, Triangle has received
an opinion of Coopers & Lybrand L.L.P., tax advisors to Triangle, concerning the
tax consequences of the Merger, which provides, in substance, that the federal
income tax consequences of the Merger are as follows:
(i) The Merger will constitute a tax-free reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code;
(ii) The conversion of Mecklenburg Stock into Triangle Stock
will not give rise to any income to, and no gain or loss will be recognized by,
Mecklenburg shareholders except with respect to any cash payments in lieu of
fractional shares or dissenter's rights (see subparagraphs (v) and (vi)
below);
(iii) The aggregate tax basis of the shares of Triangle Stock
received by a Mecklenburg shareholder will be equal to the tax basis of the
shares of Mecklenburg Stock converted into such shares of Triangle Stock;
(iv) The holding period of the shares of Triangle Stock
received by a Mecklenburg shareholder will include the holding period of the
shares of Mecklenburg Stock converted into such shares of Triangle Stock
provided that such stock was held as a capital asset on the date of consummation
of the Merger;
(v) The payment of cash to Mecklenburg shareholders in lieu
of the actual issuance of fractional shares of Triangle Stock will be treated
for tax purposes as if fractional shares of Triangle Stock were in fact issued
and the cash was then distributed by Triangle in a redemption of such fractional
shares subject to the provisions and limitations of Section 302 of the Code
("Section 302"). Any gain or loss recognized will be capital gain or loss,
assuming that the shares of Triangle Stock would have been a capital asset in
the hands of the shareholder; and,
(vi) The receipt of cash by a dissenting Mecklenburg
shareholder will be treated as received by that shareholder as a distribution by
Mecklenburg in redemption of such shareholder's common stock, subject to the
provisions and limitations of Section 302.
<PAGE>
Any gain or loss recognized will be capital gain or loss, assuming that the
shares of Mecklenburg Stock are a capital asset in the hands of the
shareholder.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. MECKLENBURG SHAREHOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
APPLICABLE TAX LAWS, THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS, AND THE
TAX CONSEQUENCES OF SALES OF TRIANGLE STOCK.
ACCOUNTING TREATMENT
The Agreement requires that the Merger be treated as a
pooling-of-interests for accounting purposes. Accordingly, under generally
accepted accounting principles, the assets and liabilities of Mecklenburg will
be reported on the books of Triangle at their book values at the Effective Time
and Triangle's consolidated financial statements for prior periods will be
restated to reflect the consolidated assets, liabilities and operations of
Mecklenburg for such periods. No goodwill or other intangible assets will be
created in connection with the Merger.
Among other requirements, in order for the Merger to qualify for
pooling-of-interests accounting treatment, substantially all (at least 90%) of
the outstanding shares of Mecklenburg Stock must be exchanged for Triangle
Stock. Generally, if the number of fractional shares of Triangle Stock resulting
from the Merger for which cash is paid, and shares held by Mecklenburg
shareholders who exercise their Dissenters' Rights together represent more than
10% of the shares to be issued by Triangle in connection with the Merger, then
the Merger will not qualify for the pooling-of-interests method of accounting.
Consummation of the Merger is conditioned on receipt by Triangle, unless waived,
in whole or in part, of assurances in form and content satisfactory to Triangle
from its independent accountants, Coopers & Lybrand L.L.P., that the Merger may
be treated as a pooling-of-interests for accounting purposes. (See "- Conditions
to Consummation of the Merger.")
INTEREST OF CERTAIN PERSONS IN THE MERGER
DIRECTORS. As soon as practicable following the Effective Time, Cy N.
Bahakel, Chairman of the Board of Directors of Mecklenburg, will be appointed to
the Board of Directors of Triangle for a term of two years from the Effective
Time. Mr. Bahakel shall be compensated in accordance with Triangle's then
current policies and procedures. The remaining members of the Board of Directors
of Mecklenburg, other than those who choose not to serve, will remain on the
Mecklenburg Board of Directors following the Effective Time. Each such person
shall be compensated in accordance with Mecklenburg's then current policies and
procedures.
<PAGE>
As a result of the Merger and pursuant to the terms of the Mecklenburg
Option Plan for Directors, at the Effective Time all Mecklenburg Options held by
directors of Mecklenburg will automatically vest in full.
Currently, Mecklenburg Options granted to directors vest 20% a year.
OFFICERS. Pursuant to an employment agreement dated January 28, 1997
between Mecklenburg and John H. Ketner, Jr., President of Mecklenburg, upon the
consummation of the Merger, Mr. Ketner will have the right to terminate his
employment agreement and receive a severance payment in an amount equal to Mr.
Ketner's base salary for the full two years preceding the Merger ($242,000). In
addition, Mr. Ketner shall be entitled to continued hospitalization, health,
dental and medical insurance benefits for two years after such termination.
To assist in post-Merger matters, Triangle anticipates entering into an
agreement with John H. Ketner Jr., President of Mecklenburg as of the Effective
Time. Pursuant to the agreement, Mr. Ketner will remain as President of
Mecklenburg until March 31, 1998, or should a new President be hired before that
time, Mr. Ketner will consult with Triangle until March 31, 1998, for which Mr.
Ketner will be paid $25,000.
EMPLOYEES. Subject to the availability of suitable positions, Triangle
shall make a good faith effort to cause Mecklenburg to continue employment of
all employees of Mecklenburg employed by Mecklenburg immediately prior to the
Effective Time. If any employee is not retained by Mecklenburg at the Effective
Time, Mecklenburg will pay to each employee its standard severance package.
The Agreement provides that Mecklenburg's employee benefit plans will
be reviewed and appropriate amendments, consolidations or terminations will be
made thereto at or after the Effective Time; provided, however, that the
employees of Mecklenburg (i) shall be eligible to receive group hospitalization,
medical, life, disability and similar benefits on the same basis and under the
same terms available to the present employees of Triangle and its subsidiaries,
(ii) in the event a Mecklenburg employee benefit plan is terminated, the rights
and benefits of a Mecklenburg employee thereunder shall become fully vested,
with each participating Mecklenburg employee having the right or option either
to receive the benefits to which he or she is entitled as a result of such
termination or to have such benefits "rolled" into the appropriate Triangle
employee benefit plan, on the same basis and applying the eligibility standards
as would apply to the employees of Triangle and its subsidiaries as if such
employee's prior service to Mecklenburg had been performed on behalf of Triangle
and its subsidiaries for qualification, participation and vesting (but not for
funding purposes), and (iii) in the event a Mecklenburg employee benefit plan is
merged into a Triangle and its subsidiaries employee benefit plan, shall be
entitled to participate in such plan on the same basis and applying the same
eligibility standards as would apply to employees of Triangle and its
subsidiaries. Triangle has agreed that for purposes of qualification,
participation and vesting, the employees of Mecklenburg shall receive credit for
their periods of service to Mecklenburg.
MECKLENBURG OPTIONS. Under the Agreement at the Effective Time, all
rights with respect to Mecklenburg Options which are outstanding at the
Effective Time, whether or not then exercisable, will be converted into and will
become rights with respect to Triangle Stock, and Triangle will assume
Mecklenburg's obligations with respect to each such Mecklenburg Option, in
<PAGE>
accordance with the terms of the applicable Mecklenburg Option Plan and the
related option agreements. From and after the Effective Time, (i) each
Mecklenburg Option assumed by Triangle may be exercised solely for shares of
Triangle Stock, (ii) the number of shares of Triangle Stock subject to each
Mecklenburg Option will be equal to the number of shares of Mecklenburg Stock
subject to such Mecklenburg Option immediately prior to the Effective Time
multiplied by the Exchange Rate, rounded down to the nearest whole share, and
(iii) the per share exercise price under each such Mecklenburg Option will be
adjusted by dividing the per share exercise price thereunder by the Exchange
Rate and rounding up to the nearest cent, provided that the number of shares
of Triangle Stock subject to each Mecklenburg Option and the per share exercise
price will, in accordance with the terms of the Mecklenburg Option and the per
share exercise price, be subject to further adjustment as appropriate to
reflect any stock split, stock dividend, recapitalization or other similar
transaction subsequent to the Effective Time.
INDEMNIFICATION. Pursuant to the Agreement, if following the Effective
Time Mecklenburg is merged into another subsidiary of Triangle and Mecklenburg
is not the surviving entity, Triangle will indemnify the present and former
officers and directors of Mecklenburg against liabilities from actions in their
official capacities as directors and officers of Mecklenburg to the same extent
Mecklenburg indemnifies its directors and officers.
EXPENSES AND FEES
The Agreement provides that Mecklenburg and Triangle each will pay its own
legal, accounting and financial advisory fees and all its other costs and
expenses (including filing fees, printing costs and travel expenses) incurred or
to be incurred in connection with the performance of its obligations under the
Agreement or otherwise in connection with the Merger.
DISTRIBUTION OF TRIANGLE CERTIFICATES
First-Citizens Bank & Trust Company, Raleigh, North Carolina, will
serve as the Exchange Agent to effect the exchange of certificates in connection
with the Merger. Immediately prior to the Effective Time, Triangle shall deposit
with the Exchange Agent the number of shares of Triangle Stock and the amount of
cash necessary to consummate the Merger. Promptly after the Effective Time, the
Exchange Agent will forward to each holder of record certificates that
immediately prior to that date represented outstanding shares of Mecklenburg
Stock (other than dissenting shareholders) a letter of transmittal and
instructions for the record holder's use in effecting the surrender of the
certificates in exchange for certificates representing shares of Triangle Stock.
SHAREHOLDERS OF MECKLENBURG SHOULD NOT SURRENDER THEIR CERTIFICATES FOR EXCHANGE
UNTIL SUCH LETTER OF TRANSMITTAL AND INSTRUCTIONS IS RECEIVED. Upon surrender of
any certificate for exchange and cancellation, together with a duly endorsed
letter of transmittal, if applicable, the holder of such certificate shall be
entitled to receive in exchange therefor (i) certificates evidencing the number
of whole shares of Triangle Stock into which their shares of Mecklenburg Stock
will have been converted, together with cash for any fractional share, or (ii)
in the case of a shareholder properly exercising dissenters' rights, the amount
of cash determined as provided in Article 13 of the NCBCA.
Until surrendered as described above, each Mecklenburg certificate will
be deemed for all corporate purposes to evidence only the right to receive the
number of shares of Triangle Stock to which the shareholder has become entitled.
However, after the Effective Time and regardless of
<PAGE>
whether they have surrendered their Mecklenburg certificates, Mecklenburg
shareholders shall be entitled to vote and to receive any dividends or other
distributions (for which the record date is after the Effective Time) on the
number of whole shares of Triangle Stock into which their Mecklenburg Stock has
been converted; provided, however, that no such dividends or other distributions
will be paid to the holders of such Mecklenburg certificates unless and until
their Mecklenburg certificates are surrendered. Upon surrender of each
Mecklenburg certificate, there will be paid the amount, without interest
thereon, of dividends and other distributions, if any, that became payable on
the shares of Triangle Stock represented by such certificate after the Effective
Time but had not been paid to the record owner thereof.
Shareholders whose Mecklenburg certificates have been lost, stolen or
destroyed will be required to furnish evidence satisfactory to Triangle of
ownership of such Mecklenburg certificates and of such loss, theft or
destruction, and to furnish appropriate and customary indemnification (which may
include an indemnity bond), in order to receive the Triangle certificates or
cash to which they are entitled.
If any certificates for shares of Triangle Stock are to be issued in a
name other than that in which the certificates surrendered for exchange are
issued, the certificates so surrendered shall be properly endorsed or otherwise
be in proper form for transfer. The person requesting such exchange shall affix
any requisite stock transfer tax stamps to the certificates surrendered, provide
funds for such purpose, or establish to the satisfaction of the Exchange Agent
that such taxes are not payable.
After the Effective Time, there will be no transfers on the transfer
books of Mecklenburg of the shares of Mecklenburg Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates representing such shares are presented for transfer to the Exchange
Agent, they will be canceled and exchanged for a certificate representing shares
of Triangle Stock pursuant to the terms of the Agreement.
Neither Mecklenburg, Triangle, the Exchange Agent nor any other person
will be liable to former holders of Mecklenburg Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar law.
RESALE OF TRIANGLE STOCK
Although the shares of Triangle Stock to be issued in the Merger have
been registered under the Securities Act, such shares may not be traded freely
and without restriction by those shareholders deemed to be "affiliates" of
Mecklenburg prior to the Effective Time. "Affiliates" are generally defined as
persons who control, are controlled by, or are under common control with
Mecklenburg and generally include directors, executive officers, and any current
shareholder of Mecklenburg who owns an amount of Mecklenburg Stock equal or
greater than 10% of the issued and outstanding shares of Mecklenburg Stock.
Persons deemed to be affiliates of Mecklenburg may not resell shares of Triangle
Stock received by them in connection with the Merger unless (i) sales are made
pursuant to an effective registration statement under the Securities Act, (ii)
sales are made in compliance with Rule 145 promulgated under the Securities Act,
or (iii) sales are made pursuant to another exemption from registration under
the Securities Act. In addition, as a condition of treating the Merger as a
pooling-of-interests for accounting purposes, affiliates of Triangle and
Mecklenburg will be prohibited from selling or transferring any shares of
Triangle
<PAGE>
Stock from the date generally 30 days prior to consummation of the
Merger and until Triangle shall have published results of its operations for a
period covering at least 30 days following the Effective Time. The stock
certificates representing the shares of Triangle Stock issued to persons deemed
to be affiliates of Mecklenburg in the Merger will bear a legend summarizing the
above restrictions, and Triangle will instruct its transfer agent to impose stop
orders with respect to such certificates.
This Joint Proxy Statement/Prospectus may not be used for the resale of
any shares of Triangle Stock received in connection with the Merger.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
The following is only a summary of the rights of a dissenting
Mecklenburg shareholder under Article 13 of the NCBCA. Any Mecklenburg
shareholder who intends to dissent to the Merger should carefully review the
text and comply with the requirements of Article 13 of the NCBCA included herein
as Appendix IV, and should also consult with his or her attorney. FAILURE TO
COMPLY WITH THE PROCEDURES PRESCRIBED BY APPLICABLE LAW WILL RESULT IN THE LOSS
OF DISSENTERS' RIGHTS. No further notice of the events giving rise to
dissenters' rights or any steps associated therewith will be furnished to
Mecklenburg shareholders and no notice of approval of the Merger will be given
to a dissenting shareholder.
Article 13 of the NCBCA, the text of which is attached as Appendix IV,
provides in detail the procedure which must be followed by any Mecklenburg
shareholder objecting to the Merger and desiring to be paid the fair value of
his or her shares. The Merger gives rise to shareholder dissenter's rights under
such statute which, in summary, provides as follows:
(a) Any Mecklenburg shareholder may give to Mecklenburg before the vote
is taken on the Merger written notice of his or her intent to demand payment for
his or her shares if the Merger is effected. A dissenting shareholder's notice
to Mecklenburg should be mailed to John H. Ketner Jr., President, Bank of
Mecklenburg, 2000 Randolph Road, Charlotte, North Carolina 28207, telephone
(704) 375-2265. A vote against the Merger will not be deemed to satisfy the
notice requirement.
(b) Such shareholder must not vote his or her shares in favor of the
Merger. ANY HOLDER OF MECKLENBURG STOCK WHO RETURNS A SIGNED PROXY BUT FAILS TO
PROVIDE INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH SHARES ARE TO BE VOTED WILL
BE DEEMED TO HAVE VOTED IN FAVOR OF THE MERGER AND WILL NOT BE ENTITLED TO
ASSERT DISSENTERS' RIGHTS OF APPRAISAL.
(c) No later than ten days after the Merger is effected, Mecklenburg
must send to such shareholder by registered or certified mail, return receipt
requested, a written dissenter's notice stating when the payment demand must be
sent and where certificates for certificated shares must be deposited, informing
holders of such shares as to the restrictions on transfer of such shares,
supplying a form for demanding payment and setting a date by which Mecklenburg
must receive the payment demand, which shall not be fewer than 30 nor more than
60 days after the date such notice is mailed. The shareholder must also be
provided a copy of Article 13. The shareholder receiving such notice must demand
payment and deposit certificates in accordance with the terms of the notice.
<PAGE>
(d) As soon as the Merger is effected, or upon receipt of a payment
demand, Mecklenburg shall offer to pay each dissenter who has complied with the
requirements of the statute, the amount Mecklenburg estimates to be the fair
value of his or her shares, plus interest accrued to the date of payment, in
full satisfaction of the demand of each dissenting shareholder who agrees in
writing to accept the same. The offer of payment must be accompanied by
Mecklenburg's most recent available balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of offer of payment, an income
statement for that year, a statement of cash flows for that year, the latest
available interim financial statements, if any, a statement of Mecklenburg's
estimate of the fair value of the shares, an explanation of how the interest was
calculated, a statement of the dissenting shareholder's rights to demand payment
and a copy of Article 13.
(e) If the shareholder believes the amount offered by Mecklenburg is
less than the fair value of his or her shares or the interest was incorrectly
calculated or Mecklenburg fails to make payment within 30 days after the
dissenting shareholder accepts its offer, the dissenting shareholder must
notify, in writing, Mecklenburg of his or her own estimate of the fair value of
his or her shares and the amount of interest due, and demand payment of the
same, or notify Mecklenburg of its failure to act promptly. Such notice must be
given within 30 days after Mecklenburg offers payment or fails to perform.
(f) If demand for payment remains unsettled, the shareholder may,
within 60 days after the date of his or her payment demand, petition the court
to determine the fair value of the shares and accrued interest. If the
dissenting shareholder does not commence the proceeding within the 60 day
period, he or she shall have an additional 30 days to either: (i) accept in
writing Mecklenburg's offer or (ii) assume the status of a nondissenting
shareholder.
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(Unaudited)
The following unaudited pro forma combined condensed balance sheet as
of March 31, 1997 and the unaudited pro forma combined condensed statements of
income for the three months ended March 31, 1997 and for the years ended
December 31, 1996, 1995 and 1994 combine (i) the historical financial statements
of Triangle and Mecklenburg using the pooling-of-interests method of accounting
for business combinations, and (ii) Triangle and Mecklenburg pro forma combined
financial information and (a) the historical financial information of eight
branches of United Carolina Bank and two branches of Branch Banking and Trust
that Triangle has agreed to acquire (the "Branch Acquisition") under the
purchase method of accounting for business combinations and (b) the trust
preferred securities issued by a subsidiary of Triangle in June of 1997. The pro
forma combined condensed balance sheet gives effect to the Merger and the Branch
Acquisition as if the transactions had occurred on March 31, 1997. The pro forma
income statements give effect to the Merger as if the transaction had occurred
on January 1, 1994 and the Branch Acquisition as if the transaction had occurred
on January 1, 1996. The pooling-of-interests method of accounting requires all
assets and liabilities to be carried at their book values. The purchase method
of accounting requires that all assets and liabilities be adjusted to their
estimated fair values as of the date of the acquisition. See "INFORMATION ABOUT
TRIANGLE AND TRIANGLE BANK Pending Branch Acquisition", and "- Trust Preferred
Securities".
The pro forma statements are provided for informational purposes. The
unaudited pro forma financial information presented is not necessarily
indicative of what the actual financial position or results of operations would
have been had such transactions been completed as of March 31, 1997 or as of the
beginning or each of the periods presented and is not indicative of future
financial position or future results. The unaudited pro forma financial
information does not reflect any non-recurring expenses which may be realized in
connection with the transactions. Current estimates of non-recurring expenses
for 1997 are $1.2 million after tax. The cost savings associated with the
possible operating efficiencies and synergies have not been quantified, nor are
any such savings assured. The pro forma financial statements should be read in
conjunction with the audited financial statements and the notes thereto of
Triangle and Mecklenburg and their unaudited interim financial statements
incorporated herein by reference.
<PAGE>
Triangle Bancorp, Inc.
Pro Forma Combined Condensed Balance Sheet
March 31, 1997
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Combined
Combined Trust Preferred Triangle Bancorp,
Triangle Bancorp and Trust Preferred, Bank
Triangle Bank of and Bank UCB/BBT of Mecklenburg and
Assets Bancorp Mecklenburg Adjustments of Mecklenburg Branches (1) Adjustments UCB/BBT Branches
- ----------------------------- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Due From Banks $ 29,623 $ 5,595 $ -- $ 35,218 $ 141,599 $ (17,452)(2) $ 36,868
(122,497)(3)
Investment Securities 254,080 135,772 -- 389,852 19,950(12) 122,497 (3) 532,299
--
Federal Funds Sold 4,170 -- -- 4,170 -- -- 4,170
Loans, net 671,749 123,019 -- 794,768 71,080 (1,066)(4) 864,782
Premises and Equipment 19,913 6,415 -- 26,328 2,231 28,559
Intangible Assets 11,290 915 -- 12,205 -- 17,452 (2) 30,723
1,066 (4)
Other Assets 18,775 1,796 -- 20,571 -- -- 20,571
Total Assets $ 1,009,600 $ 273,512 $-- $ 1,283,112 $ 234,860 -- $ 1,517,972
Liabilities
Noninterest Bearing Demand $ 132,745 $ 11,030 $-- $ 143,775 $ 20,028 $ -- $ 163,803
Interest Bearing Demand 77,457 61,032 -- 138,489 24,825 -- 163,314
Savings and Money Market
Deposits 198,905 6,386 -- 205,291 36,743 -- 242,034
Time Deposits 470,387 117,712 -- 588,099 133,314 -- 721,413
Total Deposits 879,494 196,160 -- 1,075,654 214,910 -- (11) 1,290,564
Borrowed Funds 30,467 54,683 -- 85,150 -- -- 85,150
Redeemable Capital Securities of
Subsidiary Trust holding Junior
Subordinated Debentures of the
Company -- 19,950(12) -- 19,950
Other Liabilities 11,483 3,097 -- 14,580 -- -- 14,580
Total Liabilities 921,444 253,940 -- 1,175,384 234,860 -- 1,410,244
</TABLE>
51
<PAGE>
Triangle Bancorp, Inc.
Pro Forma Combined Condensed Balance Sheet (cont'd)
March 31, 1997
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Combined
Combined Trust Preferred Triangle Bancorp,
Triangle Bancorp and Trust Preferred, Bank
Triangle Bank of and Bank UCB/BBT of Mecklenburg and
Bancorp Mecklenburg Adjustments of Mecklenburg Branches (1) Adjustments UCB/BBT Branches
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholders' Equity
- ------------------------
Common Stock 61,425 4,238 10,892 (5) 76,555 -- -- 76,555
Surplus -- 10,892 (10,892)(5) -- -- -- --
Retained Earnings 27,238 4,341 -- 31,579 -- -- 31,579
Unrealized (Gain/Loss) on
Securities AFS (507) 101 -- (406) -- -- (406)
Total Shareholders'
Equity 88,156 19,572 -- 107,728 -- -- 107,728
Total Liabilities and
Shareholders' Equity $ 1,009,600 $ 273,512 $-- $ 1,283,112 $ 234,860 $-- $ 1,517,972
</TABLE>
See Notes to Pro Forma Combined Condensed Financial Information.
52
<PAGE>
Triangle Bancorp, Inc.
Pro Forma Combined Condensed Statements of Income
March 31, 1997
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Combined Triangle Bancorp,
Triangle Trust Preferred,
Bancorp and Trust Preferred UCB/BB&T and
Triangle Bank of Bank of and UCB/BB&T Bank of
Bancorp Mecklenburg Adjustments Mecklenburg Branches (1,6) Adjustments Mecklenburg
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Loans $ 15,573 $2,573 $ - $18,146 $1,641 $(89) (9) $19,698
Federal Funds Sold 111 44 - 155 - - 155
Investment Securities 3,556 1,789 - 5,345 309 1,899 (7) 7,553
-------------------------------------------------------------------------------- -------------
Total Interest Income 19,240 4,406 - 23,646 1,950 1,810 27,406
-------------------------------------------------------------------------------- -------------
Interest Expense
Deposits 8,216 2,287 - 10,503 2,266 - 12,769
Redeemable Capital Securities
of Subsidiary Trust holding
Junior Subordinated Debentures 468 (13) 468
of the Company
-------------------------------------------------------------------------------- -------------
Total Interest Expense 8,640 2,993 - 11,633 2,734 - 14,367
-------------------------------------------------------------------------------- -------------
Net Interest Income
before Provision for Loan
Losses 10,600 1,413 - 12,013 (784) 1,810 13,039
Provision for Loan
Losses 500 44 - 544 - 50 (8) 594
-------------------------------------------------------------------------------- -------------
Net Interest Income after
Provision for Losses 10,100 1,369 - 11,469 (784) 1,760 12,445
Noninterest income 1,988 430 - 2,418 387 2,805
193 (8)
Noninterest expenses 7,261 888 - 8,149 659 436 (9) 9,437
-------------------------------------------------------------------------------- -------------
Net Income before taxes 4,827 911 - 5,738 (1,056) 1,131 5,813
Income Taxes 1,785 377 - 2,162 - 28 (10) 2,190
-------------------------------------------------------------------------------- -------------
Net Income $3,042 $534 $ - $3,576 $(1,056) $1,103 $3,623
-------------------------------------------------------------------------------------------------
</TABLE>
Triangle Bancorp, Inc.
Pro Forma Combined Condensed Statements of Income
March 31, 1997
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Combined Triangle Bancorp,
Triangle Trust Preferred,
Bancorp and Trust Preferred UCB/BB&T and
Triangle Bank of Bank of and UCB/BB&T Bank of
Bancorp Mecklenburg Adjustments Mecklenburg Branches (1,6) Adjustments Mecklenburg
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Primary Earnings per
Share $ 0.28 $ 0.25 $ 0.27 $ .28
======================= =========== ================
Fully diluted earnings
per share $ 0.28 $ 0.25 $ 0.27 $ .28
======================= =========== ================
See Notes to Pro Forma Combined Condensed Financial Information.
<PAGE>
Triangle Bancorp, Inc.
Pro Forma Combined Condensed Statements of Income
December 31, 1996
(Unaudited)
(In Thousands)
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Combined Trust Combined
Triangle Preferred Triangle Bancorp,
Triangle Bank of Bancorp and Bank and UCB/BBT UCB/BB&Tand Bank
Bancorp Mecklenburg Adjustments of Mecklenburg Branches (1,6) Adjustments of Mecklenburg
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Loans $ 59,179 $ 8,454 $ - $ 67,633 $ 6,564 $ (356) (9) $ 73,841
Federal Funds Sold 222 74 - 296 - - 296
Investment Securities 13,465 8,565 - 22,030 1,236 $ 7,596 (7) 30,862
----------------------------------------------------------------------------------------- ---------------
Total Interest Income 72,866 17,093 - 89,959 7,800 7,240 104,999
-------------------------------------------------------------------------------------- ---------------
Interest Expense
Deposits 30,738 8,239 38,977 9,064 - 48,041
Borrowed funds 1,872 3,473 5,345 - - 5,345
Redeemable Capital
Securities of
Subsidiary Trust
holding Junior
(13) 1,872
-------------------------------------------------------------------------------------- ---------------
Total Interest Expense 32,610 11,712 - 44,322 10,936 - 55,258
-------------------------------------------------------------------------------------- ---------------
Net Interest Income before
Provision for Loan
Losses 40,256 5,381 - 45,637 (3,136) 7,240 49,741
Provision for Loan
Losses 2,100 230 2,330 - 200 (8) 2,530
-------------------------------------------------------------------------------------- ---------------
Net Interest Income after
Provision for Losses 38,156 5,151 - 43,307 (3,136) 7,040 47,211
Noninterest income 8,494 1,408 9,902 1,549 11,451
772 (8)
Noninterest expenses 29,169 3,551 32,720 2,637 1,745 (9) 37,874
-------------------------------------------------------------------------------------- ---------------
Net Income before taxes 17,481 3,008 - 20,489 (4,224) 4,523 20,788
Income Taxes 6,180 1,089 - 7,269 - 111 (10) 7,380
-------------------------------------------------------------------------------------- ---------------
Net Income $ 11,301 $ 1,919 $ - $ 13,220 $ (4,224) $ 4,412 $ 13,408
-------------------------------------------------------------------------------------- ---------------
</TABLE>
Triangle Bancorp, Inc.
Pro Forma Combined Condensed Statements of Income
December 31, 1996
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Combined Trust Combined
Triangle Preferred Triangle Bancorp,
Triangle Bank of Bancorp and Bank and UCB/BBT UCB/BB&Tand Bank
Bancorp Mecklenburg Adjustments of Mecklenburg Branches (1,6) Adjustments of Mecklenburg
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Primary Earnings per Share $ 1.05 $ .91 $ 1.01 $ 1.04
============================ ================ ==============
Fully diluted earnings per
share $ 1.04 $ .91 $ 1.01 $ 1.04
============================ ================ ==============
See Notes to Pro Forma Combined Condensed Financial Information.
</TABLE>
<PAGE>
Triangle Bancorp, Inc.
Pro Forma Combined Condensed Statements of Income
December 31, 1995
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Pro Forma
Combined
Triangle Bancorp
Triangle Bank of and Bank of
Bancorp Mecklenburg Adjustments Mecklenburg
------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans $50,125 $ 6,372 $ -- $56,497
Federal Funds Sold 472 53 -- 525
Investment Securities 11,644 5,058 -- 16,702
----------------------------------------- ----------------
Total Interest Income 62,241 11,483 -- 73,724
----------------------------------------- ----------------
Interest Expense
Deposits 25,665 5,623 -- 31,288
Borrowed funds 1,475 1,506 -- 2,981
----------------------------------------- ----------------
Total Interest Expense 27,140 7,129 -- 34,269
----------------------------------------- ----------------
Net Interest Income
before Provision for Loan
Losses 35,101 4,354 -- 39,455
Provision for Loan
Losses 428 95 -- 523
----------------------------------------- ----------------
Net Interest Income after
Provision for Losses 34,673 4,259 -- 38,932
Noninterest income 8,066 379 -- 8,445
Noninterest expenses 30,719 2,882 -- 33,601
----------------------------------------- ----------------
Net Income before taxes 12,020 1,756 -- 13,776
Income Taxes 4,162 500 -- 4,662
----------------------------------------- ----------------
Net Income $ 7,858 $ 1,256 $ -- $ 9,114
----------------------------------------- ----------------
Primary earnings per share $ 0.74 $ 0.71
======== ================
Fully diluted earnings per $ 0.73 $ 0.70
======== ================
</TABLE>
See Notes to Pro Forma Combined Condensed Financial Information.
<PAGE>
Triangle Bancorp, Inc.
Pro Forma Combined Condensed Statements of Income
December 31, 1994
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Pro Forma
Combined
Triangle Bancorp
Triangle Bank of and Bank of
Bancorp Mecklenburg Adjustments Mecklenburg
------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans $40,020 $ 4,632 $ -- $44,652
Federal Funds Sold 508 93 -- 601
Investment Securities 9,937 2,836 -- 12,773
----------------------------------------- ----------------
Total Interest Income 50,465 7,561 -- 58,026
----------------------------------------- ----------------
Interest Expense
Deposits 18,257 3,178 -- 21,435
Borrowed funds 1,607 574 -- 2,181
----------------------------------------- ----------------
Total Interest Expense 19,864 3,752 -- 23,616
----------------------------------------- ----------------
Net Interest Income
before Provision for Loan
Losses 30,601 3,809 -- 34,410
Provision for Loan
Losses 1,250 49 -- 1,299
----------------------------------------- ----------------
Net Interest Income after
Provision for Losses 29,351 3,760 -- 33,111
Noninterest income 5,758 98 -- 5,856
Noninterest expenses 28,719 2,403 -- 31,122
----------------------------------------- ----------------
Net Income before taxes 6,390 1,455 -- 7,845
Income Taxes 2,208 453 -- 2,661
----------------------------------------- ----------------
Net Income $ 4,182 $ 1,002 $ -- 5,184
----------------------------------------- ----------------
Primary earnings per share $ 0.41 $ 0.42
=========== ================
Fully diluted earnings per $ 0.41 $ 0.42
=========== ================
See Notes to Pro Forma Combined Condensed Financial Information.
</TABLE>
<PAGE>
<PAGE>
Notes to Pro Forma Combined Condensed Financial Information
(Unaudited)
1. Financial information is the sum of the information available on the
branches to be acquired. As the liabilities of the branches to be assumed
exceed the assets, the balance sheet of the branches has been balanced
through the "Cash and Due from Banks" caption.
2. This adjustment records the decrease in cash received by Triangle Bank
due to the premium paid in the Branch Acquisition.
3. This adjustment reflects the expected utilization of excess cash received
upon closing of the transactions, less cash needed for branch operations of
$1,650,000.
4. This adjustment reduced the acquired loans to the estimated fair value
based on a preliminary assessment of the loan portfolio yields, mix and
maturities. The estimated fair value is subject to a final evaluation.
5. Adjustment reflects the movement of surplus to common stock as Triangle
Stock has no par value.
6. All noninterest income and expense represents the historical charges and
credits and includes no significant intercompany allocations. Interest
income on loans and interest expense on deposits are based on the acquired
balances of loans and deposits multiplied by the applicable branch's
portfolio yields and costs, respectively, as of December 31, 1996. The
average loan yield is 9.23% and the average cost of deposits is 4.22%.
7. These amounts represent the estimated incremental revenues on investments
created by the Branch Acquisition and trust preferred securities issuance
based on Triangle's historical investment yields. The rate utilized of
6.2% represents Triangle's tax equivalent yield on investments for the
calendar year 1996.
8. This adjustment reflects anticipated additional expenses as if the branches
had been operating as a stand alone bank for the period presented. Expenses
were estimated considering similar sized Triangle Bank branches operating
expenses as well as additional infrastructure costs.
9. This adjustment represents the amortization of the intangible assets based
on the straight-line method over an estimated ten years for the deposit
premium ($17,452,000) and three years for the loan premium ($1,066,000).
10. This adjustment represents federal and state income tax expense on
incremental net operating income before taxes.
11. Based on a preliminary review of the types and costs of the deposits to be
acquired, no adjustment to market value appears to be necessary as a part
of the Branch Acquisition.
12. Adjustment represents the addition of $19,950,000 in redeemable capital
securities of a subsidiary trust, holding Junior Subordinated Debentures of
Triangle. Such capital securities were sold on June 3, 1997.
13. Adjustment represents interest expense on the trust preferred securities
described in 12 above. Such securities bear interest at a rate of 9.375%.
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the unaudited historical
capitalization of Triangle as of March 31, 1997; (ii) the unaudited historical
capitalization of Mecklenburg of March 31, 1997; and (iii) the unaudited pro
forma capitalization of Triangle and Mecklenburg assuming the Merger had been
consummated on March 31, 1997. This information has been based on, and should be
read in conjunction with, Triangle's and Mecklenburg's interim unaudited
financial statements, including the related notes thereto, which are
incorporated by reference in this Joint Proxy Statement/Prospectus. (See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.")
<TABLE>
<CAPTION>
Pro Forma
Triangle Mecklenburg Adjustments Combined(1)
(In Thousands)
<S> <C> <C> <C> <C>
Short-term borrowings $ 25,467 $ 54,683 $ - $ 80,150
Long-term Debt - Federal Home Loan Bank Advances 5,000 - - 5,000
Redeemable Capital Securities of Subsidiary Trust
holding Junior Subordinated Debentures of Triangle - - 19,950 (2) 19,950
--------------------------------------------------------
Total 30,467 54,683 19,950 105,100
--------------------------------------------------------
Shareholders' Equity
Capital Stock 61,425 4,238 10,892 (3) 76,555
Additional Paid-In Capital - 10,892 (10,892) (3) -
Retained Earnings 27,238 4,341 - 31,579
Unrealized Loss on Securities AFS (507) 101 - (406)
-----------------------------------------------------------
Total Shareholders' Equity 88,156 19,572 - 107,728
-----------------------------------------------------------
Total Borrowings and
Shareholders' Equity $ 118,623 $ 74,255 $ 19,950 $212,878
==========================================================
</TABLE>
- --------------------------------
1 Assumes that the Merger became effective March 31, 1997 and that all
2,118,945 currently outstanding shares of Mecklenburg Stock were converted into
2,118,945 shares of Triangle Stock at the Exchange Rate. A total of 10,488,854
shares of Triangle Stock were outstanding at March 31, 1997.
2 Reflects issuance of debt on June 3, 1997
3 Reclass Mecklenburg's additional paid in capital to no par value
common stock
<PAGE>
INFORMATION ABOUT TRIANGLE AND TRIANGLE BANK
GENERAL
Triangle is a business corporation incorporated on November 27, 1991,
under the laws of the State of North Carolina for the purpose of becoming a
one-bank holding company. Triangle acquired Triangle Bank in August 1992 as part
of the reorganization of Triangle Bank into a one-bank holding company
structure. Pursuant to the reorganization, the former shareholders of Triangle
Bank became shareholders of Triangle. Triangle holds all of the outstanding
stock of Triangle Bank. Triangle has not engaged in any material activities
independent of the activities of Triangle Bank except for the establishment of
Delaware grantor trust subsidiary to effect the issuance of $20 million in trust
preferred securities. See - "Trust Preferred Securities Offering".
Triangle Bank, headquartered in Raleigh, North Carolina, is chartered
as a state bank under the laws of the State of North Carolina and is a member of
the Federal Reserve. Deposit insurance is provided by the Bank Insurance Fund
("BIF") of the FDIC. The sole business of Triangle Bank is to provide banking
services to businesses and individuals through its 46 offices in 30 cities
located in the Triangle area and throughout the central and eastern region of
North Carolina. Triangle also offers securities and insurance products to its
customers. Triangle Bank primarily serves small and medium-sized businesses as
well as consumers within its markets. Triangle Bank began business on January 4,
1988. On June 30, 1991, Enterprise Bancorp, Inc., a North Carolina bank holding
company, and its wholly-owned subsidiary, Enterprise Bank, National Association,
a national bank, merged into Triangle Bank. On December 28, 1993, New East
Bancorp and its five subsidiary state banks merged into Triangle Bank. On
February 23, 1995, Columbus National Bank, a national bank headquartered in
Whiteville, North Carolina, merged into Triangle Bank. On March 31, 1995,
Standard Bank and Trust Company, a North Carolina-chartered commercial bank
headquartered in Dunn, North Carolina, merged into Triangle Bank. Also, on March
31, 1995, Atlantic Community Bancorp, Inc.("Atlantic"), a North Carolina
corporation and registered bank holding company headquartered in Rocky Mount,
North Carolina, merged with and into Triangle. Atlantic's wholly-owned
subsidiary, Unity Bank & Trust Company, a North Carolina-chartered commercial
bank also headquartered in Rocky Mount, North Carolina, merged into Triangle
Bank on May 11, 1995. On November 1, 1995, The Village Bank, a North
Carolina-chartered commercial bank headquartered in Chapel Hill, North Carolina,
merged into Triangle Bank. On ___________, 1995, Triangle Bank acquired three
branches and approximately $________ million in deposits from NationsBank of
North Carolina, and on January 12, 1996, Triangle acquired four branches and
approximately $55 million in deposits from First Union National Bank of North
Carolina. On October 24, 1996, Granville United Bank, a North Carolina-chartered
commercial bank headquartered in Oxford, North Carolina, merged into Triangle
Bank. On May 20, 1997, Triangle Bank entered into an agreement to acquire eight
branches from United Carolina Bank and two branches from Branch Banking and
Trust Company. See "-Pending Acquisition."
TRIANGLE STOCK
For information regarding Triangle Stock, the market therefor and other
matters, see "SUMMARY - Market for Triangle Stock and Mecklenburg Stock."
Triangle has outstanding warrant agreements acquired upon its merger
with Atlantic in March 1995. Triangle has reserved 12,000 shares of Triangle
Stock for such warrants. Each warrant entitles the holder to purchase a number
of shares of Triangle Stock at a purchase price of $9.17 per share. The warrants
expire on December 31, 2000.
<PAGE>
In April 1995, Triangle's Board of Directors authorized the repurchase
of up to 1% of the shares of Triangle Stock outstanding at that time which
represented approximately 88,000 shares of Triangle Stock. The repurchase was
principally undertaken to fund Triangle's various stock benefit plans. Through
March 31, 1997, Triangle had repurchased ______ shares pursuant to this
authorization prior to its expiration in April 1997. In May 1997, Triangle's
Board of Directors authorized the repurchase of up to 170,000 shares of Triangle
Stock. The repurchase was principally undertaken to fund Triangle's various
stock benefit plans. The repurchase is expected to be effected in small amounts
by May 1999.
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of Triangle Stock by management of
Triangle and information regarding directors and executive officers of Triangle,
executive compensation and certain relationships and related transactions with
management of Triangle is incorporated herein by reference to Triangle's Annual
Report on Form 10-K for the year ended December 31, 1996.
LEGAL PROCEEDINGS
Triangle Bank has been named as a defendant in a lender liability suit
currently pending in state court in North Carolina in which the plaintiff claims
that Triangle Bank breached an oral commitment to make a $100,000 loan to the
plaintiff. The plaintiff is asserting that he is entitled to $5 million in
damages and is seeking to have these damages trebled and an award of attorney's
fees. The suit is scheduled to go to trial in late June 1997. Triangle disputes
the plaintiff's theories of liabilities and damages and intends to continue to
defend the suit vigorously.
PENDING BRANCH ACQUISITION
On May 20, 1997, Triangle Bank entered into a Purchase and Assumption
Agreement to acquire two branch offices from Branch Banking and Trust Company
and eight branch offices from United Carolina Bank, all of which branches are
being divested in connection with the merger of those two companies. The ten
branches are located in the North Carolina counties of Duplin, Lee, Richmond,
Robeson, Washington and Wayne. In the Branch Acquisition, Triangle Bank will
assume approximately $215 million in deposits and approximately $71 million in
aggregate principal amount in loans associated with the ten branches. Triangle
Bank will pay a premium of approximately $17.5 million for the assumption of the
deposits. The Branch Acquisition will be accounted for as a purchase and is
expected to close during the third quarter of 1997. Consummation of the Branch
Acquisition is subject to the approval of the appropriate regulatory agencies.
Moreover, closing of the Branch Acquisition is subject to various contractual
conditions precedent. No assurance can be given that the conditions precedent to
consummating the Branch Acquisition will be satisfied in a manner that will
result in consummation or that necessary regulatory approvals will be received.
For additional information with respect to the branch acquisition, see
"PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION."
<PAGE>
TRUST PREFERRED SECURITIES OFFERING
In May 1997, Triangle caused a Delaware grantor trust subsidiary to be
created which issued trust preferred securities in the amount of $19.95 million
to eight qualified institutional buyers, and $619,000 in trust common securities
to Triangle, both sales occurring on June 3, 1997. The trust securities have a
maturity of 30 years, pay dividends at the rate of 9.375% and may be treated as
tier 1 capital by Triangle. To fund the trust, Triangle sold to the trust $20
million of junior subordinated notes with a yield and maturity identical to the
trust preferred securities. See "PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION."
INFORMATION ABOUT MECKLENBURG
GENERAL
Mecklenburg is a North Carolina-chartered, commercial bank under the supervision
of the Commissioner and, until _______, 1997, the FDIC. On _________, 1997,
Mecklenburg became a Federal Reserve member bank. Mecklenburg was incorporated
on September 8, 1988 and commenced operations on July 12, 1989. Mecklenburg
conducts business from its main office located at 2000 Randolph Road, Charlotte,
North Carolina with additional full service branches located at 6816 Morrison
Boulevard and 1000 East Boulevard, both in Charlotte. Mecklenburg's primary
market area is Mecklenburg County, North Carolina. Mecklenburg provides full
service commercial and consumer banking services.
MECKLENBURG STOCK
Mecklenburg Stock is not traded on any exchange. Mecklenburg Stock
prices are reported over-the-counter in the "pink sheets" by the National Daily
Quotation System. Mecklenburg has paid cash dividends on a quarterly basis since
May 10, 1994. See "SUMMARY - Market for Triangle Stock and Mecklenburg Stock."
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of June 30, 1997, the following shareholder identified in the
following table beneficially owned more than 5% of Mecklenburg Stock.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS (2)
----------------------- ------------------------ --------------------
Cy N. Bahakel
Bahakel Communications, Ltd.
P.O. Box 32488
Charlotte, NC 28232
- -------------
(1) Mr. Bahakel exercises sole voting and investment power with respect to all
shares shown as beneficially owned.
(2) The calculation of the percentage of class beneficially owned by the
individual is based on a number of total outstanding shares equal to
2,118,945 shares currently outstanding.
<PAGE>
As of June 30, 1997, the beneficial ownership of Mecklenburg Stock by
current directors individually, and by current directors and executive
officers as a group, was as follows:
<PAGE>
AMOUNT AND
NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS (2)
------------------------ ------------------------ ---------
Helen C. Adams
H. Perrin Anderson
Cy N. Bahakel
Carl G. Belk
W.E. Bryant, Jr.
Claude T. Davis, Sr.
Aubrey J. Elam
Dee-Dee W. Harris
John H. Ketner, Jr. (3)
Beverly B. Poston
John T. Roper, M.D.
Paul J. Simon
Allan W. Singer
All current directors and
executive officers as a group
(16 persons) (4)
- ---------------
(1) The above individuals and group exercise sole voting and investment power
with respect to all shares shown as beneficially owned.
(2) Unless otherwise noted, the calculation of the percentage of class
beneficially owned by each individual and by the group is based on a number
of total outstanding shares equal to the 2,118,945 shares currently
outstanding.
(3) Includes 59,373 shares that Mr. Ketner has the right to acquire within 60
days of June 30, 1997 through the exercise of stock options.
(4) Includes _________ shares that directors and 86,120 shares that executive
officers have the right to acquire within 60 days of June 30, 1997 through
the exercise of stock options.
<PAGE>
COMPARISON OF MECKLENBURG STOCK
AND TRIANGLE STOCK
Upon consummation of the Merger, the shareholders of Mecklenburg (other
than those who perfect dissenters' rights of appraisal) will become shareholders
of Triangle, and their rights as such will be determined by North Carolina
corporation law and Triangle's Articles of Incorporation and Bylaws. The
following is a summary of certain provisions of Mecklenburg's Articles of
Incorporation and Bylaws and Triangle's Articles of Incorporation and Bylaws,
the relevant provisions of North Carolina law and the material changes in the
rights of shareholders of Mecklenburg that would occur as a result of the
Merger. The following discussion is qualified in its entirety by reference to
Mecklenburg's Articles of Incorporation and Bylaws and Triangle's Articles of
Incorporation and Bylaws and the North Carolina General Statutes. SHARES OF
TRIANGLE STOCK AND MECKLENBURG STOCK ARE NOT, AND CANNOT BE, INSURED BY THE
FDIC.
CAPITAL STRUCTURE
The authorized capital stock of Mecklenburg consists of 10,000,000
shares of common stock, par value $2.00 per share, of which 2,118,945 shares
were outstanding as of March 31, 1997. The authorized capital stock of Triangle
consists of 20,000,000 shares of common stock, no par value per share, of which
10,488,854 shares were outstanding as of March 31, 1997 and of which it is
anticipated approximately 12,607,799 shares will be outstanding upon
consummation of the Merger.
GOVERNING LAW
Triangle is chartered under the laws of the State of North Carolina and
is subject to the provisions of the NCBCA. Mecklenburg, a North
Carolina-chartered, commercial bank, is subject to the provisions of Chapter 53
of the North Carolina General Statutes ("Chapter 53"), and to the extent it is
not inconsistent with Chapter 53, the NCBCA. The following is a brief summary of
certain material provisions of the NCBCA, Chapter 53 and certain material
differences between the respective Articles of Incorporation and Bylaws of
Mecklenburg and the Articles of Incorporation and Bylaws of Triangle.
VOTING
The holders of Mecklenburg Stock and Triangle Stock are entitled to one
vote per share held of record on all matters submitted to a vote of
shareholders. The shareholders of Triangle and Mecklenburg do not have the right
to vote cumulatively in the election of directors. As a result of the absence of
cumulative voting, the majority of votes represented at a legal quorum may elect
all directors and the remaining minority shareholders may not elect any
directors. The absence of cumulative voting makes it more difficult for
shareholders who hold a minority of outstanding shares of Mecklenburg Stock or
Triangle Stock to elect representatives of their choice.
PREEMPTIVE RIGHTS
The holders of Mecklenburg Stock and Triangle Stock do not have
preemptive rights to acquire other or additional shares that may be issued from
time to time. As shareholders of Triangle Stock have no preemptive rights, their
ownership interest in Triangle Stock may be diluted if Triangle issues
additional shares of Triangle Stock in the future.
STATE LAW ANTI-TAKEOVER PROVISIONS
<PAGE>
NORTH CAROLINA SHAREHOLDER PROTECTION ACT. The North Carolina
Shareholder Protection Act (the "Shareholder Act") generally requires that,
unless certain "fair price" and procedural requirements are satisfied, the
affirmative vote of 95% of the voting shares of a corporation is required to
approve certain business combination transactions with another entity that is
the beneficial owner, directly or indirectly, of more than 20% of the voting
shares of the corporation or which is an affiliate of the corporation and
previously has been a 20% beneficial holder of such voting shares. Mecklenburg
is subject to the provisions of the Shareholder Act but the Merger is not
subject to the provisions of the Shareholder Act. Triangle is not subject to the
provisions of the Shareholder Act pursuant to the terms of its Articles of
Incorporation.
NORTH CAROLINA CONTROL SHARE ACQUISITION ACT. The North Carolina
Control Share Acquisition Act (the "Control Act") generally provides that,
except as provided below, "Control Shares" will not have any voting rights.
Control Shares are shares acquired by a person under certain circumstances which
when added to other shares owned, would give such person effective control over
one-fifth, one-third or a majority of all voting power in the election of the
corporation's directors. However, voting rights will be restored to Control
Shares by a resolution approved by the affirmative vote of the holders of a
majority of the corporation's voting stock (other than shares held by the owner
of the Control Shares, officers of the corporation, and directors employed by
the corporation). If voting rights are granted to Control Shares which give the
holder a majority of all voting power in the election of the corporation's
directors, then the corporation's other shareholders may require the corporation
to redeem their shares at their fair value. Mecklenburg is not subject to the
provisions of the Control Act pursuant to its Bylaws and a resolution of the
Mecklenburg Board. Triangle is not subject to the provisions of the Control Act
pursuant to the terms of its Articles of Incorporation.
BUSINESS COMBINATIONS AND CHANGES IN CONTROL
While Triangle is subject to the NCBCA, Triangle's Articles of
Incorporation provide that the affirmative vote of the holders of not less than
80% of the outstanding shares of Triangle Stock is required to approve certain
transactions with Triangle or any affiliate of Triangle specified therein,
including any merger, consolidation, sale of assets, share exchange, or
dissolution. The supermajority provision is inapplicable if the transaction has
been approved (or in the case of a dissolution recommended for shareholder
approval) by two-thirds of all directors of Triangle then in office or if the
other entity is a corporation of which a majority of the outstanding shares of
all classes of stock entitled to vote in elections of directors is owned of
record or beneficially by Triangle or its affiliates. For purposes of such
provision, an "affiliate" is any individual, corporation, partnership, trust,
estate, or other entity who directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the party specified. Triangle's Articles of Incorporation further provide that
the Board of Directors, when evaluating the merits of any transaction described
in such provision, including any merger, consolidation, sale of assets, or share
exchange, or any offer of a party to make a tender or exchange offer for any
equity security of Triangle, shall, in connection with the exercise of its
judgment in determining what is in the best interest of Triangle and its
shareholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effects on the employees, depositors,
customers, suppliers, and other constituents of Triangle and its affiliates, and
on the communities in which Triangle and its affiliates operate or are located.
The supermajority provision of Triangle's Articles of Incorporation may
have the effect of delaying, deferring, or preventing a change in control of
Triangle, which some holders of Triangle Stock may deem to be in their best
interests.
<PAGE>
The constituency provision of Triangle's Articles of Incorporation may
discourage or make more difficult certain acquisition proposals or business
combinations and, therefore, may adversely affect the ability of shareholders to
benefit from certain transactions opposed by the Board of Directors of Triangle.
The constituency provision would allow the Board of Directors of Triangle to
take into account the effects of an acquisition proposal on a broad number of
constituencies and to consider any potential adverse effect in determining
whether to accept or reject such proposal.
The Merger is not subject to the supermajority voting provision as it
has been approved unanimously by Triangle's Board of Directors.
Mecklenburg's Articles of Incorporation and Bylaws contain the same 80%
vote requirement as required of Triangle. However, as the Merger has been
approved unanimously by the Mecklenburg Board, the Merger is not subject to the
supermajority voting provisions. Chapter 53 requires the affirmative vote of
two-thirds of the outstanding shares of Mecklenburg to approve a merger.
AMENDMENT OF ARTICLES OF INCORPORATION
Mecklenburg is subject to the requirements of the NCBCA with respect to
amendments of its Articles of Incorporation. Generally, the NCBCA requires that
the votes cast in favor of an amendment to the Articles of Incorporation must
exceed the votes cast against such amendment in order for Mecklenburg to amend
its Articles of Incorporation. In addition, Mecklenburg's Articles of
Incorporation and Bylaws provide that the 80% supermajority voting requirement
for business combinations and dissolution of Mecklenburg may be amended only by
the affirmative vote of 80% of the outstanding shares of Mecklenburg, unless
such amendment has been approved by two-thirds of all directors of Mecklenburg
then in office.
While Triangle is subject to the NCBCA, Triangle's Articles of
Incorporation require the affirmative vote of 75% of all outstanding shares
present at a meeting where the issue considered is to amend its Articles of
Incorporation. This provision of Triangle's Articles of Incorporation makes it
more difficult for amendments to the Articles of Incorporation to be approved by
Triangle's shareholders. Accordingly, such provision makes it more difficult for
provisions in the Articles of Incorporation to be changed in the event of a
hostile takeover attempt.
<PAGE>
AMENDMENT OF BYLAWS
Mecklenburg's bylaws and Triangle's bylaws may be amended or repealed
and new bylaws may be adopted by action of the Board of Directors or
shareholders of Mecklenburg or Triangle, respectively, except as otherwise
provided in each company's Articles of Incorporation or by the NCBCA. Under the
NCBCA and the bylaws of Mecklenburg and Triangle, the Board of Directors may not
readopt, amend or repeal a bylaw adopted, amended or repealed by the
shareholders if neither the Articles of Incorporation nor a bylaw adopted by the
shareholders authorizes the Board of Directors to adopt, amend or repeal that
particular bylaw or the bylaws generally. The shareholders may amend or repeal
the bylaws of Mecklenburg or Triangle, respectively, even though the bylaws may
also be amended or repealed by the Board of Directors. Triangle's bylaws further
provide that the Board of Directors has no power to adopt a bylaw: (1) changing
the statutory requirement for a quorum of directors or action by directors or
changing the statutory requirement for a quorum of shareholders or action by
shareholders; (2) providing for management of the company otherwise than by the
Board of Directors or the committee thereof; (3) increasing or decreasing the
fixed number of the size of the Board of Directors or the range of directors, or
changing from a fixed number to a range, or visa versa; or (4) classifying and
staggering the election of directors. Mecklenburg's bylaws further provide that
the Board of Directors has no power to adopt a bylaw: (1) requiring more than a
majority of the voting shares for a quorum at a meeting of shareholders or more
than a majority of the votes cast to constitute action by the shareholders,
except where higher percentages are required by law; (2) providing for the
management of Mecklenburg otherwise than by the Board of Directors or its
Executive Committee; (3) increasing or decreasing the number of directors; or
(4) classifying and staggering the election of directors.
The bylaws of Triangle currently provide that the number of directors
shall be at least 10 but no more than 26, although the Bylaw Amendment proposes
to increase the maximum to 28. The Board of Directors may set the number of
directors in this range without shareholder approval. In addition, the bylaws
require the affirmative vote of 75% of shares of Triangle voting, in person or
by proxy, to increase or decrease the range and prohibit the Board of Directors
from changing the range without shareholder approval. The supermajority
requirement for a shareholder vote to change the range of the number of
directors makes it more difficult for Triangle's shareholders to increase the
size of the Board of Directors and elect directors to fill the vacancies created
thereby. Accordingly, one or more shareholders seeking to gain control of the
Board (for example, a tender offer or entity attempting a hostile takeover)
would find its task more difficult. This requirement makes it more difficult for
the size of the Board of Directors to be increased without the existing Board of
Directors' consent.
The Bylaws of Mecklenburg provides that the number of directors shall
be at least nine but not more than 30. The Mecklenburg Board may set the number
of directors in this range without shareholder approval
SHARE PURCHASE AND OPTION PLANS FOR AFFILIATES
The affirmative vote of two-thirds of the issued and outstanding shares
of Mecklenburg and the approval of the Commissioner pursuant to Chapter 53 is
required for Mecklenburg to issue rights, options, or warrants for the purchase
of shares of its capital stock, with the Mecklenburg Board determining the terms
upon which the rights, options or warrants are issued and their form and
content. Shares of capital stock of Mecklenburg may not be issued for less than
85% of the fair market value of the shares on the date the purchase price is
fixed and options may not be granted at less than 100% of the fair market value
on the date of grant. The foregoing rights, options, warrants or shares of
capital stock of Mecklenburg may generally be issued to or for the benefit of
officers, directors, and employees of Mecklenburg free of restrictions, except
as noted above or, as required under the Securities Act. See "THE MERGER -
Resale of Triangle Stock."
<PAGE>
Under the NCBCA, Triangle may issue rights, options, or warrants for
the purchase of shares of its capital stock, with the Board of Directors of
Triangle determining the terms upon which the rights, options or warrants are
issued, their form and content, and the consideration for which the shares are
to be issued. Shares of capital stock of Triangle may be issued for
consideration determined by the Board of Directors to be adequate. The foregoing
rights, options, warrants or shares of capital stock of Triangle may generally
be issued to or for the benefit of officers, directors, and employees of
Triangle or its subsidiaries free of restrictions, except as set forth above or
as required under the Securities Act. See "THE MERGER - Resale of Triangle
Stock."
REDEMPTION OF STOCK
Triangle may repurchase shares of Triangle Stock, provided that certain
requirements as to the effect of the repurchase on Triangle solvency and the
relationship between its assets and liabilities are fulfilled.
As a bank holding company, Triangle is required to give the Federal
Reserve Bank of Richmond (the "Federal Reserve Bank") prior written notice of
any purchase or redemption of any shares of its outstanding equity securities if
the gross consideration to be paid for such purchase or redemption, when
aggregated with the net consideration paid by Triangle for all purchases or
redemption of its equity securities during the 12 months preceding the date of
notification, equals or exceeds 10% of its consolidated net worth as of the date
of such notice. The Federal Reserve Bank must either approve the transaction
described in the notice within 30 days of receipt of the notice or refer it to
the Federal Reserve for action within 60 days after the Federal Reserve Bank's
receipt thereof.
Under Chapter 53, Mecklenburg is generally required to obtain the prior
approval of the holders of two-thirds of its outstanding shares before it can
repurchase any shares of Mecklenburg Stock. Additionally, the prior approval of
the Commissioner and the FDIC is required for the redemption or retirement of
any shares of Mecklenburg Stock.
TRANSFERABILITY BY CERTAIN PERSONS
Mecklenburg Stock, unlike that of Triangle, is exempt from the
registration requirements of the Securities Act and the North Carolina
Securities Act. The effect of such exemptions is to allow Mecklenburg and its
shareholders to sell shares of Mecklenburg Stock without registration under such
laws. In contrast, the public sale by Triangle of its stock and resales of
Triangle Stock by certain persons who are at the time of resale "affiliates" of
Triangle must be registered under the Securities Act and the North Carolina
Securities Act or meet certain statutory and regulatory requirements to qualify
for an exemption from registration. The exemption from registration under the
Securities Act most often used by affiliates of public corporations is Rule 144
which requires, among other things, that affiliates' shares be sold in "brokers'
transactions" without any solicitation of offers to purchase such shares.
ASSESSMENTS; IMPAIRMENT OF CAPITAL
Under Chapter 53, holders of Mecklenburg Stock may be assessed for the
amount of any impairment in the capital stock of Mecklenburg due to losses or
any other cause when the surplus and undivided profits of Mecklenburg are
insufficient to make good such impairment. No such equivalent assessment
provisions are contained in North Carolina law with respect to the Triangle
Stock or Triangle's shareholders.
NUMBER, ELECTION AND REMOVAL OF DIRECTORS
<PAGE>
The Board of Directors of Triangle is divided into three classes, with
the number of directors in each class to be as nearly equal in number as
possible. Directors of each class are elected to hold office for three years.
Each director holds office until the annual meeting for the year in which his or
her term expires and until his or her successor is elected and qualified or
until his or her earlier death, resignation, retirement, removal or
disqualification.
Triangle's Articles of Incorporation provide that a director may be
removed without cause by the shareholders only if (i) the removal without cause
is recommended to the shareholders by the Board of Directors pursuant to a vote
of not less than 75% of the directors then in office and (ii) the shareholders
approve such removal by a vote of 75% of the votes present at the meeting where
the issue is considered. Directors also are removable by the shareholders with
cause pursuant to a vote of 75% of the outstanding shares of Triangle Stock, but
no specific director recommendation is required. The Articles of Incorporation
define "cause" as "personal dishonesty, incompetence, mental and physical
incapacity, breach of fiduciary duty involving personal profit, a failure to
perform stated duties, or a violation of any law, rule or regulation (other than
a traffic violation or similar routine offense) based on a conviction for such
offense or an opinion of counsel to Triangle to such effect."
The supermajority provisions of Triangle's Articles of Incorporation
discourages hostile takeover attempts so that Triangle will be able to follow
through with its business plan which it has developed in the interest of all
Triangle shareholders. Management believes that, for a financial institution,
allowing Board members to be removed and replaced without cause by the
shareholders would open Triangle to acquisition or control by interests that
might not follow through with the Board's business plan for Triangle.
The Board of Directors of Mecklenburg is divided into three classes,
with the number of directors in each class to be as nearly equal in number as
possible. Directors of each class are elected to hold office for three years.
Each director holds office until the annual meeting for the year in which his or
her term expires and until his or her successors are elected and qualified or
until his or her earlier death, resignation, retirement, removal or
disqualification. A director may be removed from office, with or without cause,
by a vote of shareholders holding a majority of the shares entitled to vote at
an election of directors. However, unless the entire Board is removed, an
individual director may not be removed if the number of shares voting against
the removal would be sufficient to elect a director if such shares were voted
cumulatively at the annual meeting.
INDEMNIFICATION AND ELIMINATION OF DIRECTOR LIABILITY
The NCBCA provides for indemnification by a corporation of its
officers, directors, employees and agents, and any person who is or was serving
at the corporation's request as a director, officer, employee or agent of
another entity or enterprise or as a trustee or administrator under an employee
benefit plan, against liability and expenses, including reasonable attorneys'
fees, in any proceeding (including without limitation a proceeding brought by or
on behalf of the corporation itself) arising out of their status as such or
their activities in any of the foregoing capacities.
<PAGE>
PERMISSIBLE INDEMNIFICATION. Under the NCBCA, a corporation may, but is
not required to, indemnify any such person against liability and expenses
incurred in any such proceeding, provided such person conducted himself or
herself in good faith and (i) in the case of conduct in his or her official
corporate capacity, reasonably believed that his or her conduct was in the
corporation's best interests, and (ii) in all other cases, reasonably believed
that his or her conduct was at least not opposed to the corporation's best
interests; and, in the case of a criminal proceeding, where he or she had no
reasonable cause to believe his or her conduct was unlawful. However, a
corporation may not indemnify such person either in connection with a proceeding
by or in the right of the corporation in which such person was adjudged liable
to the corporation, or in connection with any other proceeding charging improper
personal benefit to such person (whether or not involving action in an official
capacity) in which such person was adjudged liable on the basis that personal
benefit was improperly received.
MANDATORY INDEMNIFICATION. Unless limited by the corporation's charter,
the NCBCA requires a corporation to indemnify a director or officer of the
corporation who is wholly successful, on the merits or otherwise, in the defense
of any proceeding to which such person was a party because he or she is or was a
director or officer of the corporation against reasonable expenses incurred in
connection with the proceeding.
ADVANCE FOR EXPENSES. Expenses incurred by a director, officer,
employee or agent of the corporation in defending a proceeding may be paid by
the corporation in advance of the final disposition of the proceeding as
authorized by the board of directors in the specific case, or as authorized by
the charter or bylaws or by any applicable resolution or contract, upon receipt
of an undertaking by or on behalf of such person to repay amounts advanced
unless it ultimately is determined that such person is entitled to be
indemnified by the corporation against such expenses.
VOLUNTARY INDEMNIFICATION. In addition to and separate and apart from
"permissible" and "mandatory" indemnification described above, a corporation
may, by charter, bylaw, contract or resolution, indemnify or agree to indemnify
any one or more of its directors, officers, employees or agents against
liability and expenses in any proceeding (including any proceeding brought by or
on behalf of the corporation itself) arising out of their status as such or
their activities in any of the foregoing capacities. However, the corporation
may not indemnify or agree to indemnify a person against liability or expenses
he may incur on account of activities which were at the time taken known or
believed by such person to be clearly in conflict with the best interests of the
corporation. Any provision in a corporation's charter or bylaws or in a contract
or resolution may include provisions for recovery from the corporation of
reasonable costs, expenses and attorneys' fees in connection with the
enforcement of rights to indemnification granted therein and may further include
provisions establishing reasonable procedures for determining and enforcing such
rights.
COURT-ORDERED INDEMNIFICATION. Unless otherwise provided in the
corporation's charter, a director or officer of the corporation who is a party
to a proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court deems necessary, may
order indemnification if it determines either (i) that the director or officer
is entitled to mandatory indemnification as described above, in which case the
court also will order the corporation to pay the reasonable expenses incurred to
obtain the court-ordered indemnification, or (ii) that the director or officer
is fairly and reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not such person met the requisite standard of conduct
or was adjudged liable to the corporation in connection with a proceeding by or
in the right of the corporation or on the basis that personal benefit was
improperly received in connection with any other proceeding so charging (but if
adjudged so liable, indemnification is limited to reasonable expenses incurred).
<PAGE>
PARTIES ENTITLED TO INDEMNIFICATION. The NCBCA defines "director" to
include ex-directors and the estate or personal representative of a director.
Unless its charter provides otherwise, a corporation may indemnify and advance
expenses to an officer, employee or agent of the corporation to the same extent
as to a director and also may indemnify and advance expenses to an officer,
employee or agent who is not a director to the extent, consistent with public
policy, as may be provided in its charter or bylaws, by general or specific
action of its board of directors, or by contract.
INDEMNIFICATION BY TRIANGLE AND MECKLENBURG. The Articles of
Incorporation of Mecklenburg provide for indemnification of directors and
officers of Mecklenburg to the fullest extent permitted by North Carolina law.
The Bylaws of Triangle provide for indemnification of its directors and officers
to the fullest extent permitted by North Carolina law. Under the NCBCA, a
corporation also may purchase insurance on behalf of any person who is or was a
director or officer against any liability arising out of his status as such.
Triangle and Mecklenburg each currently maintains directors' and officers'
liability insurance.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Triangle,
Triangle has been informed that, in the opinion of the Commission, such
indemnification is against public policy expressed in the Securities Act and is,
therefore, unenforceable.
ELIMINATION OF DIRECTOR LIABILITY. The Articles of Incorporation of
Mecklenburg and Triangle provide for the elimination of personal liability of
directors for monetary damage to the fullest extent permitted by applicable law.
The limitation on monetary damages does not preclude other equitable remedies
such as injunctive relief or rescission. Further, such limitation may not be
available for violations of federal and state banking and securities laws.
DIVIDEND POLICY
Triangle paid its first cash dividend on September 30, 1994 in the form
of a quarterly dividend of $0.04 per share. Prior to the formation of Triangle,
Triangle Bank had not declared or paid any dividends since its organization in
1988. Under Chapter 53, Triangle Bank was not permitted to pay dividends until
three years after it was organized. Therefore, Triangle Bank was first able to
pay dividends under North Carolina law on January 5, 1991.
The holders of Triangle Stock are entitled to receive dividends when
and if declared by its Board of Directors out of funds legally available
therefor. There can be no assurance that after the Merger any dividends will be
declared or paid or, if declared and paid, continued in the future. The
declaration and payment of dividends will depend upon business conditions,
operating results, capital and reserve requirements, and Triangle's Board of
Directors' consideration of other relevant factors. Subject to the foregoing, it
is currently Triangle's intent to pay quarterly cash dividends. The principal
sources of funds for the payment of dividends by Triangle are dividends from
Triangle Bank. See "CERTAIN REGULATORY MATTERS - Dividends" for information
regarding certain restrictions on the payment of dividends by Triangle Bank to
Triangle.
The holders of Mecklenburg Stock are entitled to receive dividends when
and if declared by the Mecklenburg Board out of funds legally available
therefor. Mecklenburg paid its first cash dividend on May 10, 1994 in the form
of a quarterly dividend of $.03 per share. Like Triangle, the payment of cash
dividends by Mecklenburg is limited by certain regulatory restrictions and is
dependent upon business conditions, operating results, capital and reserve
requirements, and the Mecklenburg Board's consideration of other relevant
factors.
<PAGE>
CERTAIN REGULATORY MATTERS
GENERAL
Bank holding companies and banks are extensively regulated under both
federal and state law. The following discussion summarizes some of the statutory
and regulatory restrictions imposed upon the operations of Triangle, Triangle
Bank and Mecklenburg. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
applicable law or regulation may have a material effect on the business of
Triangle, Triangle Bank and Mecklenburg. Supervision, regulation, and
examination of financial institutions by the regulatory agencies are intended
primarily for the protection of depositors rather than the holders of
Mecklenburg Stock or Triangle Stock.
From time to time bills are introduced in the United States Congress
which would provide for wide-ranging proposals for altering the structure,
regulation, and competitive relationships of the nation's financial
institutions. Among such bills which have recently been considered by Congress
and which may be introduced in the future are proposals to prohibit financial
institutions and holding companies from conducting certain activities, to
subject financial institutions to increased disclosure and reporting
requirements, and to further alter the regulatory structure relative to
financial institutions. It cannot be predicted with accuracy whether or in what
form any of these proposals will be adopted or the extent of their effect upon
all financial institutions.
BANK HOLDING COMPANY REGULATION
Triangle is a bank holding company, registered with the Federal Reserve
under the BHC Act, and with the Commissioner under the North Carolina Bank
Holding Company Act of 1984, as amended (the "North Carolina Act"). As such,
Triangle is subject to the supervision, examination, and reporting requirements
contained in the BHC Act and the North Carolina Act and the regulations of the
Federal Reserve and the Commissioner.
BANK REGULATION
As banks, Triangle Bank and Mecklenburg are subject to numerous state
and federal statutes and regulations that affect their business, activities and
operations. Triangle Bank is supervised and examined by the Federal Reserve.
Prior to ______, 1997, Mecklenburg was supervised and examined by the FDIC, but
now is supervised and examined by the Federal Reserve. In addition, Triangle
Bank and Mecklenburg are supervised and examined by the Commissioner. The
Federal Reserve, the FDIC and the Commissioner are required to regularly examine
the operations of banks over which they exercise jurisdiction. They have the
authority to approve or disapprove the establishment of branches, mergers,
consolidations, and other similar corporate actions, and to prevent the
continuance or development of unsafe or unsound banking practices and other
violations of law. The Federal Reserve, the FDIC, and the Commissioner regulate
and monitor all areas of the operations of banks and their subsidiaries,
including loans, mortgages, issuances of securities, capital adequacy, loss
reserves, and compliance with the Community Reinvestment Act and other laws and
regulations. Interest and certain other charges collected and contracted for by
the banks are also subject to state usury laws and certain federal laws
concerning interest rates.
<PAGE>
The deposit accounts of Triangle Bank and Mecklenburg are insured by
the BIF of the FDIC up to a maximum of $100,000 per insured depositor. The FDIC
issues regulations and conducts periodic examinations, requires the filing of
reports, and generally supervises the operations of its insured banks. The
approval of the FDIC is required prior to a bank's merger or consolidation,
assumption of deposit liabilities, or establishment or relocation of an office
facility, unless, as in the case of Triangle Bank and Mecklenburg, such matters
are subject to the jurisdiction of the Federal Reserve. This supervision and
regulation is intended primarily for the protection of depositors. Any insured
bank that is not operated in accordance with or does not conform to federal
regulations, policies, and directives may be sanctioned for noncompliance. Civil
and criminal proceedings may be instituted against any insured bank or any
director, officer, or employee of such bank for the violation of applicable laws
and regulations, breaches of fiduciary duties, or engaging in any unsafe or
unsound practice. The FDIC has the authority to terminate insurance of accounts
pursuant to procedures established for that purpose.
<PAGE>
DIVIDENDS
Although Triangle is not subject to any direct legal or regulatory
restrictions on dividends (other than the requirements under the NCBCA that a
distribution may not be made if after giving it effect the corporation would not
be able to pay its debts as they become due in the usual course of business or
the corporation's total assets would be less than its liabilities), Triangle's
ability to pay cash dividends is dependent upon the amount of dividends paid by
Triangle Bank. The ability of Triangle Bank and Mecklenburg to pay dividends is
subject to statutory and regulatory restrictions on the payment of cash
dividends, including the requirement under the North Carolina banking laws that
cash dividends be paid only out of undivided profits and only if the bank has
surplus of a specified level. Federal bank regulatory agencies also have the
general authority to limit the dividends paid by insured banks and bank holding
companies if such payment may be deemed to constitute an unsafe and unsound
practice.
CAPITAL REQUIREMENTS
Triangle and Triangle Bank are required by federal regulations to
maintain certain minimum capital levels. Federal regulators impose capital
requirements on federally insured depository institutions and their holding
companies to ensure that such institutions have a sufficient capital base to
absorb operating losses and to provide a cushion to the federal deposit
insurance funds. At March 31, 1997, Triangle and Triangle Bank exceeded their
respective capital requirements.
Upon consummation of the Merger, Triangle and Triangle Bank will
continue to remain in compliance with all existing capital requirements as shown
in the table below.
TRIANGLE BANCORP, INC.
PRO FORMA CAPITAL CALCULATION
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
TRIANGLE,
MECKLENBURG,
TRIANGLE UCB/BB&T BRANCHES MINIMUM
TRIANGLE MECKLENBURG(2) COMBINED AND TRUST REGULATORY
PREFERRED RATIOS
<S> <C> <C> <C> <C> <C>
Tier 1 capital to 11.04% 15.79% 11.72% 10.90% 4.0%
risk weighted assets
Total capital to risk 12.29% 16.85% 12.97% 12.15% 8.0%
weighted assets
Leverage ratio(1) 7.91% 7.21% 7.77% 6.70% 4.0%
</TABLE>
(1) Leverage ratio is calculated as Tier 1 capital divided by quarterly
average assets less goodwill and other disallowed intangibles.
(2) As Mecklenburg will be operating as a separate subsidiary, there
will be no effect on its capital ratios immediately after the Merger.
TRIANGLE BANK
PRO FORMA CAPITAL CALCULATION
AS OF MARCH 31, 1997
PRO FORMA COMBINED
TRIANGLE BANK,
TRIANGLE UCB/BB&T BRANCHES MINIMUM
BANK AND TRUST PREFERRED REGULATORY RATIOS
Tier 1 capital to 10.97% 8.82% 4.0%
risk weighted assets
Total capital to risk 12.23% 10.07% 8.0%
weighted assets
Leverage ratio(1) 7.86% 5.77% 4.0%
<PAGE>
(1) Leverage ratio is calculated as Tier 1 capital divided by quarterly
average assets less goodwill and other disallowed intangibles.
The capital requirements currently in effect could be increased by the
federal regulators. Moreover, the management of Triangle may determine that it
is advisable, or banking regulators may require, that Triangle and Triangle Bank
raise additional capital as a result of growth, unanticipated losses or
inadequate financial performance, or for other reasons. No assurances can be
given that any such additional capital would be available to Triangle or
Triangle Bank.
LEGISLATION AND GOVERNMENTAL POLICIES
Legislative and regulatory proposals regarding changes in banking, and
the regulation of banks, savings and loan associations, and other financial
institutions are considered from time to time by the executive branch of the
Federal government, Congress, and various state governments, including North
Carolina. Certain of these proposals, if adopted, could significantly change the
regulation of banks and the financial services industry generally. It cannot be
predicted whether any of these proposals will be adopted, and, if adopted, how
these will affect Triangle, Triangle Bank or Mecklenburg.
In September 1994, Congress passed the Interstate Banking and Branching
Efficiency Act (the "Interstate Act"). The Interstate Act permits adequately
capitalized bank holding companies to acquire control of banks in any state.
States may require the bank being acquired to have been in existence for a
certain length of time but not in excess of five years. No bank may acquire more
than 10% of nationwide insured deposits or 30% of any state's insured deposits.
States have the right to waive the 30% limit. As of June 1, 1997, banks may
merge under the Interstate Act with other banks across state lines. States could
opt-in to such interstate branching earlier or could opt-out of interstate
branching by June 1, 1997. The states of Texas and Colorado have opted out of
interstate branching. Under the Interstate Act, establishing new branches in
another state will require that state's specific approval. Legislation to have
North Carolina opt in for earlier adoption of interstate branching was passed in
1995. During 1993, North Carolina adopted legislation authorizing interstate
mergers. There can be no assurance as to what impact such legislation or the
Interstate Act might have upon Triangle and its subsidiaries.
MONETARY POLICY AND ECONOMIC CONTROLS
Triangle, Triangle Bank and Mecklenburg are directly affected by
government monetary policy and by regulatory measures affecting the financial
services industry in general. Of primary importance is the Federal Reserve,
whose actions directly affect the money supply and, in general, affect the
lending ability of financial institutions by increasing or decreasing the cost
and availability of funds to financial institutions. The Federal Reserve
regulates the availability of credit in order to combat recession and curb
inflationary pressures in the economy by open market operations in United States
government securities, changes in the discount rate on member bank borrowings
and changes in reserve requirements against bank deposits.
Deregulation of interest rates paid by banks and savings and loan
associations on deposits and the types of deposits that may be offered by such
institutions have eliminated minimum balance requirements and rate ceilings on
various types of time deposit accounts. The effect of these specific actions
and, in general, the deregulation of deposit interest rates have made such
institutions much more sensitive to fluctuations in money market rates. In view
of the changing conditions in the national economy and money markets, as well as
the effect of actions by monetary and fiscal authorities, no prediction can be
made as to possible future changes in interest rates, deposit levels, loan
demand, or the business and earnings of Triangle, Triangle Bank or Mecklenburg.
<PAGE>
THE PROPOSED BYLAW AMENDMENT
The Board of Directors of Triangle has voted to recommend to the
shareholders a proposed amendment to Article III, Section 2 of Triangle's
Amended and Restated Bylaws to increase the maximum number of directors from 26
to 28. Under the current Bylaws, the number of directors may be between 10 and
26 with a number within that range to be set by the Board of Directors. The
Board of Directors of Triangle has reached its maximum membership of 26
directors. In order to fulfill its obligations under the Agreement without
requesting the resignation of presently serving directors, Triangle must
increase the maximum number of directors under its Bylaws. The Board of
Directors of Triangle recommends that its shareholders adopt the Bylaw Amendment
to increase the authorized number of Triangle directors to accommodate
Triangle's obligations under the Agreement which requires that Mr. Cy N.
Bahakel, Chairman of the Board of Directors of Mecklenburg, be elected to the
Triangle Board of Directors. Increasing the maximum directors to 28 also would
allow for future flexibility in expanding the number of directors if and when
such expansion is deemed advisable by the Board of Directors and if a qualified
candidate for such directorship had been identified. The text of Article III,
Section 2 as proposed to be amended is as follows:
The number of Directors constituting the Board of Directors of the
Corporation shall be not less than 10 nor more than 28 as from time
to time may be fixed or changed within said minimum or maximum by the
affirmative vote of a majority of Directors present at any regular or
special meeting of the Board of Directors at which a quorum is
present. Such minimum and maximum may not be changed by the Board of
Directors, but only by the affirmative vote of 75% of all eligible
votes present, in person or by proxy, at a meeting of shareholders at
which a quorum is present. Such minimum and maximum may not be
changed at a meeting of shareholders unless the notice of the meeting
states that the purpose, or one of the purposes, of the meeting is to
change the number of Directors of the Corporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT ITS SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE BYLAW AMENDMENT.
LEGAL AND TAX MATTERS
Alexander M. Donaldson, Senior Vice President and General Counsel of
Triangle, will deliver an opinion at the Effective Time to the effect that
Triangle Stock to be issued to the shareholders of Mecklenburg in connection
with the Merger, when issued as contemplated in the Agreement, will be validly
issued, fully paid, and non-assessable.
Coopers & Lybrand L.L.P., tax advisors to Triangle, has delivered an
opinion to Triangle and Mecklenburg concerning certain federal income tax
consequences of the Merger as required by the Agreement. See "THE MERGER -
Certain Federal Income Tax Consequences."
Certain other legal matters in connection with the Merger will be
passed upon for Triangle by Mr. Donaldson and for Mecklenburg by Robinson,
Bradshaw, & Hinson, P.A., Charlotte, North Carolina.
EXPERTS
<PAGE>
The consolidated balance sheets of Triangle Bancorp, Inc. as of
December 31, 1996 and 1995, and the consolidated statements of income, changes
in stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996, have been incorporated by reference herein and
in the Registration Statement in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The balance sheets of Bank of Mecklenburg as of December 31, 1996 and
1995, and the statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996, have been
incorporated by reference herein and in the Registration Statement in reliance
on the report of KPMG Peat Marwick LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing. The independent
auditors' report on the financial statements referred to above contains an
explanatory paragraph for Mecklenburg's adoption of Statement of Financial
Accounting Standards No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES", on January 1, 1994.
Representatives of KPMG Peat Marwick LLP are expected to be present at
the Mecklenburg Special Meeting, and representatives of Coopers & Lybrand L.L.P.
are expected to be present at the Triangle Special Meeting, and will have an
opportunity to make a statement if they desire to do so, and are expected to be
available to respond to appropriate questions.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Board of
Directors of Mecklenburg did not know of any matters that will be presented for
consideration at the Mecklenburg Special Meeting other than as described in this
Joint Proxy Statement/Prospectus. However, if any other matters shall come
before the Mecklenburg Special Meeting or any adjournment thereof and be voted
upon, the enclosed proxy will be deemed to confer discretionary authority to the
individuals named as proxies therein to vote the shares represented by such
proxy as to any such matters.
As of the date of the Joint Proxy Statement/Prospectus, the Board of
Directors of Triangle did not know of any matters that will be presented for
consideration at the Triangle Special Meeting other than as described in this
Joint Proxy Statement/Prospectus. However, if any other matters shall come
before the Triangle Special Meeting or any adjournment thereof and be voted
upon, the enclosed proxy will be deemed to confer discretionary authority to the
individuals named as proxies therein to vote the shares represented by such
proxy as to any such matters.
SHAREHOLDER PROPOSALS
If the Merger is not consummated for any reason, Mecklenburg expects to
hold its 1998 annual meeting of shareholders in April 1998. In such event, any
proposal of a shareholder that is intended to be presented at the 1998 annual
meeting of shareholders must be received by Mecklenburg at its main office in
Charlotte, North Carolina no later than December 22, 1997 in order that any such
proposal be timely received for inclusion in the proxy statement and appointment
of proxy to be issued in connection with such meeting.
Whether or not the Merger is consummated, Triangle expects to hold its
1998 annual meeting of shareholders in April 1998. Any proposal of a shareholder
of Triangle which is intended to be presented at the 1998 annual meeting, must
be received by Triangle at its principal executive office in Raleigh, North
Carolina no later than December 26, 1997 in order to be included in Triangle's
proxy statement and form of appointment of proxy to be issued in connection with
that meeting.
<PAGE>
=============================================================================
=============================================================================
APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED APRIL 25, 1997
<PAGE>
AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
BY AND BETWEEN
BANK OF MECKLENBURG
AND
TRIANGLE BANCORP, INC.
APRIL 25, 1997
I-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. AGREEMENT TO MERGE................................................................................... 2
1.01. Names of Merging Corporations.................................................................. 2
1.02. Nature of Transaction.......................................................................... 2
1.04. Assets and Liabilities of Interim.............................................................. 2
1.05. Conversion and Exchange of Stock............................................................... 3
a. Conversion of Mecklenburg Stock........................................................... 3
b. Exchange Procedures....................................................................... 3
c. Treatment of Fractional Shares............................................................ 4
d. Surrender of Certificates................................................................. 4
e. Antidilutive Adjustments.................................................................. 5
f. Dissenters................................................................................ 5
g. Lost Certificates......................................................................... 5
h. Treatment of Mecklenburg's Stock Options.................................................. 5
i. Outstanding Triangle Stock ............................................................... 7
1.06. Articles, By-Laws and Management............................................................... 7
1.07. Closing; Plan of Merger; Effective Time........................................................ 7
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF MECKLENBURG........................................................8
2.01. Organization; Standing; Power................................................................. 8
2.02. Capital Stock.................................................................................. 8
2.03. Principal Shareholders......................................................................... 8
2.04. Subsidiaries....................................................................................8
2.05. Convertible Securities, Options, Etc............................................................9
2.06. Authorization and Validity of Agreement....................................................... 9
2.07. Validity of Transactions; Absence of Required .................................................10
2.08. Mecklenburg Books and Records..................................................................10
2.10. Mecklenburg Financial Statements...............................................................11
2.11. Tax Returns and Other Tax Matters..............................................................11
2.12. Absence of Material Adverse Changes or Certain Other Events ...................................12
2.13. Absence of Undisclosed Liabilities............................................................ 12
2.14. Compliance with Existing Obligations.......................................................... 12
2.15. Litigation and Compliance with Law.............................................................13
2.16. Real Properties............................................................................... 14
2.17. Loans, Accounts, Notes and Other Receivables...................................................15
2.18. Securities Portfolio and Investments.......................................................... 16
2.19. Personal Property and Other Assets............................................................ 16
2.20. Patents, Trademarks and Licenses.............................................................. 16
2.21. Environmental Matters......................................................................... 17
2.22. Absence of Brokerage or Finders Commissions....................................................18
2.23. Material Contracts............................................................................ 19
i
<PAGE>
2.24. Employment Matters; Employee Relations........................................................ 19
2.25. Employee Agreements; Employee Benefit Plans................................................... 20
2.26. Insurance..................................................................................... 21
2.27. Insurance of Deposits......................................................................... 22
2.28. Affiliates.....................................................................................22
2.29. Obstacles to Regulatory Approval, Accounting Treatment or Tax Treatment........................22
2.30. Disclosure.................................................................................... 22
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE HOLDING COMPANY............................................ 23
3.01. Organization; Standing; Power................................................................. 23
3.02. Capital Stock................................................................................. 23
3.03. Authorization and Validity of Agreement....................................................... 23
3.04. Validity of Transactions; Absence of Required Consents or Waivers..............................24
3.05 Holding Company Books and Records..............................................................24
3.06. Holding Company Reports....................................................................... 25
3.07. Holding Company Financial Statements.......................................................... 25
3.08. Absence of Material Adverse Changes........................................................... 25
3.09. Litigation and Compliance with Law............................................................ 26
3.10 Absence of Brokerage or Finders Commissions................................................... 27
3.11. Obstacles to Regulatory Approval, Accounting
Treatment or Tax Treatment..................................................................28
3.12. Disclosure.....................................................................................28
ARTICLE IV. COVENANTS OF MECKLENBURG........................................................................... 28
4.01. Affirmative Covenants of Mecklenburg.......................................................... 28
a. "Affiliates" of Mecklenburg............................................................... 28
b. Conduct of Business Prior to Effective Time............................................... 28
c. Periodic Information Regarding Loans...................................................... 29
d. Notice of Certain Changes or Events....................................................... 30
e. Consents to Assignment of Leases.......................................................... 30
f. Further Action; Instruments of Transfer, etc.............................................. 31
g. Conversion to State Member Bank........................................................... 31
4.02. Negative Covenants of Mecklenburg......................................................... 31
a. Amendments to Articles of Incorporation or Bylaws..........................................31
b. Change in Capital Stock................................................................... 31
c. Options, Warrants and Rights.............................................................. 31
d. Dividends................................................................................. 31
e. Employment, Benefit or Retirement Agreements or Plans..................................... 31
f. Increase in Compensation; Additional
Compensation............................................................................ 32
g. Accounting Practices...................................................................... 32
h. Acquisitions; Additional Branch Offices................................................... 32
i. Changes in Business Practices............................................................. 32
ii
<PAGE>
j. Exclusive Merger Agreement................................................................ 33
l. Debt; Liabilities......................................................................... 34
m. Liens; Encumbrances....................................................................... 34
n. Waiver of Rights.......................................................................... 34
o. Other Contracts........................................................................... 34
ARTICLE V. COVENANTS OF THE HOLDING COMPANY.....................................................................35
5.01. Operation as Subsidiary........................................................................35
5.02. Board of Directors.............................................................................35
5.03. NASDAQ National Market System Notification of Listing of Additional Shares of Triangle
Stock.........................................................................................35
5.04 Notice of Certain Changes or Events............................................................35
5.05 The Holding Company to Provide Necessary.......................................................
5.06 The Holding Company to File Form 8-K...........................................................36
ARTICLE VI. MUTUAL AGREEMENTS.................................................................................. 36
6.01. Shareholders' Meetings; Registration Statement; Joint Proxy
Statement/Prospectus.........................................................................36
a. Meetings of Shareholders.................................................................. 36
b. Preparation and Distribution of Joint Proxy Statement/Prospectus...........................36
c. Registration Statement and "Blue Sky" Approvals........................................... 37
d. Recommendation of Mecklenburg's Board of
Directors................................................................................. 37
e. Information for Joint Proxy Statement/Prospectus and Registration Statement............... 37
6.02. Regulatory Approvals.......................................................................... 38
6.03. Access........................................................................................ 38
6.04. Costs..........................................................................................39
6.05. Announcements................................................................................. 39
6.06. Environmental Studies......................................................................... 39
6.07. Employees; Severance Payments; Employee
Benefits.....................................................................................40
a. Employment of Mecklenburg Employees....................................................... 40
b. Severance Payment......................................................................... 41
c. Employee Benefits......................................................................... 41
6.08. Confidentiality........................................................................... 41
6.09. Reorganization for Tax Purposes............................................................... 42
6.10. Accounting Treatment...........................................................................42
6.11. Other Permissible Transactions.................................................................42
ARTICLE VII. CONDITIONS PRECEDENT TO MERGER.................................................................... 43
7.01. Conditions to all Parties' Obligations........................................................ 43
iii
<PAGE>
a. Approval by Governmental or Regulatory Authorities; No Disadvantageous
Conditions.................................................................................43
b. Effectiveness of Registration Statement; Compliance with Securities and Other
"Blue Sky" Requirements................................................................... 43
c. Adverse Proceedings, Injunction, Etc...................................................... 43
d. Approval by Boards of Directors and Shareholders........................................ 44
e. Fairness Opinions......................................................................... 44
f. Tax Opinion............................................................................... 44
g. No Termination or Abandonment............................................................. 45
7.02. Additional Conditions to Mecklenburg's Obligations............................................ 45
b. Compliance with Laws...................................................................... 45
c. The Holding Company's Representations and Warranties and Performance of
Agreements; Officers' Certificate....................................................... 45
d. Legal Opinion of the Holding Company's Counsel............................................ 46
e. Other Documents and Information from the Holding Company ................................ 46
f. Acceptance by Mecklenburg's Counsel....................................................... 46
7.03. Additional Conditions to the Holding Company's Obligations.....................................46
a. Material Adverse Change............................................................... ....46
b. Compliance with Laws; Adverse Proceedings,Injunction, Etc................................. 47
c. Mecklenburg's Representations and Warranties and Performance of Agreements;
Officers' Certificate............................................................... 47
d. Agreements from Mecklenburg Affiliates.................................................... 47
e. Accounting Treatment.......................................................................47
f. Legal Opinion of Mecklenburg's Counsel.................................................... 48
g. Other Documents and Information from Mecklenburg......................................... 48
h. Consents to Assignment of Real Property Leases............................................ 48
i. Acceptance by the Holding Company's Counsel............................................... 48
j. Mecklenburg Board of Directors............................................................ 48
k. Mecklenburg Securities Portfolio.......................................................... 48
l. Exercise of Dissenters Rights............................................................. 48
ARTICLE VIII. TERMINATION; BREACH; REMEDIES.....................................................................49
8.01. Mutual Termination.............................................................................49
8.02. Unilateral Termination.........................................................................49
a. Termination by the Holding Company ....................................................... 49
b. Termination by Mecklenburg................................................................ 50
8.03. Breach; Remedies.............................................................................. 51
a. Breach of Agreement ...................................................................... 51
b. Termination Fee........................................................................... 51
ARTICLE IX. INDEMNIFICATION.................................................................................... 52
9.01. Indemnification Following Effective Time.......................................................52
9.02 Procedure for Claiming Indemnification........................................................ 52
iv
<PAGE>
ARTICLE X. MISCELLANEOUS PROVISIONS............................................................................ 52
10.01...."Previously Disclosed" Information; "Material
Adverse Effect"............................................................................52
10.02. Survival of Representations, Warranties,Indemnification and Other
Agreements.................................................................................. 53
a. Representations, Warranties and Other Agreements........................................... 53
b. Indemnification............................................................................ 53
10.03. Waiver........................................................................................ 53
10.04. Amendment..................................................................................... 54
10.05. Notices........................................................................................54
10.06. Further Assurance............................................................................. 54
10.07. Headings and Captions......................................................................... 55
10.08. Entire Agreement.............................................................................. 55
10.09. Severability of Provisions.................................................................... 55
10.10. Assignment.................................................................................... 55
10.11. Counterparts.................................................................................. 55
10.12. Governing Law................................................................................. 55
10.13. Inspection.....................................................................................55
v
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
BY AND BETWEEN
BANK OF MECKLENBURG
AND
TRIANGLE BANCORP, INC.
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
(hereinafter called "Agreement") entered into as of the 25th day of April, 1997,
by and between BANK OF MECKLENBURG ("Mecklenburg") and TRIANGLE BANCORP, INC.
(the "Holding Company").
WHEREAS, Mecklenburg is a North Carolina banking corporation
with its principal office and place of business located in Charlotte, North
Carolina; and,
WHEREAS, the Holding Company is a North Carolina business
corporation with its principal office and place of business located in Raleigh,
North Carolina; and,
WHEREAS, the Holding Company and Mecklenburg have agreed that
it is in their mutual best interests and in the best interests of their
respective shareholders for Mecklenburg to be acquired by and become the
wholly-owned subsidiary of the Holding Company (the "Acquisition") with the
effect that each of the outstanding shares of Mecklenburg's common stock will be
converted into newly issued shares of the Holding Company' common stock, all in
the manner and upon the terms and conditions contained in this Agreement; and,
WHEREAS, to effect the Acquisition, the Holding Company shall
cause the formation of an interim bank corporation under the laws of the State
of North Carolina, to be named Triangle-Mecklenburg Interim Bank ("Interim"),
which shall be the wholly-owned subsidiary of the Holding Company; and,
WHEREAS, to effectuate the foregoing, the Holding Company and
Mecklenburg desire to adopt this Agreement as a plan of reorganization in
accordance with the provisions of Section 368(a) of the Internal Revenue Code of
1986, as amended; and,
WHEREAS, while Mecklenburg's Board of Directors has approved
this Agreement, Mecklenburg has executed this Agreement subject to the approval
of its shareholders and has agreed to call a special meeting of its shareholders
for the purpose of voting on the Agreement and will recommend to its
shareholders that they approve the Agreement and the transactions described
herein; and,
WHEREAS, the Holding Company's Board of Directors has approved
this Agreement and the transactions described herein, including the issuance by
the Holding Company of shares of its common stock to Mecklenburg's shareholders
to effectuate such transactions, the Holding Company has executed this Agreement
subject to the approval of its shareholders and has
1
<PAGE>
agreed to call a special meeting of its shareholders for the purpose of voting
on the Agreement and will recommend to its shareholders that they approve the
Agreement and the transactions described herein.
NOW, THEREFORE, in consideration of the premises, the mutual
benefits to be derived from this Agreement, and of the representations,
warranties, conditions, covenants and promises herein contained, and subject to
the terms and conditions hereof, the Holding Company and Mecklenburg hereby
adopt and make this Agreement and mutually agree as follows:
ARTICLE I. AGREEMENT TO MERGE
1.01. NAMES OF MERGING CORPORATIONS. The names of the corporations
proposed to be merged are BANK OF MECKLENBURG ("Mecklenburg") and
TRIANGLE-MECKLENBURG INTERIM BANK ("Interim").
1.02. NATURE OF TRANSACTION. Subject to the provisions of this
Agreement, at the "Effective Time" (as defined in Paragraph 1.07. below),
Interim shall be merged into and with Mecklenburg pursuant to N.C. GEN.
STAT. ' 53-12 (the "Merger").
1.03. EFFECT OF MERGER; SURVIVING CORPORATION. At the Effective Time
and as provided in N.C. GEN. STAT. '' 53-13, by reason of the Merger the
separate corporate existence of Interim shall cease while the corporate
existence of Mecklenburg as the surviving corporation in the Merger shall
continue with all of its purposes, objects, rights, privileges, powers and
franchises, all of which shall be unaffected and unimpaired by the Merger.
Following the Merger, Mecklenburg shall operate as the wholly-owned banking
subsidiary of the Holding Company and, as a North Carolina banking corporation,
will continue to conduct its business at the then legally established branches
and main offices of Mecklenburg. The duration of the corporate existence of
Mecklenburg, as the surviving corporation, shall be perpetual and unlimited.
1.04. ASSETS AND LIABILITIES OF INTERIM. At the Effective Time and by
reason of the Merger, and in accordance with N.C. GEN. STAT. " 53-13, 53-17 and
55-11-06, all of Interim's property, assets and rights of every kind and
character (including without limitation all real, personal or mixed property,
all debts due on whatever account, all other choses in action and all and
every other interest of or belonging to or due to Interim, whether tangible or
intangible) shall be transferred to and vest in Mecklenburg, and Mecklenburg
shall succeed to all the rights, privileges, immunities, powers, purposes and
franchises of a public or private nature (including all trust and fiduciary
properties, powers and rights) of Interim, all without any conveyance,
assignment or further act or deed; and Mecklenburg shall become responsible
for all of the liabilities, duties and obligations of every kind, nature and
description (including duties as trustee or fiduciary) of Interim as of the
Effective Time.
2
<PAGE>
1.05. CONVERSION AND EXCHANGE OF STOCK
A. CONVERSION OF MECKLENBURG STOCK. At the Effective Time,
all rights of Mecklenburg's shareholders with respect to all then outstanding
shares of Mecklenburg's common stock ($2.00 par value) ("Mecklenburg Stock")
shall cease to exist, and, as consideration for and to effectuate the Merger
(and except as otherwise provided below) each such outstanding share of
Mecklenburg Stock (other than any shares held by Mecklenburg as treasury
shares or shares held by the Holding Company or as to which rights of dissent
and appraisal are properly exercised as provided below) shall be converted,
without any action on the part of the holder of such share, the Holding Company,
Interim or Mecklenburg, into 1.00 (the "Exchange Rate") newly issued share of
the Holding Company's no par value common stock ("Triangle Stock"), provided,
however, that in the event the average closing sales price of Triangle Stock
for the thirty (30) calendar days preceding a date three (3) business days
before the Effective Time shall be greater than $23.75, the Holding Company,
at its option and without penalty, may terminate this Agreement, and in the
event the average closing sales price of Triangle Stock for the thirty (30)
calendar days preceding a date three (3) business days before the Effective
Time shall be less than $14.25, Mecklenburg, at its option and without
penalty, may terminate this Agreement.
At the Effective Time, and without any action by Mecklenburg,
Interim, the Holding Company or any holder thereof, Mecklenburg's stock transfer
books shall be closed as to holders of Mecklenburg Stock immediately prior to
the Effective Time and, thereafter, no transfer of Mecklenburg Stock by any such
holder may be made or registered; and the holders of shares of Mecklenburg Stock
shall cease to be, and shall have no further rights as, shareholders of
Mecklenburg other than as provided herein. Following the Effective Time,
certificates representing shares of Mecklenburg Stock outstanding at the
Effective Time (herein sometimes referred to as "Old Certificates") shall
evidence only the right of the registered holder thereof to receive, and may be
exchanged for, (I) certificates for the number of whole shares of the Triangle
Stock to which such holders shall have become entitled on the basis set forth
above, plus cash for any fractional share interests as provided herein, or (II)
in the case of shares as to which rights of dissent and appraisal are properly
exercised (as provided below), cash as provided in Article 13 of the North
Carolina Business Corporation Act.
B. EXCHANGE PROCEDURES. As promptly as practicable following
the Effective Time, the Holding Company shall cause First-Citizens Bank & Trust
Company, the transfer agent for Triangle Stock (the "Exchange Agent"), to mail
to each former shareholder of Mecklenburg of record immediately prior to the
Effective Time written instructions and transmittal materials (a "Transmittal
Letter") for use in surrendering Old Certificates to the Exchange Agent. Upon
the proper delivery to the Exchange Agent (in accordance with the above
instructions, and accompanied by a properly completed Transmittal Letter) by a
former shareholder of Mecklenburg of his or her Old Certificates, the Exchange
Agent shall register in the name of such shareholder the shares of the Triangle
Stock and deliver said New Certificates to the individual shareholder entitled
thereto upon and in exchange for the surrender and delivery to the Exchange
Agent by said individual shareholder of his or her Old Certificates.
3
<PAGE>
C. TREATMENT OF FRACTIONAL SHARES. No scrip or certificates
representing fractional shares of Triangle Stock will be issued to any former
shareholder of Mecklenburg, and, except as provided below, no such shareholder
will have any right to vote or receive any dividend or other distribution on, or
any other right with respect to, any fraction of a share of the Triangle Stock
resulting from the above exchange. In the event the exchange of shares would
result in the creation of fractional shares, then, in lieu of the issuance of
fractional shares of Triangle Stock, the Holding Company shall deliver cash to
the Exchange Agent in an amount equal to the aggregate market value of all such
fractional shares, and the Exchange Agent shall divide such cash among and remit
it (without interest) to the former shareholders of Mecklenburg in accordance
with their respective interests. For purposes of this Paragraph 1.05.c., the
"aggregate market value" of all fractional shares of the Triangle Stock shall be
equal to the total of such fractional shares multiplied by the closing sales
price of Triangle Stock as quoted on the National Market System of the Nasdaq
Stock Market, Inc. ("Nasdaq National Market System") (as reported by THE WALL
STREET JOURNAL or, if not reported thereby, any other authoritative source) on
the last trading day preceding the Effective Time (as defined in Paragraph 1.07
below).
D. SURRENDER OF CERTIFICATES. Subject to Paragraph 1.05.f.
below, no certificate for any shares, or cash for any fractional share, of
Triangle Stock shall be delivered to any former shareholder of Mecklenburg
unless and until such shareholder shall have properly surrendered to the
Exchange Agent the Old Certificate(s) formerly representing his or her shares of
Mecklenburg Stock, together with a properly completed Transmittal Letter in such
form as shall be provided to the shareholder by the Holding Company for that
purpose. Further, until such Old Certificate(s) are so surrendered, no dividend
or other distribution payable to holders of record of Triangle Stock as of any
date subsequent to the Effective Time shall be delivered to the holder of such
Old Certificate(s). However, upon the proper surrender of such Old
Certificate(s) the Exchange Agent shall pay to the registered holder of the
shares of Triangle Stock represented by such Old Certificate(s) the amount of
any such cash, dividends or distributions which have accrued but remain unpaid
with respect to such shares. Neither the Holding Company, Interim, Mecklenburg,
nor the Exchange Agent, shall have any obligation to pay any interest on any
such cash, dividends or distributions for any period prior to such payment.
Further, and notwithstanding any other provision of this Agreement, neither the
Holding Company, Interim, Mecklenburg, nor the Exchange Agent shall be liable to
a former holder of Mecklenburg Stock for any amount paid or property delivered
in good faith to a public official pursuant to any applicable abandoned
property, escheat, or similar law.
E. ANTIDILUTIVE ADJUSTMENTS. If, following the date of this
Agreement, the Holding Company shall change the number of outstanding shares of
Triangle Stock as a result of a dividend payable in shares of Triangle Stock, a
stock split, a reclassification or other subdivision or combination of
outstanding shares, and if the record date of such event occurs prior to the
Effective Time, then an appropriate and proportionate adjustment shall be made
to the Exchange Rate so as to appropriately and proportionately increase or
decrease the number of shares of Triangle Stock to be issued in exchange for
each of the shares of Mecklenburg Stock.
4
<PAGE>
F. DISSENTERS. Any shareholder of Mecklenburg who has and
properly exercises the right of dissent and appraisal with respect to the Merger
as provided in Article 13 of the North Carolina Business Corporation Act
("Dissenters Rights") shall be entitled to receive payment of the fair value of
his or her shares of Mecklenburg Stock in the manner and pursuant to the
procedures provided therein. Shares of Mecklenburg Stock held by persons who
exercise Dissenters Rights shall not be converted into Triangle Stock as
provided in Paragraph 1.05.a. above. However, if any shareholder of Mecklenburg
who exercises Dissenters Rights shall fail to perfect his or her right to
receive cash as provided above, or effectively shall waive or lose such right,
then each of his or her shares of Mecklenburg Stock, at the Holding Company's
sole option, shall be deemed to have been converted into the right to receive
Triangle Stock as of the Effective Time as provided in Paragraph 1.05.a. above.
G. LOST CERTIFICATES.Any shareholder of Mecklenburg whose
certificate evidencing shares of Mecklenburg Stock has been lost, destroyed,
stolen or otherwise is missing shall be entitled to receive a certificate
representing the shares of Triangle Stock to which he or she is entitled in
accordance with and upon compliance with conditions imposed by the Exchange
Agent or the Holding Company pursuant to the provisions of N.C. GEN. STAT. '
25-8-405 and N.C. GEN. STAT. ' 25-8-104 (including without limitation a
requirement that the shareholder provide a lost instruments indemnity or surety
bond in form, substance and amount satisfactory to the Exchange Agent and the
Holding Company).
H. TREATMENT OF MECKLENBURG'S STOCK OPTIONS. (I) At the
Effective Time, each option or other right to purchase shares of Mecklenburg
Stock pursuant to stock options ("Mecklenburg Options") granted by Mecklenburg
under the Bank of Mecklenburg 1988 Incentive Stock Option Plan and the Bank of
Mecklenburg 1996 Director Stock Option Plan (collectively, the "Mecklenburg
Stock Plans"), which are outstanding at the Effective Time, whether or not
exercisable, shall be converted into and become rights with respect to Triangle
Stock, and the Holding Company shall assume each Mecklenburg Option, in
accordance with the terms of the Mecklenburg Stock Plans and stock option
agreement by which it is evidenced, except that from and after the Effective
Time (A) the Holding Company and its Compensation Committee shall be substituted
for Mecklenburg and the Committee of Mecklenburg's Board of Directors
(including, if applicable, the entire Board of Directors of Mecklenburg)
administering the Mecklenburg Stock Plans, (B) each Mecklenburg Option assumed
by the Holding Company may be exercised solely for shares of Triangle Stock, (C)
the number of shares of Triangle Stock subject to such Mecklenburg Option shall
be equal to the number of shares of Mecklenburg Stock subject to such
Mecklenburg Option immediately prior to the Effective Time multiplied by the
Exchange Rate and rounding down to the nearest whole share, and (D) the per
share exercise price under each such Mecklenburg Option shall be adjusted by
dividing the per share exercise price under each such Mecklenburg Option by the
Exchange Rate and rounding up to the nearest cent.
(II) As soon as practicable after the Effective Time, the Holding
Company shall deliver to the participants in the Mecklenburg Stock Plans an
appropriate notice setting forth such participant's rights pursuant thereto and
the grants pursuant to the Mecklenburg Stock Plans shall continue in effect on
the same terms and conditions (subject to the adjustments required by
5
<PAGE>
Paragraph 1.05.a. after giving effect to the Merger). At or prior to the
Effective Time, the Holding Company shall take all corporate action necessary to
reserve for issuance sufficient shares of Triangle Stock for delivery upon
exercise of Mecklenburg Options assumed by it in accordance with this Paragraph
1.05.h. As soon as practicable after the Effective Time, the Holding Company
shall file a registration statement on Form S-3 or Form S-8, as the case may be
(or any successor or other appropriate forms), with respect to the shares of
Triangle Stock subject to such options and shall use its reasonable efforts to
maintain the effectiveness of such registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such options remain outstanding.
(III) All restrictions or limitations on transfer with respect to
Mecklenburg Stock awarded under the Mecklenburg Stock Plans or any other plan,
program, or arrangement of Mecklenburg, to the extent that such restrictions or
limitations shall not have already lapsed, and except as otherwise expressly
provided in such plans, program, or arrangement, shall remain in full force and
effect with respect to shares of Triangle Stock into which such restricted stock
is converted pursuant to this Agreement.
(IV) Notwithstanding the foregoing provisions of this Paragraph
1.05.h., in no event shall options to purchase more than 301,555 shares of
Mecklenburg Stock be converted into options to purchase Triangle Stock in
connection with the transactions contemplated by this Agreement. Mecklenburg
agrees to cooperate with the Holding Company to insure the implementation of
this Paragraph 1.05.h.
(V) The Holding Company hereby acknowledges that (A) the Merger may be
grounds for the acceleration of vesting of the options issued and outstanding
under the Mecklenburg Stock Plans at the Effective Time, and (B) it shall assume
each Mecklenburg Option subject to any rights to accelerated vesting as a result
of the Merger and consistent with the other terms and conditions of this
Agreement.
I. OUTSTANDING TRIANGLE STOCK. The status of the shares of
Triangle Stock which are outstanding immediately prior to the Effective Time
shall not be affected by the Merger.
1.06. ARTICLES, BY-LAWS AND MANAGEMENT. The Articles of Incorporation
and By-Laws of Mecklenburg in effect at the Effective Time shall be the Articles
of Incorporation and By-Laws of Mecklenburg as the surviving corporation. The
officers and directors of Mecklenburg in office at the Effective Time shall
continue to hold such offices until removed as provided by law or until the
election or appointment of their respective successors.
1.07. CLOSING; ARTICLES OF MERGER; EFFECTIVE TIME. The closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of the Holding Company in Raleigh, North Carolina, or at such other
place as the Holding Company shall designate, on a date specified by the Holding
Company (the "Closing Date") after the expiration of any and all required
waiting periods following the effective date of required approvals of the Merger
by governmental or regulatory authorities (but in no event more than thirty (30)
days
6
<PAGE>
following the expiration of all such required waiting periods). At the
Closing, the Holding Company, Interim and Mecklenburg shall take such actions
(including without limitation the delivery of certain closing documents) as are
required herein and as shall otherwise be required by law to consummate the
Merger and cause it to become effective, and shall execute Articles of Merger
under North Carolina law which shall contain a "Plan of Merger" substantially in
the form attached as Schedule A hereto.
Subject to the terms and conditions set forth herein (including without
limitation the receipt of all required approvals of governmental and regulatory
authorities), the Merger shall be effective on the date and at the time (the
"Effective Time") designated in the Articles of Merger executed at the Closing
and filed with the North Carolina Secretary of State in accordance with law;
provided, however, that the date and time so specified as the Effective Time
shall in no event be more than ten (10) days following the Closing Date. If the
Articles of Merger do not designate a date or specific time as the Effective
Time, then the Effective Time shall be that date and time when the Articles of
Merger are properly filed with the North Carolina Secretary of State.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF MECKLENBURG
Except as otherwise specifically provided herein or as "Previously
Disclosed" (as defined in Paragraph 10.01. below) to the Holding Company,
Mecklenburg hereby makes the following representations and warranties to the
Holding Company:
2.01. ORGANIZATION; STANDING; POWER. Mecklenburg (I) is duly
organized and incorporated, validly existing and in good standing as a banking
corporation under the laws of North Carolina; (II) has all requisite power and
authority (corporate and other) to own, lease and operate its properties and to
carry on its business as now being conducted; (III) is duly qualified to do
business and is in good standing in each other jurisdiction in which the
character of the properties owned, leased or operated by it therein or in which
the transaction of its business makes such qualification necessary, except where
failure so to qualify would not have a material adverse effect on Mecklenburg;
and (IV) is not transacting business or operating any properties owned or leased
by it in violation of any provision of federal or state law or any rule or
regulation promulgated thereunder, which violation would have a material adverse
effect on Mecklenburg.
2.02. CAPITAL STOCK. Mecklenburg's authorized capital stock
consists of 10,000,000 shares of common stock, $2.00 par value per share. As of
March 31, 1997, 2,118,945 shares of Mecklenburg Stock were issued and
outstanding, which constitute Mecklenburg's only issued and outstanding
securities. Mecklenburg has 22,791 shares of Mecklenburg Stock available for
issuance under the Mecklenburg Stock Plans and options to purchase 301,555
shares of Mecklenburg Stock are outstanding.
Each outstanding share of Mecklenburg Stock (I) has been duly
authorized and is validly issued and outstanding, and is fully paid and
nonassessable (except to the extent assessable under applicable North Carolina
banking law), (II) has not been issued in violation of the preemptive rights of
any shareholder, and (III) has been issued pursuant to and in compliance with
7
<PAGE>
the requirement of an applicable exemption from registration requirements under
the Securities Act of 1933, as amended (the "1933 Act").
The Mecklenburg Stock is registered with the Federal Deposit
Insurance Corporation ("FDIC") under the Securities Exchange Act of 1934 (the
"Exchange Act"); Mecklenburg is subject to the periodic reporting requirements
of the Exchange Act.
2.03. PRINCIPAL SHAREHOLDERS. No person or entity is known to
Mecklenburg to beneficially own, directly or indirectly, more than 5% of the
outstanding shares of Mecklenburg Stock.
2.04. SUBSIDIARIES. Mecklenburg has one active subsidiary,
Mecklenburg Financial Services, Inc. ("Subsidiary"), and, other than Subsidiary,
Mecklenburg does not own any stock or other equity interest in any corporation,
service corporation, joint venture, partnership or other entity. Subsidiary's
authorized capital stock consists of 100 shares of common stock ("Subsidiary
Stock"), of which 100 shares are issued and outstanding and constitute the only
securities issued by Subsidiary. All outstanding shares of Subsidiary Stock are
owned of record and beneficially by Mecklenburg. Each outstanding share of
Subsidiary Stock (I) has been duly authorized, is validly issued and
outstanding, and is fully paid and nonassessable, (II) has not been issued in
violation of the preemptive rights of any shareholder, and (III) has been issued
pursuant to and in compliance with the requirement of an applicable exemption
from registration requirements under the 1933 Act. The representations and
warranties of Mecklenburg contained in Paragraphs 2.05 through 2.09, 2.11
through 2.21, and 2.23 through 2.26 hereof shall be deemed to have been made by
Subsidiary as well.
2.05. CONVERTIBLE SECURITIES, OPTIONS, ETC. With the
exception of options to purchase an aggregate of 301,555 shares of Mecklenburg
Stock which have been issued and are outstanding under the Mecklenburg Stock
Plans, Mecklenburg does not have any outstanding (I) securities or other
obligations (including debentures or other debt instruments) which are
convertible into shares of Mecklenburg Stock or any other securities of
Mecklenburg, (II) options, warrants, rights, calls or other commitments of any
nature which entitle any person to receive or acquire any shares of Mecklenburg
Stock or any other securities of Mecklenburg, or (III) plan, agreement or other
arrangement pursuant to which shares of Mecklenburg Stock or any other
securities of Mecklenburg, or options, warrants, rights, calls or other
commitments of any nature pertaining thereto, have been or may be issued.
2.06. AUTHORIZATION AND VALIDITY OF AGREEMENT. This Agreement
has been duly and validly approved by Mecklenburg's Board of Directors and
executed and delivered on Mecklenburg's behalf. Subject only to approval of this
Agreement by the shareholders of Mecklenburg in the manner required by law (as
contemplated by Paragraph 6.01.a. below), (I) Mecklenburg has the corporate
power and authority to execute and deliver this Agreement and to perform its
obligations and agreements and carry out the transactions described herein, (II)
all corporate proceedings and approvals required to authorize Mecklenburg to
enter into this Agreement and to perform its obligations and agreements and
carry out the transactions described
8
<PAGE>
herein have been duly and properly completed or obtained, and (III) this
Agreement has been executed on behalf of Mecklenburg and constitutes a valid and
binding agreement of Mecklenburg enforceable in accordance with its terms
(except to the extent enforceability may be limited by (A) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect which affect creditors' rights generally, (B) by legal and
equitable limitations on the availability of injunctive relief, specific
performance and other equitable remedies, and (C) general principles of equity
and applicable laws or court decisions limiting the enforceability of
indemnification provisions).
2.07. VALIDITY OF TRANSACTIONS; ABSENCE OF REQUIRED CONSENTS
OR WAIVERS. Except where the same would not have a material adverse effect on
Mecklenburg, neither the execution and delivery of this Agreement, nor the
consummation of the transactions described herein, nor compliance by Mecklenburg
with any of its obligations or agreements contained herein, will: (I) conflict
with or result in a breach of the terms and conditions of, or constitute a
default or violation under any provision of, Mecklenburg's Articles of
Incorporation or Bylaws, or any contract, agreement, lease, mortgage, note,
bond, indenture, license, or obligation or understanding (oral or written) to
which Mecklenburg is bound or by which it, its business, capital stock or any of
its properties or assets may be affected; (II) result in the creation or
imposition of any lien, claim, interest, charge, restriction or encumbrance upon
any of Mecklenburg's properties or assets; (III) violate any applicable federal
or state statute, law, rule or regulation, or any judgment, order, writ,
injunction or decree of any court, administrative or regulatory agency or
governmental body; (IV) result in the acceleration of any obligation or
indebtedness of Mecklenburg; or (V) interfere with or otherwise adversely affect
Mecklenburg's ability to carry on its business as presently conducted.
No consents, approvals or waivers are required to be obtained
from any person or entity in connection with Mecklenburg's execution and
delivery of this Agreement, or the performance of its obligations or agreements
or the consummation of the transactions described herein, except for required
approvals of Mecklenburg's shareholders as described in Paragraph 7.01.c. below
and of governmental or regulatory authorities as described in Paragraph 7.01.a.
below and other consents or approvals, the failure of which to obtain would not
have a material adverse effect on Mecklenburg or its ability to consummate the
Merger.
2.08. MECKLENBURG BOOKS AND RECORDS. Mecklenburg's books of
account and business records have been maintained in material compliance with
all applicable legal and accounting requirements and in accordance with good
business practices, and such books and records are complete and reflect
accurately in all material respects Mecklenburg's items of income and expense
and all of its assets, liabilities and stockholders' equity. The minute books of
Mecklenburg accurately reflect in all material respects the corporate actions
which its shareholders and board of directors, and all committees thereof, have
taken during the time periods covered by such minute books. All such minute
books have been or will be made available to Triangle and its representatives.
2.09. MECKLENBURG REPORTS. Since January 1, 1992, and where
the failure to file has had or could have a material and adverse effect on
Mecklenburg, Mecklenburg has filed all
9
<PAGE>
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that were required to be filed with (I) the FDIC,
(II) the North Carolina Commissioner of Banks (the "Commissioner"), or (III) any
other governmental or regulatory authorities having jurisdiction over
Mecklenburg. All such reports, registrations and statements filed by Mecklenburg
with the FDIC, the Commissioner or other such regulatory authority are
collectively referred to herein as the "Mecklenburg Reports." As of their
respective dates, each Mecklenburg Report complied in all material respects with
all the statutes, rules and regulations enforced or promulgated by the
regulatory authority with which it was filed and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and Mecklenburg has
not been notified that any such Mecklenburg Report was deficient in any material
respect as to form or content. Following the date of this Agreement, Mecklenburg
shall deliver to the Holding Company, simultaneous with the filing thereof, a
copy of each report, registration, statement or other regulatory filing made by
it with the FDIC, the Commissioner or any other such regulatory authority.
2.10. MECKLENBURG FINANCIAL STATEMENTS. Mecklenburg has
delivered to Triangle a copy (I) of its balance sheets as of December 31, 1995
and December 31, 1996, and its statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1994,
December 31, 1995 and December 31, 1996, together with notes thereto (the
"Mecklenburg Financial Statements"), and (II) a copy of its balance sheet as of
March 31, 1997 and its statement of operations for the three months ended March
31, 1997 (the "Mecklenburg Interim Financial Statements"); and, following the
date of this Agreement, Mecklenburg promptly will deliver to Triangle all other
annual or interim financial statements prepared by or for Mecklenburg. The
Mecklenburg Financial Statements and the Mecklenburg Interim Financial
Statements (including any related notes and schedules thereto) (I) are in
accordance with Mecklenburg's books and records, and (II) were prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated and present fairly in all
material respects Mecklenburg's financial condition, assets and liabilities,
results of operations, changes in stockholders' equity and changes in cash flows
as of the dates indicated and for the periods specified therein. The Mecklenburg
Financial Statements have been audited and certified by Mecklenburg's
independent certified public accountants, KPMG Peat Marwick L.L.P.
2.11. TAX RETURNS AND OTHER TAX MATTERS. (I) Mecklenburg has
timely filed or caused to be filed all federal, state and local tax returns and
reports which are required by law to have been filed, and, to the best knowledge
and belief of management of Mecklenburg, all such returns and reports were true,
correct and complete and contained all material information required to be
contained therein; (II) all federal, state and local income, profits, franchise,
sales, use, occupation, property, excise and other taxes (including interest and
penalties), charges and assessments which have become due from or been assessed
or levied against Mecklenburg or its property have been fully paid, and, with
respect to any such taxes to become due from Mecklenburg for any period or
periods through and including March 31, 1997, adequate provision has been made
for the payment of all such taxes and such provision is reflected in the
Mecklenburg Financial Statements; (III) Mecklenburg's tax returns and reports
have been examined or closed by applicable
10
<PAGE>
statutes of limitations through the tax year ended December 31, 1992, and
Mecklenburg has not received any indication of the pendency of any audit or
examination in connection with any tax return or report and has no knowledge
that any such return or report is subject to adjustment; and (IV) Mecklenburg
has not executed any waiver or extended the statute of limitations (or been
asked to execute a waiver or extend a statute of limitation) with respect to any
tax year, the audit of any tax return or report or the assessment or collection
of any tax. Any deferred taxes of Mecklenburg have been provided for in the
Mecklenburg Financial Statements in all material respects.
2.12. ABSENCE OF MATERIAL ADVERSE CHANGES OR CERTAIN OTHER
EVENTS.
(I) Since December 31, 1996, Mecklenburg has
conducted its business only in the ordinary course, and there has been no
material adverse change, and there has occurred no event or development and, to
the best knowledge of management of Mecklenburg, there currently exists no
condition or circumstance (other than conditions or circumstances affecting the
banking industry generally, but excluding movements in interest rates in the
economy) which, with the lapse of time or otherwise, is reasonably likely to
cause, create or result in a material adverse change, in or affecting the
financial condition of Mecklenburg or in its results of operations, prospects,
business, assets, loan portfolio, investments, properties or operations.
(II) Since December 31, 1996, and other than
in the ordinary course of its business, including its normal salary review for
1997, Mecklenburg has not incurred any material liability or engaged in any
material transaction or entered into any material agreement, increased the
salaries, compensation or general benefits payable to its employees, suffered
any loss, destruction or damage to any of its properties or assets, or made a
material acquisition or disposition of any assets or entered into any material
contract or lease.
2.13. ABSENCE OF UNDISCLOSED LIABILITIES. Mecklenburg has no
liabilities or obligations, whether known or unknown, matured or unmatured,
accrued, absolute, contingent or otherwise, whether due or to become due
(including without limitation tax liabilities or unfunded liabilities under
employee benefit plans or arrangements), other than (I) those reflected in the
Mecklenburg Financial Statements and the Mecklenburg Interim Financial
Statements, or (II) obligations or liabilities incurred in the ordinary course
of its business since March 31, 1997, and which are not reasonably likely to,
individually or in the aggregate, cause a material adverse change in
Mecklenburg.
2.14. COMPLIANCE WITH EXISTING OBLIGATIONS. Mecklenburg has
performed in all material respects all obligations required to be performed by
it under, and it is not in default in any material respect under, or in
violation in any material respect of, the terms and conditions of its Articles
of Incorporation or Bylaws, and/or any contract, agreement, lease, mortgage,
note, bond, indenture, license, obligation, understanding or other undertaking
(whether oral or written) to which Mecklenburg is bound or by which it, its
business, capital stock or any of its properties or assets may be affected.
2.15. LITIGATION AND COMPLIANCE WITH LAW.
11
<PAGE>
(I) There are no actions, suits, arbitrations,
controversies or other proceedings (or, to the best knowledge and belief of
management of Mecklenburg, any facts or circumstances which reasonably could
result in such), including without limitation any action by any governmental or
regulatory authority, which currently exists or is ongoing, pending or, to the
best knowledge and belief of management of Mecklenburg threatened, contemplated
or probable of assertion, against, relating to or otherwise affecting
Mecklenburg or any of its properties or assets which, if determined adversely,
could result in liability on the part of Mecklenburg for, or subject it to,
monetary damages, fines or penalties, or an injunction, and which could have a
material adverse effect on Mecklenburg's financial condition, results of
operations, prospects, business, assets, loan portfolio, investments, properties
or operations or on the ability of Mecklenburg to consummate the Merger;
(II) Mecklenburg has all licenses, permits,
orders, authorizations or approvals ("Permits") of any federal, state, local or
foreign governmental or regulatory body that are material to or necessary for
the conduct of its business or to own, lease and operate its properties; all
such Permits are in full force and effect; no violations are or have been
recorded in respect of any such Permits; and no proceeding is pending or, to the
best knowledge of management of Mecklenburg, threatened or probable of assertion
to suspend, cancel, revoke or limit any Permit;
(III) Mecklenburg is not subject to any
supervisory agreement, enforcement order, writ, injunction, capital directive,
supervisory directive, memorandum of understanding or other similar agreement,
order, directive, memorandum or consent of, with or issued by any regulatory or
other governmental authority (including without limitation the FDIC or the
Commissioner) relating to its financial condition, directors or officers,
operations, capital, regulatory compliance or otherwise; there are no judgments,
orders, stipulations, injunctions, decrees or awards against Mecklenburg which
in any manner limit, restrict, regulate, enjoin or prohibit any present or past
business or practice of Mecklenburg; and Mecklenburg has not been advised and
has no reason to believe that any regulatory or other governmental authority or
any court is contemplating, threatening or requesting the issuance of any such
agreement, order, injunction, directive, memorandum, judgment, stipulation,
decree or award; and,
(IV) Mecklenburg is not in violation or
default in any material respect under, and has complied in all material respects
with, all laws, statutes, ordinances, rules, regulations, orders, writs,
injunctions or decrees of any court or federal, state, municipal or other
governmental or regulatory authority having jurisdiction or authority over it or
its business operations, properties or assets (including without limitation all
provisions of North Carolina law relating to usury, the Consumer Credit
Protection Act, and all other laws and regulations applicable to extensions of
credit by Mecklenburg) and there is no basis for any claim by any person or
authority for compensation, reimbursement or damages or otherwise for any
violation of any of the foregoing that would have any material adverse effect on
the financial condition of Mecklenburg.
12
<PAGE>
2.16. REAL PROPERTIES. Mecklenburg has Previously Disclosed
to the Holding Company a listing of all real property owned or leased by
Mecklenburg (including Mecklenburg's banking facilities and all other real
estate or foreclosed properties owned by Mecklenburg) (the "Real Property")
and all leases, if any, pertaining to any such Real Property to which
Mecklenburg is a party (the "Real Property Leases"). With respect to all Real
Property owned by Mecklenburg, Mecklenburg has good and marketable fee simple
title to such Real Property and owns the same free and clear of all mortgages,
liens, leases, encumbrances, title defects and exceptions to title other than
(I) the lien of current taxes not yet due and payable, and (II) such
imperfections of title and restrictions, covenants and easements (including
utility easements) which do not affect materially the value of the Real Property
and which do not and will not materially detract from, interfere with or
restrict the present or future use of the properties subject thereto or affected
thereby. With respect to each Real Property Lease (I) such lease is valid and
enforceable in accordance with its terms, (II) there currently exists no
circumstance or condition which constitutes an event of default by Mecklenburg
or its lessor or which, with the passage of time or the giving of required
notices will or could constitute such an event of default, and (iii) subject to
any required consent of Mecklenburg's lessor, each such Real Property Lease may
be assigned to the Holding Company and the execution and delivery of this
Agreement does not constitute an event of default thereunder.
To the best of the knowledge and belief of
management of Mecklenburg, the Real Property complies in all material respects
with all applicable federal, state and local laws, regulations, ordinances or
orders of any governmental authority, including those relating to zoning,
building and use permits, and the Real Property may be used under applicable
zoning ordinances for commercial banking facilities as a matter of right rather
than as a conditional or nonconforming use.
All improvements and fixtures included in or
on the Real Property are in good condition and repair, ordinary wear and tear
excepted, and, except as may have been Previously Disclosed pursuant to
Paragraph 2.21 below, there does not exist any condition which interferes with
Mecklenburg's use or affects the economic value thereof.
2.17. LOANS, ACCOUNTS, NOTES AND OTHER RECEIVABLES.
(I) All loans, accounts, notes and other receivables
reflected as assets on Mecklenburg's books and records (A) have resulted from
bona fide business transactions in the ordinary course of Mecklenburg's
operations, (B) in all material respects were made in accordance with
Mecklenburg's customary loan policies and procedures, and (C) are owned by
Mecklenburg free and clear of all liens, encumbrances, assignments,
participation or repurchase agreements or other exceptions to title or to the
ownership or collection rights of any other person or entity.
(II) All records of Mecklenburg regarding all
outstanding loans, accounts, notes and other receivables, and all other real
estate owned, are accurate in all material respects, and, with respect to each
loan which Mecklenburg's loan documentation indicates is secured by any real
or personal property or property rights ("Loan Collateral"), such loan is
secured
13
<PAGE>
by valid, perfected and enforceable liens on all such Loan Collateral having
the priority described in Mecklenburg's records of such loan.
(III) To the best knowledge of management of
Mecklenburg, each loan reflected as an asset on Mecklenburg's books, and each
guaranty therefor, is the legal, valid and binding obligation of the obligor or
guarantor thereon, and no defense, offset or counterclaim has been asserted with
respect to any such loan or guaranty.
(IV) Mecklenburg has Previously Disclosed to the Holding
Company a listing of (A) each loan, extension of credit or other asset of
Mecklenburg which, as of March 31, 1997, is classified by the FDIC, the
Commissioner or by Mecklenburg as "Loss", "Doubtful", "Substandard" or "Special
Mention" (or otherwise by words of similar import), or which Mecklenburg has
designated as a special asset or for special handling or placed on any "watch
list" because of concerns regarding the ultimate collectibility or deteriorating
condition of such asset or any obligor or Loan Collateral therefor, and (B) each
loan or extension of credit of Mecklenburg which, as of March 31, 1997, was past
due thirty (30) days or more as to the payment of principal and/or interest, or
as to which any obligor thereon (including the borrower or any guarantor)
otherwise was in default, is the subject of a proceeding in bankruptcy or
otherwise has indicated any inability or intention not to repay such loan or
extension of credit. Each such listing is accurate and complete as of the date
indicated.
(V) To the best knowledge and belief of Mecklenburg's
management, each of Mecklenburg's loans and other extensions of credit (with the
exception of those loans and extensions of credit specified in the written
listings described in Subparagraph (iv) above) is collectible in the ordinary
course of Mecklenburg's business in an amount which is not less than the amount
at which it is carried on Mecklenburg's books and records.
(VI) Mecklenburg's reserve for possible loan losses (the
"Loan Loss Reserve") shown in the Mecklenburg Interim Financial Statements has
been established in conformity with GAAP, sound banking practices and all
applicable requirements of the FDIC and rules and policies of the Commissioner
and, in the best judgment of Mecklenburg's management, is reasonable in view of
the size and character of Mecklenburg's loan portfolio, current economic
conditions and other relevant factors, and is adequate to provide for losses
relating to or the risk of loss inherent in Mecklenburg's loan portfolio and
other real estate owned.
14
<PAGE>
2.18. SECURITIES PORTFOLIO AND INVESTMENTS. All securities
owned by Mecklenburg (whether owned of record or beneficially) are held free and
clear of all mortgages, liens, pledges, encumbrances or any other restriction or
rights of any other person or entity, whether contractual or statutory, which
would materially impair the ability of Mecklenburg to dispose freely of any such
security and/or otherwise to realize the benefits of ownership thereof at any
time (other than pledges of securities in the ordinary course of Mecklenburg's
business to secure public funds deposits and in connection with repurchase
agreements with customers and Federal Home Loan Bank borrowings). There are no
voting trusts or other agreements or undertakings to which Mecklenburg is a
party with respect to the voting of any such securities. With respect to all
"repurchase agreements" to which Mecklenburg has "purchased" securities under
agreement to resell (if any), Mecklenburg has a valid, perfected first lien or
security interest in the government securities or other collateral securing the
repurchase agreement, and the value of the collateral securing each such
repurchase agreement equals or exceeds the amount of the debt owed to
Mecklenburg which is secured by such collateral.
Except for fluctuations in the market values of United States Treasury
and agency or municipal securities, since March 31, 1997, there has been no
significant deterioration or material adverse change in the quality, or any
material decrease in the value, of Mecklenburg's securities portfolio greater
than that provided in Paragraph 7.03.k. hereof.
2.19. PERSONAL PROPERTY AND OTHER ASSETS. All assets of
Mecklenburg (including without limitation all banking equipment, data
processing equipment, vehicles, and all other personal property located in or
used in the operation of each office of Mecklenburg or otherwise used by
Mecklenburg in the operation of its business) are owned by Mecklenburg free
and clear of all liens, leases, encumbrances, title defects or exceptions to
title. All of Mecklenburg's banking equipment is in good operating condition
and repair, ordinary wear and tear excepted.
2.20. PATENTS, TRADEMARKS AND LICENSES. Mecklenburg owns,
possesses or has the right to use any and all patents, licenses, trademarks,
trade names, copyrights, trade secrets and proprietary and other confidential
information necessary to conduct its business as now conducted; and, to its best
knowledge, Mecklenburg has not violated, and is not currently in conflict with,
any patent, license, trademark, trade name, copyright or proprietary right of
any other person or entity.
2.21. ENVIRONMENTAL MATTERS. Mecklenburg has Previously
Disclosed and provided to the Holding Company copies of all written reports,
correspondence, notices or other materials, if any, in its possession
pertaining to environmental reports, surveys, assessments, notices of
violation, notices of regulatory requirements, penalty assessments, claims,
actions or proceedings, past or pending, of the Real Property or any of its Loan
Collateral and any improvements thereon, or to any violation of Environmental
Laws (as defined below) on, affecting or otherwise involving the Real Property,
any Loan Collateral or otherwise involving Mecklenburg.
To the best of the knowledge and belief of management of Mecklenburg:
(I) there has been no presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing,
15
<PAGE>
processing, emission, discharge, release, threatened release, control or
clean-up, in a reportable or regulated quantity, of any hazardous, toxic or
otherwise regulated materials, substances or wastes, chemical substances or
mixtures, pesticides, pollutants, contaminants, toxic chemicals, oil or other
petroleum products or byproducts, asbestos or materials containing (or presumed
to contain) asbestos, polychlorinated biphenyls, or radioactive materials,
and/or any hazardous, toxic, regulated or dangerous waste, substance or material
defined as such by the United States Environmental Protection Agency or any
other federal, state or local government or agency or political subdivision
thereof, or for the purpose of any Environmental Laws (as defined herein), as
may now or hereafter (through the Effective Time) be defined or in effect
("Hazardous Substances") by any person on, from or relating to any parcel of the
Real Property;
(II) Mecklenburg has not violated any federal,
state or local law, rule, regulation, order, permit or other requirement
relating to health, safety or the environment or imposing liability,
responsibility or standards of conduct applicable to environmental conditions
(all such laws, rules, regulations, orders and other requirements being herein
collectively referred to as "Environmental Laws"), and, there has been no
violation of any Environmental Laws (including any violation with respect to or
relating to any Loan Collateral) by any other person or entity for whose
liability or obligation with respect to any particular matter or violation
Mecklenburg is or may be responsible or liable;
(III) Mecklenburg is not subject to any
claims, demands, causes of action, suits, proceedings, losses, damages,
penalties, liabilities, obligations, costs or expenses of any kind and nature
which arise out of, under or in connection with, or which result from or are
based upon the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, reporting, testing,
processing, emission, discharge, release, threatened release, control or
clean-up of any Hazardous Substances on, from or relating to the Real Property
or any Loan Collateral, by Mecklenburg or any other person or entity; and,
(IV) no facts, events or conditions relating
to the Real Property or any Loan Collateral, or the operations of Mecklenburg at
any of its office locations, will prevent, hinder or limit continued compliance
with Environmental Laws, or give rise to any investigatory, remedial or
corrective actions, obligations or liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental Laws.
For purposes of this Agreement, "Environmental Laws" shall
include:
(I) all federal, state and local statutes,
regulations, ordinances, orders, decrees, and similar provisions having the
force or effect of law,
(II) all contractual agreements, and
(III) all common law,
16
<PAGE>
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all standards of
conduct and bases of obligations relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, discharge, release,
threatened release, control or clean-up of any Hazardous Substances (including
without limitation the Comprehensive Environmental Response, Compensation and
Liability Act, the Superfund Amendment and Reauthorization Act, the Federal
Insecticide, Fungicide and Rodenticide Act, the Hazardous Materials
Transportation Act, the Resource Conservation and Recovery Act, the Clean Water
Act, the Clean Air Act, the Toxic Substances Control Act, the Oil Pollutant Act,
the Coastal Zone Management Act, any "Superfund" or "Superlien" law, the North
Carolina Oil Pollution and Hazardous Substances Control Act, the North Carolina
Water and Air Resources Act and the North Carolina Occupational Safety and
Health Act, including any amendments thereto from time to time) as such may now
or hereafter (through the Effective Time) be defined or in effect.
2.22. ABSENCE OF BROKERAGE OR FINDERS COMMISSIONS. (I) All
negotiations relative to this Agreement and the transactions described herein
have been carried on by Mecklenburg directly with the Holding Company; (II) no
person or firm has been retained by or has acted on behalf of, pursuant to any
agreement, arrangement or understanding with, or under the authority of,
Mecklenburg or its Board of Directors, as a broker, finder or agent or has
performed similar functions or otherwise is or may be entitled to receive or
claim a brokerage fee or other commission in connection with the transactions
described herein; and (III) Mecklenburg has not agreed to pay any brokerage fee
or other commission to any person or entity in connection with the transactions
described herein.
2.23. MATERIAL CONTRACTS. Except for leases on Mecklenburg's
branch offices, Mecklenburg is not a party to or bound by any agreement
involving money or other property in an amount or with a value in excess of
$100,000 (I) which is not to be performed in full prior to December 31, 1997,
(II) which calls for the provision of goods or services to Mecklenburg and
cannot be terminated without material penalty upon written notice to the other
party thereto, (III) which is material to Mecklenburg and was not entered into
in the ordinary course of business, (IV) which involves hedging, options or
any similar trading activity, or interest rate exchanges or swaps, (V) which
commits Mecklenburg to extend any loan or credit (with the exception of letters
of credit, lines of credit and loan commitments extended in the ordinary course
of Mecklenburg's business), (VI) which involves the purchase or sale of any
assets of Mecklenburg, or the purchase, sale, issuance, redemption or transfer
of any capital stock or other securities issued by Mecklenburg, or (VII) with
any director, officer or principal shareholder of Mecklenburg (including without
limitation any employment or consulting agreement, but not including any
agreement relating to loans or other banking services which were made in the
ordinary course of Mecklenburg's business and on substantially the same terms
and conditions as were prevailing at that time for similar agreements with
unrelated persons).
Mecklenburg is not in default in any material respect, and
there has not occurred any event which with the lapse of time or giving of
notice or both would constitute such a default, under any contract, lease,
insurance policy, commitment or arrangement to which it is a party or by which
17
<PAGE>
it or its property is or may be bound or affected or under which it or its
property receives benefits, where the consequences of such default would have a
material adverse effect on the financial condition, results of operations,
prospects, business, assets, loan portfolio, investments, properties or
operations of Mecklenburg.
2.24. EMPLOYMENT MATTERS; EMPLOYEE RELATIONS. Mecklenburg (I)
has paid in full to or accrued on behalf of all its directors, officers and
employees all wages, salaries, commissions, bonuses, fees, sick pay, severance
pay, all other amounts promised to the extent required by law or when
Mecklenburg has a policy of making such payments and other direct compensation
for all services performed by them to the date of this Agreement and (II) is in
compliance with all federal, state and local laws, statutes, rules and
regulations with regard to employment and employment practices, terms and
conditions, and wages and hours and other compensation matters; and no person
has, to the knowledge of management of Mecklenburg, asserted that Mecklenburg is
liable in any amount for any arrearages in wages or employment taxes or for any
penalties for failure to comply with any of the foregoing.
There is no action, suit or proceeding by any person
pending or, to the best knowledge of management of Mecklenburg, threatened,
against Mecklenburg (or any of its employees), involving employment
discrimination, sexual harassment, wrongful discharge or similar claims.
Mecklenburg is not a party to or bound by any collective
bargaining agreement with any of its employees, any labor union or any other
collective bargaining unit or organization. There is no pending or threatened
labor dispute, work stoppage or strike involving Mecklenburg and any of its
employees, or any pending or threatened proceeding in which it is asserted that
Mecklenburg has committed an unfair labor practice; and Mecklenburg is not aware
of any activity involving it or any of its employees seeking to certify a
collective bargaining unit or engaging in any other labor organization activity.
2.25. EMPLOYMENT AGREEMENTS; EMPLOYEE BENEFIT PLANS
(I) Mecklenburg is not a party to or bound by any
employment agreements with any of its directors, officers or employees.
(II) Mecklenburg has Previously Disclosed and has
delivered or made available to the Holding Company prior to the execution of
this Agreement copies, in each case, of all pension, stock ownership, severance
pay, vacation, bonus, or other incentive plan, all other written employee
programs, arrangements, or 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 that term is defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), currently adopted, maintained by, sponsored in whole or in
part by, or contributed to by Mecklenburg 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
18
<PAGE>
other beneficiaries are eligible toparticipate (collectively, the "Mecklenburg
Benefit Plans"). Any of the Mecklenburg Benefit Plans which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, is
referred to herein as a "Mecklenburg ERISA Plan." No Mecklenburg ERISA Plan is
also a "defined benefit plan" (as defined in Section 414(j) of the Internal
Revenue Code) or is or has been a multi-employer plan within the meaning of
Section 3(37) of ERISA. Neither Mecklenburg nor any affiliate of Mecklenburg
has ever been required to contribute to a multi-employer plan, as defined in
Section 3(37) of ERISA.
(III) All Mecklenburg Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
laws, rules or regulations, the breach or violation of which are reasonably
likely to have, individually or in the aggregate, a material adverse effect on
Mecklenburg. Each Mecklenburg ERISA Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code has received a favorable
determination letter from the Internal Revenue Service, and Mecklenburg is not
aware of any circumstances likely to result in revocation of any such favorable
determination letter. To the knowledge of Mecklenburg, Mecklenburg has not
engaged in a transaction with respect to any Mecklenburg Benefit Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
would subject Mecklenburg to a tax imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in amounts which are reasonably
likely to have, individually or in the aggregate, a material adverse effect on
Mecklenburg.
(IV) Mecklenburg has no liability for retiree health and life
benefits under any of the Mecklenburg Benefit Plans and there are no
restrictions on the rights of Mecklenburg to amend or terminate any such Plan
without incurring any liability thereunder, which liability is reasonably likely
to have a material adverse effect on Mecklenburg.
(V) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (A) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of Mecklenburg from
Mecklenburg under any Mecklenburg Benefit Plan or otherwise, (B) increase any
benefits otherwise payable under any Mecklenburg Benefit Plan or otherwise, or
(C) result in any acceleration of the time of payment or vesting of any such
benefit, where such payment, increase, or acceleration is reasonably likely to
have, individually or in the aggregate, a material adverse effect on
Mecklenburg.
(VI) 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 Mecklenburg and their respective beneficiaries have been
fully reflected on the Mecklenburg Financial Statements to the extent required
by and in accordance with GAAP.
2.26. INSURANCE. Mecklenburg has in effect a "banker's blanket
bond" and such other policies of general liability, casualty, directors and
officers liability, employee fidelity, errors and omissions and other property
and liability insurance as have been Previously Disclosed to the 19 <PAGE>
Holding Company (the "Policies"). The Policies provide coverage in such amounts
and against such liabilities, casualties, losses or risks as is customary or
reasonable for entities engaged in Mecklenburg's business or as is required by
applicable law or regulation; and, in the reasonable opinion of management of
Mecklenburg, the insurance coverage provided under the Policies is considered
reasonable and adequate in all respects for Mecklenburg. Each of the Policies is
in full force and effect and is valid and enforceable in accordance with its
terms, and is underwritten by an insurer of recognized financial responsibility
and which is qualified to transact business in North Carolina; and Mecklenburg
has taken all requisite actions (including the giving of required notices) under
each such Policy in order to preserve all rights thereunder with respect to all
matters. Mecklenburg is not in default under the provisions of, has not received
notice of cancellation or nonrenewal of or any material premium increase on, or
has any knowledge of any failure to pay any premium on or any inaccuracy in any
application for any Policy. There are no pending claims with respect to any
Policy (and Mecklenburg is not aware of any facts which would form the basis of
any such claim), and Mecklenburg has no knowledge of any state of facts or of
the occurrence of any event that is reasonably likely to form the basis for any
such claim.
2.27. INSURANCE OF DEPOSITS. All deposits of Mecklenburg are
insured by the Bank Insurance Fund of the FDIC to the maximum extent permitted
by law, all deposit insurance premiums due from Mecklenburg to the FDIC have
been paid in full in a timely fashion, and, to the best of the knowledge and
belief of Mecklenburg's executive officers, no proceedings have been commenced
or are contemplated by the FDIC or otherwise to terminate such insurance.
2.28. AFFILIATES. Mecklenburg has Previously Disclosed to the
Holding Company a listing of those persons deemed by Mecklenburg and its counsel
as of the date of this Agreement to be "Affiliates" of Mecklenburg (as that term
is defined in Rule 405 promulgated under the Securities Act of 1933), including
persons, trusts, estates, corporations or other entities related to persons
deemed to be Affiliates of Mecklenburg.
2.29. OBSTACLES TO REGULATORY APPROVAL, ACCOUNTING TREATMENT OR
TAX TREATMENT. To the best of the knowledge and belief of management of
Mecklenburg, there exists no fact or condition (including Mecklenburg's record
of compliance with the Community Reinvestment Act) relating to Mecklenburg that
may reasonably be expected to (I) prevent or materially impede or delay the
Holding Company or Mecklenburg from obtaining the regulatory approvals required
in order to consummate transactions described herein, (II) prevent the Merger
from qualifying to be a reorganization under Section 368(a)(1)(A) of the Code,
or (III) prevent the Merger from being treated as a "pooling-of-interests" for
accounting purposes; and, if any such fact or condition becomes known to
Mecklenburg, Mecklenburg shall promptly (and in any event within three days
after obtaining such knowledge) communicate such fact or condition to the
President of the Holding Company.
2.30. DISCLOSURE. To the best of the knowledge and
belief of Mecklenburg, no written statement, certificate, schedule, list or
other written information furnished by or on behalf of Mecklenburg at any time
to the Holding Company in connection with this Agreement (including without
limitation information "Previously Disclosed" by Mecklenburg), when considered
as a
20
<PAGE>
whole, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading. Each document delivered or to be delivered by
Mecklenburg to the Holding Company is or will be a true and complete copy of
such document, unmodified except by another document delivered by Mecklenburg.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE HOLDING
COMPANY
Except as otherwise specifically described herein or as "Previously
Disclosed" (as defined in Paragraph 10.01. below) to Mecklenburg, the Holding
Company hereby makes the following representations and warranties to
Mecklenburg.
3.01. ORGANIZATION; STANDING; POWER. The Holding Company and
its subsidiaries each (I) is duly organized and incorporated, validly existing
and in good standing under the laws of North Carolina, (II) has all requisite
power and authority (corporate and other) to own its respective properties and
conduct its respective businesses as now being conducted, (III) is duly
qualified to do business and is in good standing in each other jurisdiction in
which the character of the properties owned or leased by it therein or in which
the transaction of its respective businesses makes such qualification necessary,
except where failure so to qualify would not have a material adverse effect on
the Holding Company and its subsidiaries considered as one enterprise, and (IV)
is not transacting business, or operating any properties owned or leased by it,
in violation of any provision of federal or state law or any rule or regulation
promulgated thereunder, which violation would have a material adverse effect on
the Holding Company and its subsidiaries considered as one enterprise.
3.02. CAPITAL STOCK. The Holding Company's authorized capital
stock consists of 20,000,000 shares of Triangle Stock. As of March 31, 1997, an
aggregate of 10,488,854 shares of Triangle Stock were issued and outstanding.
The Holding Company's outstanding capital stock has been duly authorized and
validly issued, and is fully paid and nonassessable, and the shares of Triangle
Stock issued to Mecklenburg's shareholders pursuant to this Agreement, when
issued as described herein, will be duly authorized, validly issued, fully paid,
nonassessable and freely tradable by all holders other than Affiliates.
3.03. AUTHORIZATION AND VALIDITY OF AGREEMENT. This Agreement
has been duly and validly approved by the Holding Company's Board of Directors
and executed and delivered on the Holding Company's behalf. (I) The Holding
Company has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations and agreements and carry out the
transactions described herein, (II) all corporate proceedings required to be
taken to authorize the Holding Company to enter into this Agreement and to
perform its obligations and agreements and carry out the transactions described
herein have been duly and properly taken, and (III) this Agreement constitutes
the valid and binding agreement of the Holding Company enforceable in accordance
with its terms (except to the extent enforceability may be limited by (A)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect 21 <PAGE>
which affect creditors' rights generally, (B) by legal and equitable limitations
on the availability of injunctive relief, specific performance and other
equitable remedies, and (C) general principles of equity and applicable laws or
court decisions limiting the enforceability of indemnification provisions).
3.04. VALIDITY OF TRANSACTIONS; ABSENCE OF REQUIRED CONSENTS
OR WAIVERS. Except where the same would not have a material adverse effect on
the Holding Company and its subsidiaries considered as one enterprise, neither
the execution and delivery of this Agreement, nor the consummation of the
transactions described herein, nor compliance by the Holding Company with any of
its obligations or agreements contained herein, will: (I) conflict with or
result in a breach of the terms and conditions of, or constitute a default or
violation under any provision of, the Holding Company's Articles of
Incorporation or Bylaws, or any contract, agreement, lease, mortgage, note,
bond, indenture, license, or obligation or understanding (oral or written) to
which the Holding Company is bound or by which it, its business, capital stock
or any of its properties or assets may be affected; (II) result in the creation
or imposition of any lien, claim, interest, charge, restriction or encumbrance
upon any of the Holding Company's properties or assets; (III) violate any
applicable federal or state statute, law, rule or regulation, or any order,
writ, injunction or decree of any court, administrative or regulatory agency or
governmental body; (IV) result in the acceleration of any obligation or
indebtedness of the Holding Company; or (V) interfere with or otherwise
adversely affect the Holding Company's ability to carry on its business as
presently conducted.
No consents, approvals or waivers are required to be obtained
from any person or entity in connection with the Holding Company's execution and
delivery of this Agreement, or the performance of its obligations or agreements
or the consummation of the transactions described herein, except for the
required approvals of the Holding Company's shareholders as described in
Paragraph 7.01.c. below and of governmental or regulatory authorities described
in Paragraph 7.01.a. below.
3.05. HOLDING COMPANY BOOKS AND RECORDS. The Holding Company's
books of account and business records have been maintained in substantial
compliance with all applicable legal and accounting requirements and in
accordance with good business practices, and such books and records are
complete and reflect accurately in all material respects the Holding Company's
items of income and expense and all of its assets, liabilities and stockholders'
equity. The minute books of the Holding Company accurately reflect in all
material respects the corporate actions which its shareholders and board of
directors, and all committees thereof, have taken during the time periods
covered by such minute books. All such minute books have been or will be made
available to Mecklenburg and its representatives.
3.06. HOLDING COMPANY REPORTS. Since January 1, 1992, and
where the failure to file has had or could have a material and adverse effect on
the Holding Company and its subsidiaries considered as one enterprise, the
Holding Company and its consolidated subsidiaries have filed all reports,
registrations and statements, together with any amendments that were required to
be made with respect thereto, that were required to be filed with (I) the
Securities and
22
<PAGE>
Exchange Commission (the "SEC"), (II) the Board of Governors of the Federal
Reserve System (the "FRB"), (III) the FDIC, (IV) the Commissioner, and (V) any
other governmental or regulatory authorities having jurisdiction over the
Holding Company or its subsidiaries. All such reports and statements filed with
the SEC, the FRB, the FDIC, the Commissioner or other such regulatory authority
are collectively referred to herein as the "Holding Company Reports." As of
their respective dates, the Holding Company Reports complied in all material
respects with all the statutes, rules and regulations enforced or promulgated by
the regulatory authority with which they were filed and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading; and the Holding
Company has not been notified that any of the Holding Company Reports were
deficient in any material respect as to form or content. Following the date of
this Agreement, the Holding Company shall deliver to Mecklenburg upon its
request a copy of any report, registration, statement or other regulatory filing
made by the Holding Company or its subsidiaries with the SEC, the FRB, the FDIC,
the Commissioner or any other such regulatory authority.
3.07. HOLDING COMPANY FINANCIAL STATEMENTS. The Holding
Company has delivered to Mecklenburg (I) a copy of the Holding Company's
consolidated balance sheets as of December 31, 1995 and December 31, 1996, and
its consolidated statements of income, changes in shareholders' equity, and cash
flows for the years ended December 31, 1994, December 31, 1995 and December 31,
1996 (the "Holding Company Financial Statements"), and (II) a copy of the
Holding Company's balance sheet as of March 31, 1997 and its statement of
operations for the three months ended March 31, 1997 (the "Holding Company
Interim Financial Statements"). The Holding Company Financial Statements and the
Holding Company Interim Financial Statements were prepared in accordance with
GAAP applied on a consistent basis throughout the periods indicated and present
fairly in all material respects the Holding Company's consolidated financial
condition, assets and liabilities, results of operations, changes in
shareholders' equity and changes in cash flows as of the dates and for the
periods specified therein. The Holding Company Financial Statements have been
audited by the Holding Company's independent accountants, Coopers & Lybrand
L.L.P.
3.08. ABSENCE OF MATERIAL ADVERSE CHANGES. Since March 31,
1997 there has been no material adverse change, and there has occurred no event
or development and, to the best knowledge of management of the Holding Company,
there currently exists no condition or circumstance (other than conditions or
circumstances affecting the banking industry generally, but excluding movements
in interest rates in the economy) which, with the lapse of time or otherwise, is
reasonably likely to cause, create or result in a material adverse change, in or
affecting the Holding Company's consolidated financial condition or results of
operations, or in its consolidated assets, loan portfolio, investments,
properties or operations.
23
<PAGE>
3.09. LITIGATION AND COMPLIANCE WITH LAW.
(I) There are no actions, suits, arbitrations,
controversies or other proceedings or investigations (or, to the best knowledge
and belief of management of the Holding Company, any facts or circumstances
which reasonably could result in such), including without limitation any such
action by any governmental or regulatory authority, which currently exists or is
ongoing, pending or, to the best knowledge and belief of management of the
Holding Company, threatened, contemplated or probable of assertion, against,
relating to or otherwise affecting the Holding Company or any of its properties
or assets which, if determined adversely, could result in liability on the part
of the Holding Company for, or subject it to, monetary damages, fines or
penalties, or an injunction, and which could have a material adverse change in
or affecting the Holding Company's consolidated financial condition or results
of operations, or in its consolidated assets, loan portfolio, investments,
properties or operations or on the ability of the Holding Company to consummate
the Merger;
(II) The Holding Company and its subsidiaries
each has all licenses, permits, orders, authorizations or approvals ("Permits")
of any federal, state, local or foreign governmental or regulatory body that are
material to or necessary for the conduct of its business or to own, lease and
operate its properties; all such Permits are in full force and effect; no
violations are or have been recorded in respect of any such Permits; and no
proceeding is pending or, to the best knowledge of management of the Holding
Company, threatened or probable of assertion to suspend, cancel, revoke or limit
any Permit;
(III) Neither the Holding Company nor any of
its subsidiaries is subject to any supervisory agreement, enforcement order,
writ, injunction, capital directive, supervisory directive, memorandum of
understanding or other similar agreement, order, directive, memorandum or
consent of, with or issued by any regulatory or other governmental authority
(including without limitation the FDIC, the FRB or the Commissioner) relating to
its financial condition, directors or officers, operations, capital, regulatory
compliance or otherwise; there are no judgments, orders, stipulations,
injunctions, decrees or awards against the Holding Company or any of its
subsidiaries which in any manner limit, restrict, regulate, enjoin or prohibit
any present or past business or practice of the Holding Company or any of its
subsidiaries; and neither the Holding Company nor any of its subsidiaries has
been advised or has any reason to believe that any regulatory or other
governmental authority or any court is contemplating, threatening or requesting
the issuance of any such agreement, order, injunction, directive, memorandum,
judgment, stipulation, decree or award; and,
(IV) Neither the Holding Company nor any of
its subsidiaries is in violation or default in any material respect under, and
each has complied in all material respects with, all laws, statutes, ordinances,
rules, regulations, orders, writs, injunctions or decrees of any court or
federal, state, municipal or other governmental or regulatory authority having
jurisdiction or authority over it or its business operations, properties or
assets (including without limitation all provisions of North Carolina law
relating to usury, the Consumer Credit Protection Act, and all other laws and
regulations applicable to extensions of credit by the Holding Company's bank
24
<PAGE>
subsidiary) and there is no basis for any claim by any person or authority for
compensation, reimbursement or damages or otherwise for any violation of any of
the foregoing that would have any material effect on the consolidated financial
condition of the Holding Company.
3.10. ABSENCE OF BROKERAGE OR FINDERS COMMISSIONS.
(I) All negotiations relative to this Agreement and the transactions described
herein have been carried on by the Holding Company directly with Mecklenburg;
(II) no person or firm has been retained by or has acted on behalf of, pursuant
to any agreement, arrangement or understanding with, or under the authority of,
the Holding Company or its Board of Directors, as a broker, finder or agent or
has performed similar functions or otherwise is or may be entitled to receive or
claim a brokerage fee or other commission in connection with the transactions
described herein; and (III) the Holding Company has not agreed to pay any
brokerage fee or other commission to any person or entity in connection with the
transactions described herein.
3.11. OBSTACLES TO REGULATORY APPROVAL, ACCOUNTING TREATMENT
OR TAX TREATMENT. To the best of the knowledge and belief of the executive
officers of the Holding Company, no fact or condition (including the Holding
Company's bank subsidiary's record of compliance with the Community Reinvestment
Act) relating to the Holding Company exists that may reasonably be expected to
(I) prevent or materially impede or delay the Holding Company regulatory
approvals required in order to consummate the transactions described herein,
(II) prevent the Merger from qualifying to be a reorganization under Section
368(a)(1)(A) of the Code, or (III) prevent the Merger from being treated as a
"pooling-of-interests" for accounting purposes; and, if any such fact or
condition becomes known to the executive officers of the Holding Company, it
promptly (and in any event within three days after obtaining such knowledge)
shall communicate such fact or condition to the President of Mecklenburg.
3.12. DISCLOSURE. To the best of the knowledge and
belief of the Holding Company, no written statement, certificate, schedule, list
or other written information furnished by or on behalf of the Holding Company at
any time to Mecklenburg in connection with this Agreement (including without
limitation information "Previously Disclosed" by the Holding Company), when
considered as a whole, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements herein or therein, in light of the circumstances under
which they were made, not misleading. Each document delivered or to be delivered
by the Holding Company to Mecklenburg is or will be a true and complete copy of
such document, unmodified except by another document delivered by the Holding
Company.
25
<PAGE>
ARTICLE IV. COVENANTS OF MECKLENBURG
4.01. AFFIRMATIVE COVENANTS OF MECKLENBURG. Mecklenburg hereby
covenants and agrees as follows with the Holding Company.
A. "AFFILIATES" OF MECKLENBURG. Mecklenburg will use its
best efforts to cause each person who shall be deemed by the Holding Company
or its counsel, in their sole discretion, to be an Affiliate of Mecklenburg
(as defined in Paragraph 2.28 above), to execute and deliver to the Holding
Company at least thirty (30) days prior to the Closing a written agreement
(the "Affiliates' Agreement") relating to restrictions on shares of Triangle
Stock to be received by such Affiliates pursuant to this Agreement and which
Affiliates' Agreement shall be in form and content reasonably satisfactory
to the Holding Company and substantially in the form attached as Schedule B
to this Agreement. Certificates for the shares of Triangle Stock issued to
Affiliates of Mecklenburg shall bear a restrictive legend (substantially in
the form as shall be set forth in the Affiliates' Agreement) with respect to
the restrictions applicable to such shares.
B. CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME. While the
parties recognize that the operation of Mecklenburg until the Effective Time is
the responsibility of Mecklenburg and its Board of Directors and officers,
Mecklenburg agrees that, between the date of this Agreement and the Effective
Time, Mecklenburg will carry on its business, in and only in the regular and
usual course in substantially the same manner as such business heretofore was
conducted, and, to the extent consistent with such business and within its
ability to do so, Mecklenburg agrees that it will:
(I) preserve intact its present business organization,
keep available its present officers and employees, and preserve its
relationships with customers, depositors, creditors, correspondents, suppliers,
and others having business relationships with it;
(II) maintain all its properties and equipment in
customary repair, order and condition, ordinary wear and tear excepted;
(III) maintain its books of account and records in the
usual, regular and ordinary manner in accordance with sound business practices
applied on a consistent basis;
(IV) comply with all laws, rules and regulations
applicable to it, its properties and to the conduct of its business;
(V) continue to maintain in force insurance such as is
described in Paragraph 2.26. above; not modify any bonds or policies of
insurance in effect as of the date hereof unless the same, as modified, provides
substantially equivalent coverage; and not cancel, allow to be terminated or, to
the extent available, fail to renew, any such bond or policy of insurance unless
the same is replaced with a bond or policy providing substantially equivalent
coverage;
(VI) provide to the Holding Company on a monthly basis
Mecklenburg's market value report on its investment portfolio and on its hedging
portfolio; and,
26
<PAGE>
(VII) promptly provide to the Holding Company such
information about Mecklenburg and its financial condition, results of
operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations, as it reasonably shall request.
C. PERIODIC INFORMATION REGARDING LOANS. All new extensions of
unsecured credit in excess of $100,000 and of secured credit in excess of
$250,000 will be submitted by Mecklenburg to the Holding Company on an
after-the-fact basis for the Holding Company's review within fifteen (15)
business days of the end of the month in which the extension of credit was made.
Additionally, Mecklenburg agrees to make available
and provide to the Holding Company the following information with respect to
Mecklenburg's loans and other extensions of credit (such assets herein referred
to as "Loans") as of March 31, 1997, and each month thereafter until the
Effective Time, such information for each month to be in form and substance as
is usual and customary in the conduct of Mecklenburg's business and to be
furnished within fifteen (15) business days of the end of each month ending
after the date hereof:
(I) a list of Loans past due for sixty (60) days
or more as to principal or interest;
(II) an analysis of the Loan Loss Reserve and
management's assessment of the adequacy of
the Loan Loss Reserve, which analysis and
assessment shall include a list of all
classified or "watch list" Loans, along with
the outstanding balance and amount
specifically allocated to the Loan Loss
Reserve for each such classified or "watch
list" Loan (this report shall be delivered
quarterly rather than monthly);
(III) a list of Loans in nonaccrual status;
(IV) a list of all Loans over $50,000 without
principal reduction for a period of longer
than one year;
(V) a list of all foreclosed real property or
other real estate owned and all repossessed
personal property;
(VI) a list of reworked or restructured Loans over
$50,000 and still outstanding, including
original terms, restructured terms and
status; and
(VII) a list of any actual or threatened litigation
by or against Mecklenburg pertaining to any
Loans or credits, which list shall contain a
description of circumstances surrounding such
litigation, its present status and
management's evaluation of such litigation.
27
<PAGE>
D. NOTICE OF CERTAIN CHANGES OR EVENTS. Following the
execution of this Agreement and up to the Effective Time, Mecklenburg promptly
will notify the Holding Company in writing of and provide to it such information
as it shall request regarding (I) any material adverse change (other than
changes relating to or resulting from changes affecting the banking industry
generally, but excluding movements in interest rates in the economy) in its
financial condition, results of operations, prospects, business, assets, loan
portfolio, investments, properties or operations, or of the actual or
prospective occurrence of any condition or event which, with the lapse of time
or otherwise, is reasonably likely to cause, create or result in any such
material adverse change, or (II) the actual or prospective existence or
occurrence of any condition or event which, with the lapse of time or otherwise,
has caused or may or could cause any statement, representation or warranty of
Mecklenburg herein, or any information that has been Previously Disclosed by
Mecklenburg to the Holding Company, to be or become materially inaccurate,
misleading or incomplete, or which has resulted or may or could cause, create or
result in the material breach or violation of any of Mecklenburg's covenants or
agreements contained herein or in the failure of any of the conditions described
in Paragraphs 7.01. or 7.03. below.
E. CONSENTS TO ASSIGNMENT OF LEASES. Mecklenburg will use its
reasonable best efforts to obtain all consents of its landlords and lessors to
the acquisition of Mecklenburg by the Holding Company as may be required under
the Real Property Leases and all other leases, each of which consents shall be
in form and substance reasonably satisfactory to the Holding Company.
F. FURTHER ACTION; INSTRUMENTS OF TRANSFER, ETC. Mecklenburg
covenants and agrees with the Holding Company that it (I) will use its
reasonable best efforts in good faith to take or cause to be taken all action
required of it hereunder as promptly as practicable so as to permit the
consummation of the transactions described herein at the earliest possible date,
(II) shall perform all acts and execute and deliver to the Holding Company all
documents or instruments required herein or as otherwise shall be reasonably
necessary or useful to or requested by either of them in consummating such
transactions, and, (III) will cooperate with the Holding Company in every way in
carrying out, and will pursue diligently the expeditious completion of, such
transactions.
G. CONVERSION TO STATE MEMBER BANK. Mecklenburg shall use its
reasonable best efforts in good faith to become a member of the Federal Reserve
System as soon as possible after the date of this Agreement.
4.02. NEGATIVE COVENANTS OF MECKLENBURG. Mecklenburg hereby
covenants and agrees that, between the date hereof and the Effective Time,
Mecklenburg will not do any of the following things or take any of the following
actions without the prior written consent and authorization of the President of
the Holding Company.
A. AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.
Mecklenburg will not amend its Articles of Incorporation or Bylaws.
28
<PAGE>
B. CHANGE IN CAPITAL STOCK. Except for Mecklenburg Stock to be
issued under the Mecklenburg Stock Plans, Mecklenburg will not (I) make any
change in its authorized capital stock, or create any other or additional
authorized capital stock or other securities, or (II) issue, sell, purchase,
redeem, retire, reclassify, combine or split any shares of its capital stock or
other securities issued by Mecklenburg, other than the issuance of shares upon
the exercise of stock options which are outstanding as of the date of this
Agreement (including securities convertible into capital stock), or enter into
any agreement or understanding with respect to any such action.
C. OPTIONS, WARRANTS AND RIGHTS. Mecklenburg will not grant or
issue any options, warrants, calls, puts or other rights of any kind relating to
the purchase, redemption or conversion of shares of its capital stock or any
other securities (including securities convertible into capital stock) or enter
into any agreement or understanding with respect to any such action.
D. DIVIDENDS. Except for the payment of a three cent ($.03)
cash dividend per share each quarter (consistent with past practices)
Mecklenburg will not declare or pay any dividends or make any other
distributions on or in respect of any shares of its capital stock or otherwise
to its shareholders.
E. EMPLOYMENT, BENEFIT OR RETIREMENT AGREEMENTS OR PLANS.
Except as required by law and except as may occur under the Mecklenburg Stock
Plans, Mecklenburg will not (I) enter into or become bound by any contract,
agreement or commitment for the employment or compensation of any officer,
employee or consultant which is not immediately terminable by Mecklenburg
without cost or other liability on no more than thirty (30) days notice; (II)
adopt, enter into or become bound by any new or additional profit-sharing,
bonus, incentive, change in control or "golden parachute", stock option, stock
purchase, pension, retirement, insurance (hospitalization, life or other) or
similar contract, agreement, commitment, understanding, plan or arrangement
(whether formal or informal) with respect to or which provides for benefits for
any of its current or former directors, officers, employees or consultants; or
(III) enter into or become bound by any contract with or commitment to any labor
or trade union or association or any collective bargaining group.
F. INCREASE IN COMPENSATION; ADDITIONAL COMPENSATION. Except
as otherwise provided herein, Mecklenburg will not increase the compensation
or benefits of, or pay any bonus or other special or additional compensation
to, any of Mecklenburg's directors, officers, employees or consultants.
Notwithstanding anything contained herein to the contrary, this Paragraph
4.02.f. shall not prohibit annual merit increases in the salaries of its
employees or other payments made to employees or directors in connection with
existing compensation or benefit plans, so long as such increases or payments
are effected at such times and in such manner and amounts as shall be
consistent with Mecklenburg's past compensation policies and practices and,
in the case of payments made pursuant to compensation or benefit plans,
consistent with the terms of those plans.
G. ACCOUNTING PRACTICES. Mecklenburg will not make any
changes in its accounting methods, practices or procedures or in depreciation or
amortization policies, schedules
29
<PAGE>
or rates heretofore applied (except as required by generally accepted accounting
principles or governmental regulations).
H. ACQUISITIONS; ADDITIONAL BRANCH OFFICES. Mecklenburg will
not directly or indirectly (I) acquire or merge with, or acquire any branch or
all or any significant part of the assets of, any other person or entity, (II)
open any new branch office, or (III) enter into or become bound by any contract,
agreement, commitment or letter of intent relating to, or otherwise take or
agree to take any action in furtherance of, any such transaction or the opening
of a new branch office.
I. CHANGES IN BUSINESS PRACTICES. Except as may be required
by the FDIC, the Commissioner or any other governmental or other regulatory
agency or as shall be required by applicable law, regulation or this Agreement,
Mecklenburg will not (I) change in any material respect the nature of its
business or the manner in which it conducts its business, (II) discontinue any
material portion or line of its business, or (III) change in any material
respect its lending, investment, asset-liability management or other material
banking or business policies (except to the extent required by Paragraph 4.01.b.
above).
J. EXCLUSIVE MERGER AGREEMENT. Mecklenburg will not, directly
or indirectly, through any person (I) encourage, solicit or attempt to initiate
or procure discussions, negotiations or offers with or from any person or entity
(other than the Holding Company) relating to a merger or other acquisition of
Mecklenburg, or the purchase or acquisition of any Mecklenburg Stock, any branch
office of Mecklenburg or all or any significant part of Mecklenburg's assets; or
provide assistance to any person in connection with any such offer; (II) except
as the fiduciary duties of its Board of Directors may require, disclose to any
person or entity any information not customarily disclosed to the public
concerning Mecklenburg or its business, or afford to any other person or entity
access to its properties, facilities, books or records; (III) except for the
fiduciary duties of its Board of Directors may require, sell or transfer any
branch office of Mecklenburg or all or any significant part of its assets to any
other person or entity; or (IV) except for the fiduciary duties of its Board of
Directors may require, enter into or become bound by any contract, agreement,
commitment or letter of intent relating to, or otherwise take or agree to take
any action in furtherance of, any such transaction.
K. ACQUISITION OR DISPOSITION OF ASSETS. Mecklenburg will
not, without the prior written consent of the Holding Company, which consent
shall not be unreasonably withheld:
(I) sell or lease (as lessor), or enter into or become
bound by any contract, agreement, option or commitment relating to the sale,
lease (as lessor) or other disposition of any real estate; or sell or lease (as
lessor), or enter into or become bound by any contract, agreement, option or
commitment relating to the sale, lease (as lessor) or other disposition of any
equipment or any other fixed or capital asset having a value on Mecklenburg's
books or a fair market value, whichever is greater, of more than $50,000 for any
individual item or asset, or more than $200,000 in the aggregate for all such
items or assets;
30
<PAGE>
(II) purchase or lease (as lessee), or enter into or
become bound by any contract, agreement, option or commitment relating to the
purchase, lease (as lessee) or other acquisition of any real property; or
purchase or lease (as lessee), or enter into or become bound by any contract,
agreement, option or commitment relating to the purchase, lease (as lessee) or
other acquisition of any equipment or any other fixed assets having a purchase
price, or involving aggregate lease payments, in excess of $50,000 for any
individual item or asset, or more than $200,000 in the aggregate for all such
items or assets;
(III) enter into any purchase commitment for supplies or
services which calls for prices of goods or fees for services materially higher
than current market prices or fees or which obligates Mecklenburg for a period
longer than twelve (12) months;
(IV) other than in the ordinary course of business and
at a level consistent with past practice but excluding the purchase of any loan
participation greater than $500,000, sell, purchase or repurchase, or enter into
or become bound by any contract, agreement, option or commitment to sell,
purchase or repurchase, any loan or other receivable or any participation in any
loan or other receivable; or
(V) other than in the ordinary course of business and at
a level consistent with past practice, sell or dispose of, or enter into or
become bound by any contract, agreement, option or commitment relating to the
sale or other disposition of, any other asset of Mecklenburg (whether tangible
or intangible, and including without limitation any trade name, copyright,
service mark or intellectual property right or license); or assign its right to
or otherwise give any other person its permission or consent to use or do
business under Mecklenburg's corporate name or any name similar thereto; or
release, transfer or waive any license or right granted to it by any other
person to use any trademark, trade name, copyright or intellectual property
right.
L. DEBT; LIABILITIES. Except in the ordinary course of its
business consistent with its past practices (including routine borrowings for
liquidity purposes from the Federal Home Loan Bank of Atlanta and other
correspondent banks), Mecklenburg will not (I) enter into or become bound by any
promissory note, loan agreement or other agreement or arrangement pertaining to
its borrowing of money, (II) assume, guarantee, endorse or otherwise become
responsible or liable for any obligation of any other person or entity, or (III)
incur any other liability or obligation (absolute or contingent).
M. LIENS; ENCUMBRANCES. Mecklenburg will not mortgage, pledge
or subject any of its assets to, or permit any of its assets to become or
(except as Previously Disclosed) remain subject to, any lien or any other
encumbrance (other than in the ordinary course of business consistent with its
past practices in connection with securing of public funds deposits, securities
repurchase agreements or other similar operating matters).
N. WAIVER OF RIGHTS. Mecklenburg will not waive, release or
compromise any material rights in its favor (except in the ordinary course of
business) except in good faith for fair
31
<PAGE>
value in money or money's worth, nor waive, release or compromise any rights
against or with respect to any of its officers, directors or shareholders or
members of families of officers, directors or shareholders.
O. OTHER CONTRACTS. Mecklenburg will not enter into or become
bound by any contracts, agreements, commitments or understandings (other than
those described elsewhere in this Paragraph 4.02.) (I) for or with respect to
any charitable contributions greater than $25,000 in the aggregate; (II) with
any governmental or regulatory agency or authority; (III) pursuant to which
Mecklenburg would assume, guarantee, endorse or otherwise become liable for the
debt, liability or obligation of any other person; (IV) which is entered into
other than in the ordinary course of its business; and (V) which, in the case of
any one contract, agreement, commitment or understanding and whether or not in
the ordinary course of its business, would obligate or commit Mecklenburg to
make expenditures of more than $25,000.
ARTICLE V. COVENANTS OF THE HOLDING COMPANY
The Holding Company hereby covenants and agrees as follows with
Mecklenburg.
5.01. OPERATION AS SUBSIDIARY. For a period of at least three
(3) years after the Effective Time, the Holding Company shall operate
Mecklenburg as a wholly-owned subsidiary, provided such separate operation does
not appear to give rise to safety and soundness concerns or present any
financial or administrative burden on the Holding Company and its subsidiaries
as a whole.
5.02. BOARD OF DIRECTORS. Subject to any necessary regulatory
and shareholder approval, as soon as practicable following the Effective Time,
the Holding Company shall take such steps as appropriate to appoint Cy N.
Bahakel, or to cause him to be elected, as a member of the Holding Company's
Board of Directors for a term of two (2) years after the Effective Time, and,
for such service, Mr. Bahakel shall be compensated in accordance with the
Holding Company's standard arrangements for the compensation of its directors.
5.03. NASDAQ NATIONAL MARKET SYSTEM NOTIFICATION OF
LISTING OF ADDITIONAL SHARES OF TRIANGLE STOCK. On or before the fifteenth day
prior to the Effective Time, the Holding Company shall file with the NASDAQ
National Market System such notifications and other materials (and shall pay
such fees) as shall be required for the listing on the NASDAQ National Market
System of the shares of Triangle Stock to be issued to Mecklenburg's
shareholders at the Effective Time.
5.04. NOTICE OF CERTAIN CHANGES OR EVENTS. Following the
execution of this Agreement and up to the Effective Time, the Holding Company
promptly will notify Mecklenburg in writing of and provide to it such
information as it shall request regarding (I) any material adverse change (other
than changes relating to or resulting from changes affecting the banking
industry generally, but excluding movements in interest rates in the economy) in
its consolidated financial condition, results of operations, prospects,
business, assets, loan portfolio,
32
<PAGE>
investments, properties or operations, or of the actual or prospective
occurrence of any condition or event which, with the lapse of time or otherwise,
is reasonably likely to cause, create or result in any such material adverse
change, or (II) the actual or prospective existence or occurrence of any
condition or event which, with the lapse of time or otherwise, has caused or may
or could cause any statement, representation or warranty of the Holding Company
herein, or any information that has been Previously Disclosed by the Holding
Company to Mecklenburg, to be or become materially inaccurate, misleading or
incomplete, or which has resulted or may or could cause, create or result in the
material breach or violation of any of the Holding Company's covenants or
agreements contained herein or in the failure of any of the conditions described
in Paragraphs 7.01. or 7.02. below.
5.05. THE HOLDING COMPANY TO PROVIDE NECESSARY INFORMATION. The Holding
Company will promptly provide to Mecklenburg information regarding the Holding
Company and its subsidiaries that Mecklenburg reasonably requests in order to
satisfy any of its obligations under Paragraph 4.01.e.
5.06. THE HOLDING COMPANY TO FILE FORM 8-K. As soon as practicable, the
Holding Company will file a Form 8-K with the SEC reflecting the combined
operations of the Holding Company and Mecklenburg for the thirty (30) days
following the Effective Time.
ARTICLE VI. MUTUAL AGREEMENTS
6.01. SHAREHOLDERS' MEETINGS; REGISTRATION STATEMENT; JOINT
PROXY STATEMENT/PROSPECTUS.
A. MEETINGS OF SHAREHOLDERS. Mecklenburg shall cause a meeting
of its shareholders (the "Mecklenburg Shareholder Meeting", which may be a
regular annual meeting or a specially called meeting) to be held as soon as
reasonably possible (but in no event less than twenty (20) days following the
mailing to Mecklenburg's shareholders of the "Joint Proxy Statement/Prospectus"
described below) for the purpose of Mecklenburg's shareholders voting on the
approval of the Agreement and the Merger. The Holding Company shall cause a
special meeting of its shareholders (the "Triangle Shareholders Meeting") to be
held as soon as reasonably possible for the purpose of the Holding Company's
shareholders voting on the approval of the Agreement and the Acquisition. In
connection with the call and conduct of and all other matters relating to the
Mecklenburg Shareholder Meeting and the Triangle Shareholder Meeting (including
the solicitation of proxies), Mecklenburg and the Holding Company shall fully
comply with all provisions of applicable law and regulations and with their
respective Articles of Incorporation and By-laws.
33
<PAGE>
B. PREPARATION AND DISTRIBUTION OF JOINT PROXY
STATEMENT/PROSPECTUS. The Holding Company and Mecklenburg jointly will prepare a
"Joint Proxy Statement/Prospectus" for distribution to Mecklenburg's and the
Holding Company's shareholders as their respective proxy statement relating to
their solicitation of proxies for use at the Mecklenburg Shareholder Meeting and
the Triangle Shareholder Meeting and as the Holding Company's prospectus
relating to the offer and distribution of Triangle Stock as described herein.
The Joint Proxy Statement/ Prospectus shall be in such form and shall contain or
be accompanied by such information regarding the Mecklenburg Shareholder
Meeting, the Triangle Shareholder Meeting, this Agreement, the parties hereto,
the Merger and other transactions described herein as is required by applicable
law and regulations and otherwise as shall be agreed upon by the Holding Company
and Mecklenburg. The Holding Company shall include the Joint Proxy
Statement/Prospectus as the prospectus in its "Registration Statement" described
below, and Mecklenburg shall cause the Joint Proxy Statement/Prospectus to be
filed with the FDIC for review; and each party hereto will cooperate with the
other in good faith and will use their best efforts to cause the Joint Proxy
Statement/Prospectus to comply with any comments of the SEC and the FDIC
thereon.
The Holding Company and Mecklenburg will mail the Joint Proxy
Statement/Prospectus to Mecklenburg's shareholders not less than twenty (20)
days prior to the scheduled date of the Mecklenburg Shareholder Meeting;
provided, however, that no such materials shall be mailed to Mecklenburg's
shareholders unless and until the Holding Company shall have determined to its
own satisfaction that the conditions specified in Paragraph 7.03.d. below have
been satisfied and shall have approved such mailing.
C. REGISTRATION STATEMENT AND "BLUE SKY" APPROVALS. As soon
as practicable following the execution of this Agreement, the Holding Company
will prepare and file with the SEC a registration statement on Form S-4 (or on
such other form as the Holding Company shall determine to be appropriate) (the
"Registration Statement") covering the Triangle Stock to be issued to
shareholders of Mecklenburg pursuant to this Agreement and will use its
reasonable best efforts in good faith to see that the Registration Statement is
declared effective by the SEC under the 1933 Act. Additionally, the Holding
Company shall take all such other actions, if any, as shall be required by
applicable state securities or "blue sky" laws (I) to cause the Triangle Stock
to be issued upon consummation of the Merger, at the time of the issuance
thereof, to be duly qualified or registered (unless exempt) under such laws,
(II) to cause all conditions to any exemptions from qualification or
registration under such laws to have been satisfied, and (III) to obtain any and
all required approvals or consents to the issuance of such stock.
D. RECOMMENDATION OF MECKLENBURG'S BOARD OF DIRECTOR. Unless,
due to a material change in circumstances or for any other reason Mecklenburg's
Board of Directors reasonably believes that such a recommendation would violate
the directors' duties or obligations as such to Mecklenburg or to its
shareholders, Mecklenburg's Board of Directors will recommend to and actively
encourage Mecklenburg's shareholders that they vote their shares of Mecklenburg
Stock at the Mecklenburg Shareholder Meeting to ratify and approve this
Agreement and the Merger, and the Joint Proxy Statement/Prospectus mailed to
Mecklenburg's shareholders will so
34
<PAGE>
indicate and state that Mecklenburg's Board of Directors considers the Merger to
be advisable and in the best interests of Mecklenburg and its shareholders.
E. INFORMATION FOR JOINT PROXY STATEMENT/PROSPECTUS AND
REGISTRATION STATEMENT. The Holding Company and Mecklenburg each agrees to
respond promptly, and to use its reasonable best efforts to cause its directors,
officers, accountants and affiliates to respond promptly, to requests by any
other such party and its counsel for information for inclusion in the various
applications for regulatory approvals and in the Joint Proxy
Statement/Prospectus. The Holding Company and Mecklenburg each hereby covenants
with the others that none of the information provided by it for inclusion in the
Joint Proxy Statement/Prospectus will, at the time of its mailing to
Mecklenburg's shareholders, contain any untrue statement of a material fact or
omit any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under which
they were made, not false or misleading; and, at all times following such
mailing up to and including the Effective Time, none of such information
contained in the Joint Proxy Statement/Prospectus, as it may be amended or
supplemented, will contain an untrue statement of a material fact or omit any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not false or misleading.
6.02. REGULATORY APPROVALS. Promptly following the date of this
Agreement, the Holding Company and Mecklenburg each shall use their respective
reasonable best efforts in good faith to (I) prepare and file, or cause to be
prepared and filed, all applications for regulatory approvals and actions as may
be required of them, respectively, by applicable law and regulations with
respect to the transactions described herein (including applications to the FRB,
the FDIC, the Commissioner and the North Carolina State Banking Commission, and
to any other applicable federal or state banking, securities or other regulatory
authority), and (II) obtain all necessary regulatory approvals required for
consummation of the transactions described herein. Each such party shall
cooperate with each other party in the preparation of all applications to
regulatory authorities and, upon request, promptly shall furnish all documents,
information, financial statements or other material that may be required by any
other party to complete any such application; and, before the filing therefore,
each party to this Agreement shall have the right to review and comment on the
form and content of any such application to be filed by any other party. Should
the appearance of any of the officers, directors, employees or counsel of any of
the parties hereto be requested by any other party or by any governmental agency
at any hearing in connection with any such application, such party shall
promptly use its best efforts to arrange for such appearance.
6.03. ACCESS. Following the date of this Agreement and to and
including the Effective Time, Mecklenburg shall provide the Holding Company and
its employees, accountants and counsel, access to all its books, records, files
and other information (whether maintained electronically or otherwise), to all
its properties and facilities, and to all its employees, accountants, counsel
and consultants, for purposes of the conduct of such reasonable investigation
and review as they shall, in their sole discretion, consider to be necessary or
appropriate; provided, however, that any such review conducted by the Holding
Company shall be performed in such a manner as will
35
<PAGE>
not interfere unreasonably with Mecklenburg's normal operations, or with
Mecklenburg's relationship with its customers or employees, and shall be
conducted in accordance with procedures established by the parties having due
regard for the foregoing.
6.04. COSTS. Subject to the provisions of Paragraph 8.03. below,
and whether or not this Agreement shall be terminated or the Merger shall be
consummated, Mecklenburg and the Holding Company each shall pay its own legal,
accounting and financial advisory fees and all its other costs and expenses
incurred or to be incurred in connection with the execution and performance of
its obligations under this Agreement or otherwise in connection with this
Agreement and the transactions described herein (including without limitation
all accounting fees, legal fees, filing fees, printing costs, travel expenses,
and, in the case of Mecklenburg, all fees owed to Equity Research, Inc. ("Equity
Research") for the cost of Mecklenburg's fairness opinion described in Paragraph
7.01.d. below, and to Orr Management, Inc. for financial advice, and, in the
case of the Holding Company, the cost of the "Environmental Survey" described in
Paragraph 6.06. below) and all fees owed to Wheat First Securities, Inc. ("Wheat
First") for the cost of the Holding Company's fairness opinion described in
Paragraph 7.01.d. below. However, subject to the provisions of Paragraph 8.03.
below, all costs incurred in connection with the printing and mailing of the
Joint Proxy Statement/Prospectus shall be deemed to be incurred and shall be
paid fifty percent (50%) by Mecklenburg and fifty percent (50%) by the Holding
Company.
6.05. ANNOUNCEMENTS. Mecklenburg and the Holding Company
each agrees that no person other than the parties to this Agreement is
authorized to make any public announcement or statement about this Agreement or
any of the transactions described herein, and that, without the prior review and
consent of the others (which consent shall not unreasonably be denied or
delayed), no party hereto may make any public announcement, statement or
disclosure as to the terms and conditions of this Agreement or the transactions
described herein, except for such disclosures as may be required incidental to
obtaining the prior approval of any regulatory agency or official, or the
consent of any lessor or landlord of Mecklenburg to the consummation of the
transactions described herein. However, notwithstanding anything contained
herein to the contrary, prior review and consent shall not be required if in the
good faith opinion of counsel to the Holding Company or Mecklenburg any such
disclosure by such entity is required by law or otherwise is prudent.
6.06. ENVIRONMENTAL STUDIES. At its option the Holding Company may
cause to be conducted Phase I environmental assessments of the Real Property,
the real estate subject to any Real Property Lease, or the Loan Collateral, or
any portion thereof, together with such other studies, testing and intrusive
sampling and analyses as the Holding Company shall deem necessary or desirable
(collectively, the "Environmental Survey"). The Holding Company shall complete
all such Phase I environmental assessments within sixty (60) days following the
date of this Agreement and thereafter conduct and complete any such additional
studies, testing, sampling and analyses within sixty (60) days following
completion of all Phase I environmental assessments. Subject to the provisions
of Paragraph 8.03. below, the costs of the Environmental Survey shall be paid by
the Holding Company. If (I) the final results of any Environmental Survey (or
any related analytical data) reflect that there likely has been any discharge,
disposal, release or emission by any
36
<PAGE>
person of any Hazardous Substance on, from or relating to any of the Real
Property, real estate subject to a Real Property Lease or Loan Collateral at any
time prior to the Effective Time, or that any action has been taken or not
taken, or a condition or event likely has occurred or exists, with respect to
any of the Real Property, real estate subject to a Real Property Lease or Loan
Collateral which constitutes or would or may constitute a violation of any
Environmental Laws, and if, (II) based on the advice of its legal counsel or
other consultants, the Holding Company believes that Mecklenburg is reasonably
likely to become responsible for the remediation of such discharge, disposal,
release or emission or for other corrective action with respect to any such
violation, or that Mecklenburg is reasonably likely to become liable for
monetary damages (including without limitation any civil or criminal penalties
or assessments) resulting therefrom (or that, in the case of any of the Loan
Collateral, Mecklenburg is reasonably likely to incur any such liability if it
acquired title to such Loan Collateral), and if, (III) based on the advice of
its legal counsel or other consultants, the Holding Company believes the amount
of expenses or liability which Mecklenburg is reasonably likely to incur or for
which Mecklenburg could become responsible or liable on account of any and all
such remediation, corrective action or monetary damages at any time or over any
period of time could equal or exceed an aggregate of $100,000, then the Holding
Company shall give Mecklenburg written notice thereof (together with all
information in its possession relating thereto) within fifteen (15) days of the
completion of the Environmental Survey and, at the Holding Company's sole option
and discretion, at any time thereafter and up to the Effective Time, the Holding
Company may terminate this Agreement without further obligation or liability to
Mecklenburg or its shareholders.
6.07. EMPLOYEES; SEVERANCE PAYMENTS; EMPLOYEE BENEFITS.
A. EMPLOYMENT OF MECKLENBURG EMPLOYEES. Provided they remain
employed by Mecklenburg at the Effective Time, the Holding Company will in good
faith cause Mecklenburg to continue employment of all employees of Mecklenburg
(other than employees serving pursuant to an employment agreement) at their
current positions, salary and benefits it being understood that neither the
Holding Company nor Mecklenburg shall have any obligation with respect to any
specific employee. Each such person's employment shall be on an "at-will" basis,
and nothing in this Agreement shall be deemed to constitute an employment
agreement with any such person or to obligate the Holding Company or Mecklenburg
to employ any such person for any specific period of time or in any specific
position or to restrict the Holding Company's or Mecklenburg's right to
terminate the employment of any such person at any time and for any reason
satisfactory to it.
B. SEVERANCE PAYMENT. Except as otherwise may be agreed to by
the Holding Company and Mecklenburg, to the extent Mecklenburg maintains any
plan or arrangement for the payment of severance or salary continuation benefits
to employees, such plan or arrangement (unless specifically provided to the
contrary hereunder) shall be terminated at the Effective Time.
C. EMPLOYEE BENEFITS. Except as otherwise
provided in this Paragraph 6.07, the benefit plans of Mecklenburg ("Mecklenburg
Benefit Plans") will be reviewed and appropriate amendments, consolidations or
terminations will be made thereto at or after the Effective Time;
37
<PAGE>
provided, however, that the employees of Mecklenburg (i) shall be eligible to
receive group hospitalization, medical, life, disability and similar benefits on
the same basis and under the same terms available to the present employees of
the Holding Company and its subsidiaries, (ii) in the event a Mecklenburg
Benefit Plan is terminated, the rights and benefits of Mecklenburg's employees
thereunder shall become fully vested, with each participating Mecklenburg
employee having the right or option either to receive the benefits to which he
or she is entitled as a result of such termination or to have such benefits
"rolled" into the appropriate Holding Company benefit plan ("Triangle Benefit
Plan"), on the same basis and applying the eligibility standards as would apply
to the employees of the Holding Company and its subsidiaries as if such
employee's prior service to Mecklenburg had been performed on behalf of the
Holding Company and its subsidiaries for qualification, participation and
vesting, but not for funding, purposes, and (iii) in the event a Mecklenburg
Benefit Plan is merged into a Triangle Benefit Plan, shall be entitled to
participate in such Triangle Benefit Plan on the same basis and applying the
same eligibility standards as would apply to employees of the Holding Company
and its subsidiaries. Mecklenburg and the Holding Company agree that for
purposes of qualification, participation and vesting in Triangle Benefit Plans,
the employees of Mecklenburg shall receive credit for their prior continuous
periods of service to Mecklenburg.
6.08. CONFIDENTIALITY. The Holding Company and
Mecklenburg each agrees that it will treat as confidential and not disclose to
any unauthorized person any documents or other information obtained from or
learned about the others during the course of the negotiation of this Agreement
and the carrying out of the events and transactions described herein (including
any information obtained during the course of any due diligence investigation or
review provided for herein or otherwise) and which documents or other
information relates in any way to the business, operations, personnel, customers
or financial condition of such other parties; and that it will not use any such
documents or other information for any purpose except for the purposes for which
such documents and information were provided to it and in furtherance of the
transactions described herein. However, the above obligations of confidentiality
shall not prohibit the disclosure of any such document or information by any
party to this Agreement to the extent (I) such document or information is then
available generally to the public or is already known to the person or entity to
whom disclosure is proposed to be made (other than through the previous actions
of such party in violation of this Paragraph 6.08), (II) such document or
information was available to the disclosing party on a nonconfidential basis
prior to the same being obtained pursuant to this Agreement, (III) disclosure is
required by subpoena or order of a court or regulatory authority of competent
jurisdiction, or by the SEC or regulatory authorities in connection with the
transactions described herein, or (IV) to the extent that, in the reasonable
opinion of legal counsel to such party, disclosure otherwise is required by law.
In the event this Agreement is terminated for any reason, then
each of the parties hereto immediately shall return to the other parties all
copies of any and all documents or other written materials or information of or
relating to such other parties which were obtained from them during the course
of the negotiation of this Agreement and the carrying out of the events and
transactions described herein (whether during the course of any due diligence
investigation or
38
<PAGE>
review provided for herein or otherwise) and which documents or other
information relates in any way to the business, operations, personnel, customers
or financial condition of such other parties.
The parties' obligations of confidentiality under this
Paragraph 6.08 shall survive and remain in effect following any termination of
this Agreement
6.09 REORGANIZATION FOR TAX PURPOSES. The Holding Company and
Mecklenburg each undertakes and agrees to use its reasonable best efforts to
cause the Merger to qualify as a "reorganization" within the meaning of Section
368(a)(1)(A) of the Code, and that it will not intentionally take any action
that would cause the Merger to fail to so qualify.
6.10. ACCOUNTING TREATMENT. The Holding Company and Mecklenburg each
undertakes and agrees to use its reasonable best efforts to cause the Merger to
qualify to be treated as a "pooling-of-interests" for accounting purposes and
that it will not intentionally take any action that would cause the Merger to
fail to so qualify.
6.11. OTHER PERMISSIBLE TRANSACTIONS. The Holding Company and
Mecklenburg agree that the Holding Company and its subsidiaries may offer to
acquire, enter into agreements to acquire and acquire financial institution
holding companies and their subsidiaries, financial institutions or financial
services entities and their subsidiaries, leasing companies and other entities
which are permissible for financial institution holding companies and financial
institutions to own, and/or the assets and liabilities of such entities prior to
the Effective Time.
ARTICLE VII. CONDITIONS PRECEDENT TO MERGER
7.01. CONDITIONS TO ALL PARTIES' OBLIGATIONS. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of each of the
parties to this Agreement to consummate the transactions described herein shall
be conditioned upon the satisfaction of each of the following conditions
precedent on or prior to the Closing Date.
39
<PAGE>
A. APPROVAL BY GOVERNMENTAL OR REGULATORY AUTHORITIES; NO
DISADVANTAGEOUS CONDITIONS. (I) The Merger and other transactions described
herein shall have been approved, to the extent required by law, by the FRB, the
FDIC, the Commissioner and the North Carolina State Banking Commission, and by
all other governmental or regulatory agencies or authorities having jurisdiction
over such transactions, (II) no governmental or regulatory agency or authority
shall have withdrawn its approval of such transactions or imposed any condition
on such transactions or conditioned its approval thereof, which condition is
reasonably deemed by the Holding Company or Mecklenburg to be materially
disadvantageous or burdensome or to impact so adversely the economic or business
benefits of this Agreement as to render it inadvisable for such party to
consummate the Merger; (III) all waiting periods required following necessary
approvals by governmental or regulatory agencies or authorities shall have
expired, and, in the case of the waiting period following approval by the FRB
and the FDIC, no unwithdrawn objection to the Merger shall have been raised by
the U.S. Department of Justice; and (IV) all other consents, approvals and
permissions, and the satisfaction of all of the requirements prescribed by law
or regulation, necessary to the carrying out of the transactions contemplated
herein shall have been procured.
B. EFFECTIVENESS OF REGISTRATION STATEMENT; COMPLIANCE WITH
SECURITIES AND OTHER "BLUE SKY" REQUIREMENTSEFFECTIVENESS OF REGISTRATION
STATEMENT; COMPLIANCE WITH SECURITIES AND OTHER "BLUE SKY" REQUIREMENTS. The
Registration Statement shall be effective under the 1933 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. The Holding Company shall have taken all such actions, if
any, as required by applicable state securities laws (I) to cause the Triangle
Stock to be issued upon consummation of the Merger, at the time of the issuance
thereof, to be duly qualified or registered (unless exempt) under such laws,
(II) to cause all conditions to any exemptions from qualification or
registration under such laws to have been satisfied, and (III) to obtain any and
all required approvals or consents with respect to the issuance of such stock,
and any such required approvals or consents shall have been obtained and shall
remain in effect.
C. ADVERSE PROCEEDINGS, INJUNCTION, ETC. There shall not be
(I) any order, decree or injunction of any court or agency of competent
jurisdiction which enjoins or prohibits the Merger or any of the other
transactions described herein or any of the parties hereto from consummating any
such transaction, (II) any pending or threatened investigation of the Merger or
any of such other transactions by the U.S. Department of Justice, or any actual
or threatened litigation under federal antitrust laws relating to the Merger or
any other such transaction, or (III) any suit, action or proceeding by any
person (including any governmental, administrative or regulatory agency),
pending or threatened before any court or governmental agency in which it is
sought to restrain or prohibit Mecklenburg or the Holding Company from
consummating the Merger or carrying out any of the terms or provisions of this
Agreement, or (IV) any other suit, claim, action or proceeding pending or
threatened against Mecklenburg or the Holding Company or any of their officers
or directors which shall reasonably be considered by Mecklenburg or the Holding
Company to be materially burdensome in relation to the proposed Merger or
materially adverse in relation to the financial condition of either such
corporation, and which has not been
40
<PAGE>
dismissed, terminated or resolved to the satisfaction of all parties hereto
within ninety (90) days of the institution or threat thereof.
D. APPROVAL BY BOARDS OF DIRECTORS AND SHAREHOLDERS. The
Boards of Directors of Mecklenburg and the Holding Company shall have duly
approved and adopted this Agreement by appropriate resolutions, and the
shareholders of Mecklenburg and the Holding Company shall have duly approved,
ratified and confirmed this Agreement, all to the extent required by and in
accordance with the provisions of this Agreement, applicable law, and applicable
provisions of their respective Articles of Incorporation and By-Laws.
E. FAIRNESS OPINIONS. Mecklenburg shall have received from
Equity Research a written opinion, in form and substance satisfactory to
Mecklenburg, dated as of the date of this Agreement and as of the date of the
Joint Proxy Statement/Prospectus to Mecklenburg's shareholders in connection
with the Mecklenburg Shareholder Meeting, to the effect that the terms of the
Merger are fair, from a financial point of view, to Mecklenburg and its
shareholders. The Holding Company shall have received from Wheat First a written
opinion, dated as of the date of this Agreement and as of the date of the Joint
Proxy Statement/Prospectus to the Holding Company's shareholders in connection
with the Triangle Shareholder Meeting, to the effect that the terms of the
Acquisition are fair, from a financial point of view, to the Holding Company and
its shareholders.
F. TAX OPINION. The Holding Company shall have received, in
form and substance satisfactory to the Holding Company and Mecklenburg, an
opinion of Coopers & Lybrand L.L.P. substantially to the effect that: (I) for
federal income tax purposes, consummation of the Merger will constitute a
"reorganization" as defined in ' 368(a)(1)(A) of the Code; (II) that no taxable
gain will be recognized by a shareholder of Mecklenburg upon such shareholder's
receipt of Triangle Stock in exchange for his or her Mecklenburg Stock; (III)
that the basis of the Triangle Stock received by the shareholder in the Merger
will be the same as his or her Mecklenburg Stock surrendered in exchange
therefor; (IV) that, if Mecklenburg Stock is a capital asset in the hands of the
shareholder at the Effective Time, then the holding period of the Triangle Stock
received by the shareholder in the Merger will include the holding period of
Mecklenburg Stock surrendered in exchange therefor; and (V) a shareholder who
receives cash in lieu of a fractional share of Triangle Stock will recognize
gain or loss equal to any difference between the amount of cash received and the
shareholder's basis in the fractional share interest. In rendering its opinion,
Coopers & Lybrand L.L.P. may rely on representations contained in certificates
of officers of the Holding Company and Mecklenburg.
G. NO TERMINATION OR ABANDONMENT. This Agreement shall not
have been terminated by any party hereto.
7.02. ADDITIONAL CONDITIONS TO MECKLENBURG'S OBLIGATION.
Notwithstanding any other provision of this Agreement to the contrary,
Mecklenburg's obligation to consummate the transactions described herein shall
be conditioned upon the satisfaction of each of the following conditions
precedent on or prior to the Closing Date.
41
<PAGE>
A. MATERIAL ADVERSE CHANGE. There shall not have been any
material adverse change (other than changes relating to or resulting from
changes affecting the banking industry generally, but excluding movements in
interest rates in the economy) in the financial condition, results of
operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of the Holding Company and its consolidated
subsidiaries considered as one enterprise, and there shall not have occurred any
event or development and there shall not exist any condition or circumstance
which, with the lapse of time or otherwise, is reasonably likely to cause,
create or result in any such material adverse change (other than changes
relating to or resulting from changes affecting the banking industry generally,
but excluding movements in interest rates in the economy).
B. COMPLIANCE WITH LAWS. The Holding Company shall have
complied in all material respects with all federal and state laws and
regulations applicable to the transactions described herein and where the
violation of or failure to comply with any such law or regulation is reasonably
likely to have a material adverse effect on the financial condition, results of
operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of the Holding Company and its consolidated
subsidiaries considered as one enterprise.
C. THE HOLDING COMPANY'S REPRESENTATIONS AND WARRANTIES AND
PERFORMANCE OF AGREEMENTS; OFFICERS' CERTIFICATE. Unless waived in writing by
Mecklenburg as provided in Paragraph 10.03. below, each of the representations
and warranties of the Holding Company contained in this Agreement shall have
been true and correct as of the date hereof and shall remain true and correct in
all material respects on and as of the Effective Time with the same force and
effect as though made on and as of such date, except (I) representations and
warranties that speak as of a specific date, (II) for changes which are not, in
the aggregate, material and adverse to the financial condition, results of
operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of the Holding Company and its consolidated
subsidiaries considered as one enterprise, and (III) as otherwise contemplated
by this Agreement; and the Holding Company and Triangle each shall have
performed in all material respects all its respective obligations, covenants and
agreements hereunder to be performed by it on or before the Closing Date.
Mecklenburg shall have received a certificate dated as of the
Closing Date and executed by the Holding Company's President and Chief Financial
Officer to the foregoing effect.
D. LEGAL OPINION OF THE HOLDING COMPANY COUNSEL. Mecklenburg
shall have received from Moore & Van Allen, PLLC, counsel to the Holding
Company, a written opinion dated as of the Closing Date and substantially in the
form of Schedule C attached hereto or otherwise in form and substance reasonably
satisfactory to Mecklenburg.
42
<PAGE>
E. OTHER DOCUMENTS AND INFORMATION FROM THE HOLDING COMPANY.
The Holding Company shall have provided to Mecklenburg correct and complete
copies of its Bylaws, Articles of Incorporation and board resolutions (all
certified by its Secretary), together with a certificate of the incumbency of
its officers and such other closing documents and information as may be
reasonably requested by Mecklenburg or its counsel.
F. ACCEPTANCE BY MECKLENBURG'S COUNSEL. The form and
substance of all legal matters described herein or related to the transactions
contemplated herein shall be reasonably acceptable to Mecklenburg's legal
counsel.
7.03. ADDITIONAL CONDITIONS TO THE HOLDING COMPANY'S OBLIGATION.
Notwithstanding any other provision of this Agreement to the contrary, the
Holding Company's obligation to consummate the transactions described herein
shall be conditioned upon the satisfaction of each of the following conditions
precedent on or prior to the Closing Date.
A. MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change (other than changes relating to or resulting from
changes affecting the banking industry generally, but excluding movements in
interest rates in the economy) in the financial condition, results of
operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of Mecklenburg, and there shall not have occurred any
event or development and there shall not exist any condition or circumstance
which, with the lapse of time or otherwise, is reasonably likely to cause,
create or result in any such material adverse change (other than changes
relating to or resulting from changes affecting the banking industry generally,
but excluding movements in interest rates in the economy).
B. COMPLIANCE WITH LAWS; ADVERSE PROCEEDINGS, INJUNCTION, ETC.
Mecklenburg shall have complied in all material respects with all federal and
state laws and regulations applicable to the transactions described herein and
where the violation of or failure to comply with any such law or regulation is
reasonably likely to have a material adverse effect on the financial condition,
results of operations, prospects, businesses, assets, loan portfolio,
investments, properties or operations of Mecklenburg.
C. MECKLENBURG'S REPRESENTATIONS AND WARRANTIES AND
PERFORMANCE OF AGREEMENTS; OFFICERS' CERTIFICATE. Unless waived in writing by
the Holding Company as provided in Paragraph 10.03. below, each of the
representations and warranties of Mecklenburg contained in this Agreement shall
have been true and correct as of the date hereof and shall remain true and
correct on and as of the Effective Time with the same force and effect as though
made on and as of such date, except (I) representations and warranties that
speak as of a specific date, (II) for changes which are not, in the aggregate,
material and adverse to the financial condition, results of operations,
prospects, businesses, assets, loan portfolio, investments, properties or
operations of Mecklenburg, and (III) as otherwise contemplated by this
Agreement; and Mecklenburg shall have performed in all material respects all its
obligations, covenants and agreements hereunder to be performed by it on or
before the Closing Date.
43
<PAGE>
The Holding Company shall have received a certificate dated
as of the Closing Date and executed by Mecklenburg's President and Chief
Financial Officer to the foregoing effect and as to such other matters as may be
reasonably requested by the Holding Company.
D. AGREEMENTS FROM MECKLENBURG AFFILIATES. The Holding
Company shall have received the written Affiliates' Agreements in form and
content satisfactory to the Holding Company and signed by all persons who are
deemed by the Holding Company or its counsel to be Affiliates of Mecklenburg as
provided in Paragraph 4.01.a. above.
E. ACCOUNTING TREATMENT. (I) The Holding Company shall have
received assurances from Coopers & Lybrand L.L.P., in form and content
satisfactory to it, to the effect that the Merger will qualify to be treated as
a "pooling-of-interests" for accounting purposes; (II) if requested by the
Holding Company, Mecklenburg's independent public accountants shall have
delivered to the Holding Company a letter in form and content satisfactory to it
to the effect that such accountants are not aware of any fact or circumstance
that might cause the Merger not to qualify for such treatment; and (III) it
shall not have come to the attention of management of the Holding Company that
any event has occurred or that any condition or circumstance exists that makes
it likely that the Merger may not so qualify.
F. LEGAL OPINION OF MECKLENBURG'S COUNSEL. The Holding Company
shall have received from Mecklenburg's counsel, Robinson, Bradshaw & Hinson,
P.A., a written opinion, dated as of the Closing Date and substantially in the
form of Schedule D attached hereto or otherwise in form and substance reasonably
satisfactory to the Holding Company.
G. OTHER DOCUMENTS AND INFORMATION FROM MECKLENBURG.
Mecklenburg shall have provided to the Holding Company correct and complete
copies of Mecklenburg's Articles of Incorporation, Bylaws and board and
shareholder resolutions (all certified by Mecklenburg's Secretary), together
with certificates of the incumbency of Mecklenburg's officers and such other
closing documents and information as may be reasonably requested by the Holding
Company or its counsel.
H. CONSENTS TO ASSIGNMENT OF LEASES. Mecklenburg shall have
obtained all required consents to the acquisition of Mecklenburg by the Holding
Company as may be required under the Real Property Leases and all other leases,
under the same terms, rates and conditions of such Real Property Leases and all
other leases in effect as of the date of this Agreement, and such consents shall
be in such form and substance as shall be satisfactory to the Holding Company;
and each of Mecklenburg's lessors shall have confirmed in writing that
Mecklenburg is not in material default under the terms and conditions of the
Real Property Lease or any other lease between such lessor and Mecklenburg.
I. ACCEPTANCE BY THE HOLDING COMPANY'S COUNSEL. The form and
substance of all legal matters described herein or related to the transactions
contemplated herein shall be reasonably acceptable to the Holding Company's
legal counsel.
44
<PAGE>
J. MECKLENBURG BOARD OF DIRECTORS. Mecklenburg shall have
taken such action as may be necessary to elect Michael S. Patterson and Debra L.
Lee, the Holding Company's President and Chief Financial Officer, respectively,
to the Board of Directors of Mecklenburg, effective immediately after the
Effective Time.
K. MECKLENBURG SECURITIES PORTFOLIO. Notwithstanding the
provisions of Paragraph 7.03.a. hereof, five (5) days prior to the Effective
Time the Holding Company shall cause a valuation of Mecklenburg's securities and
derivatives portfolio to be made by Wheat, First Securities, Inc. (the cost of
such valuation to be borne solely by the Holding Company) and if the Holding
Company were to sell the securities and derivatives portfolio on that date the
sale would not result in a loss on Mecklenburg's income statement in excess of
$250,000.
L. EXERCISE OF DISSENTERS RIGHTS. The aggregate number of
shares of Mecklenburg Stock as to which cash is proposed to be paid as the
result either of the distribution of cash in lieu of fractional shares (as
described in Paragraph 1.5.c. above) or the exercise of Dissenters Rights (as
described in Paragraph 1.5.f. above), when coupled with any other shares of
Mecklenburg Stock deemed tainted for "pooling-of-interest" purposes, shall not
exceed 10% of the total number of shares of Mecklenburg Stock outstanding at the
date of this Agreement or at the Effective Time.
ARTICLE VIII. TERMINATION; BREACH; REMEDIES
8.01. MUTUAL TERMINATION. At any time prior to the Effective Time (and
whether before or after approval hereof by the shareholders of Mecklenburg or
the Holding Company), this Agreement may be terminated by the mutual agreement
of the Holding Company and Mecklenburg. Upon any such mutual termination, all
obligations of Mecklenburg and the Holding Company hereunder shall terminate and
each party shall pay costs and expenses as provided in Paragraph 6.04. above.
8.02. UNILATERAL TERMINATION. This Agreement may be terminated by
either the Holding Company or Mecklenburg (whether before or after approval
hereof by Mecklenburg's or the Holding Company's shareholders) upon written
notice to the other parties and under the circumstances described below.
A. TERMINATION BY THE HOLDING COMPANY. This Agreement may be
terminated by the Holding Company by action of its Board of Directors or
Executive Committee:
(I) if Mecklenburg shall have violated or
failed to fully perform any of its obligations, covenants or agreements
contained in Article IV or Article VI herein in any material respect;
(II) if the Holding Company determines at any
time that any of Mecklenburg's representations or warranties contained in
Article II or in any other certificate or writing delivered pursuant to this
Agreement shall have been false or misleading in any material
45
<PAGE>
respect when made, or that there has occurred any event or development or that
there exists any condition or circumstance which has caused or, with the lapse
of time or otherwise, is reasonably likely to cause any such representations or
warranties to become false or misleading in any material respect;
(III) if, notwithstanding the Holding
Company's satisfaction of its obligations under Paragraphs 6.01.b., 6.01.c. and
6.01.e. above, Mecklenburg's shareholders do not ratify and approve this
Agreement and approve the Merger at the Mecklenburg Shareholder Meeting or the
Holding Company's shareholders do not ratify and approve this Agreement and the
Acquisition at the Triangle Shareholder Meeting;
(IV) under the circumstances described in
Paragraph 1.05.a. or 6.06. above; or,
(V) if any of the conditions of the
obligations of the Holding Company (as set forth in Paragraph 7.01. or 7.03.
above) shall not have been satisfied or effectively waived in writing by the
Holding Company, or if the Merger shall not have become effective, on or before
January 31, 1998, unless such date is extended as evidenced by the written
mutual agreement of the parties hereto.
However, before the Holding Company may terminate this
Agreement for any of the reasons specified above in (i) or (ii) of this
Paragraph 8.02.a., it shall give written notice to Mecklenburg as provided
herein stating its intent to terminate and a description of the specific breach,
default, violation or other condition giving rise to its right to so terminate,
and, such termination by the Holding Company shall not become effective if,
within thirty (30) days following the giving of such notice, Mecklenburg shall
cure such breach, default or violation or satisfy such condition to the
reasonable satisfaction of the Holding Company.
B. TERMINATION BY MECKLENBURG. This Agreement may be
terminated by Mecklenburg by action of its Board of Directors:
(I) if the Holding Company shall have violated
or failed to fully perform any of its obligations, covenants or agreements
contained in Article V or VI herein in any material respect;
(II) if Mecklenburg determines that any of the
Holding Company's representations and warranties contained in Article III herein
or in any other certificate or writing delivered pursuant to this Agreement
shall have been false or misleading in any material respect when made, or that
there has occurred any event or development or that there exists any condition
or circumstance which has caused or, with the lapse of time or otherwise, is
reasonably likely to cause any such representations or warranties to become
false or misleading in any material respect;
46
<PAGE>
(III) if, subject to Mecklenburg's
satisfaction of its obligations contained in Paragraphs 6.01.a., 6.01.b.,
6.01.d. and 6.01.e above, its shareholders do not ratify and approve this
Agreement and approve the Merger at the Mecklenburg Shareholder Meeting or the
Holding Company's shareholders do not ratify and approve this Agreement and
approve the Acquisition at the Triangle Shareholder Meeting;
(IV) under the circumstances described in
Paragraph 1.05.a. above; or,
(V)if any of the conditions of the obligations
of Mecklenburg (as set forth in Paragraph 7.01. or 7.02. above) shall not have
been satisfied or effectively waived in writing by Mecklenburg, or if the Merger
shall not have become effective, on or before January 31, 1998, unless such date
is extended as evidenced by the written mutual agreement of the parties hereto.
However, before Mecklenburg may terminate this
Agreement for any of the reasons specified above in clause (i) or (ii) of this
Paragraph 8.02.b., it shall give written notice to the Holding Company as
provided herein stating its intent to terminate and a description of the
specific breach, default, violation or other condition giving rise to its right
to so terminate, and, such termination by Mecklenburg shall not become effective
if, within thirty (30) days following the giving of such notice, the Holding
Company shall cure such breach, default or violation or satisfy such condition
to the reasonable satisfaction of Mecklenburg.
8.03. BREACH; REMEDIES.
A. BREACH OF AGREEMENT. In the event of a breach by
Mecklenburg of any of its representations or warranties contained in Article II
of this Agreement, or in the event of its failure to perform or violation of any
of its obligations, agreements or covenants contained in Articles IV or VI of
this Agreement, then the Holding Company's sole right and remedy shall be to
terminate this Agreement prior to the Effective Time as provided in Paragraph
8.02. above, or, after approval of the Merger by Mecklenburg's shareholders, in
the case of a failure to perform or violation of any obligations, agreements or
covenants, to seek specific performance thereof.
Likewise, in the event of a breach by the Holding Company of
any of its representations or warranties contained in Article III of this
Agreement, or in the event of its failure to perform or violation of any of its
obligations, agreements or covenants contained in Articles V or VI of this
Agreement, then Mecklenburg's sole right and remedy shall be to terminate this
Agreement prior to the Effective Time as provided in Paragraph 8.02. above, or,
after approval of the Acquisition by the Holding Company's shareholders, in the
case of a failure to perform or violation of any obligations, agreements or
covenants, to seek specific performance thereof.
B. TERMINATION FEE. Notwithstanding anything contained herein
to the contrary, if any party to this Agreement terminates this Agreement
because, prior to the date of this Agreement or prior to the termination of this
Agreement, it has entered into a letter of intent or other written or verbal
agreement with any person or entity which calls for the acquisition of the
47
<PAGE>
breaching party by another person or entity or for the acquisition by the
breaching party of another entity, or prior to termination of this Agreement any
party to this Agreement engages in negotiations relating to any such transaction
and a letter of intent or other written or verbal agreement is entered into
within nine (9) months following the termination of this Agreement, then the
breaching party shall pay to the other party Five Hundred Thousand and No/100
Dollars ($500,000), provided, however, that such payment shall not be required
if the termination is the result of the good faith determination by the
terminating party that the conditions precedent to the Merger set forth in
Article VII hereof cannot be met.
ARTICLE IX. INDEMNIFICATION
9.01. INDEMNIFICATION FOLLOWING EFFECTIVE TIME. Following the Effective
Time, if Mecklenburg is merged into another subsidiary of the Holding Company
and Mecklenburg is not the surviving entity, without releasing any insurance
carrier and after exhaustion of all applicable director and officer liability
insurance coverage for Mecklenburg and its directors or officers, the Holding
Company agrees that it will indemnify Mecklenburg's officers and directors to
the same extent Mecklenburg indemnifies its directors and officers against
liabilities arising from actions in their official capacities as officers and
directors of Mecklenburg.
9.02. PROCEDURE FOR CLAIMING INDEMNIFICATION. Any party seeking to be
indemnified hereunder promptly shall give written notice and furnish adequate
documentation to the other party of any claims in respect of which indemnity is
sought. The indemnifying party, through its own counsel and at its own expense,
shall defend any such claim and shall have exclusive control over the
investigation, preparation, and defense of such claim and all negotiations
relating to its settlement or compromise. The obligations of either party to
indemnify the other hereunder apply only if the party seeking to be indemnified
cooperates with and assists the indemnifying party in all reasonably necessary
respects in the conduct of the suit.
ARTICLE X. MISCELLANEOUS PROVISIONS
10.01. "PREVIOUSLY DISCLOSED" INFORMATION; "MATERIAL ADVERSE EFFECT".
(A) "Previously Disclosed" shall mean, as to Mecklenburg or as
to the Holding Company, the disclosure of information in a letter delivered by
such party to the other prior to the date of this Agreement and which
specifically refers to this Agreement and is arranged in paragraphs
corresponding to the Paragraphs, subparagraphs and items of this Agreement
applicable thereto, all of which documents are incorporated herein by reference.
Information disclosed in either party's letter described above
shall be deemed to have been Previously Disclosed by such party for the purpose
of any given Paragraph, subparagraph or item of this Agreement only to the
extent that information is expressly set forth in such party's letter described
above and that, in connection with such disclosure, a specific reference is made
in the letter to that Paragraph, subparagraph or item.
48
<PAGE>
(B) Where used in this Agreement, the terms "material adverse
effect" and "material adverse change" shall mean any event, matter, item or
circumstance (other than as a result of changes (a) in banking or other
financial institution laws or regulations of general applicability or
interpretations thereof by the courts or governmental entities, or (b) in GAAP)
that in and of itself, or when combined with all similar events, matters, items
or circumstances, reasonably would be expected to have, now or in the future, a
negative impact in an amount equal to (a) $3,000,000 of assets or $250,000 of
total revenue, in the case of Mecklenburg, on a consolidated basis or (b)
$7,250,000 of assets or $1,000,000 of total revenue, in the case of the Holding
Company, on a consolidated basis.
10.02. SURVIVAL OF REPRESENTATIONS, WARRANTIES, INDEMNIFICATION AND
OTHER AGREEMENTS.
A. REPRESENTATIONS, WARRANTIES AND OTHER AGREEMENTS. None of
the representations, warranties or agreements herein shall survive the
effectiveness of the Merger, and no party shall have any right after the
Effective Time to recover damages or any other relief from any other party to
this Agreement by reason of any breach of representation or warranty, any
nonfulfillment or nonperformance of any agreement contained herein, or
otherwise; provided, however, that the parties' agreements contained in
Paragraphs 6.07. and 6.08. and Articles VIII and IX hereof, and the Holding
Company's representations and warranties contained in Paragraph 3.02. and the
Holding Company's covenant contained in Paragraph 5.06 hereof, shall survive the
effectiveness of the Merger.
B. INDEMNIFICATION. The Holding Company's indemnification
agreements and obligations pursuant to Paragraph 9.01. above shall become
effective only at the Effective Time, and the Holding Company shall not have any
obligation under that Paragraph prior to the Effective Time or in the event of
or following termination of this Agreement prior to the Effective Time.
10.03. WAIVER. Any term or condition of this Agreement may be
waived (except as to matters of regulatory approvals and approvals required by
law), either in whole or in part, at any time by the party which is, and whose
shareholders are, entitled to the benefits thereof; provided, however, that any
such waiver shall be effective only upon a determination by the waiving party
(through action of its Board of Directors) that such waiver would not adversely
affect the interests of the waiving party or its shareholders; and, provided
further, that no waiver of any term or condition of this Agreement by any party
shall be effective unless such waiver is in writing and signed by the waiving
party, or be construed to be a waiver of any succeeding breach of the same term
or condition. No failure or delay of any party to exercise any power, or to
insist upon a strict compliance by any other party of any obligation, and no
custom or practice at variance with any terms hereof, shall constitute a waiver
of the right of any party to demand a full and complete compliance with such
terms.
10.04. AMENDMENT. This Agreement may be amended, modified or
supplemented at any time or from time to time prior to the Effective Time, and
either before or after its approval by the
49
<PAGE>
shareholders of Mecklenburg, by an agreement in writing approved by a majority
of the Board of Directors of the Holding Company and Mecklenburg executed in the
same manner as this Agreement; provided however, that, except with the further
approval of Mecklenburg's shareholders of that change or as otherwise provided
herein, following approval of this Agreement by the shareholders of Mecklenburg
no change may be made in the number of shares of Triangle Stock into which each
share of Mecklenburg Stock will be converted.
10.05. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally or by courier, or mailed by certified mail, postage prepaid, as
follows:
A. If to Mecklenburg, to:
Bank of Mecklenburg
2000 Randolph Road
Charlotte, NC 28207
Attention: John H. Ketner, Jr.
President and Chief Executive Officer
With copy to: Henry H. Ralston, Esq.
Robinson Bradshaw & Hinson, P.A.
101 North Tryon Street
Charlotte, NC 28246-1900
B. If to the Holding Company, to:
Triangle Bancorp, Inc.
4300 Glenwood Avenue
Raleigh, North Carolina 27612
Attention: Michael S. Patterson, President and
Chief Executive Officer
With copy to: Alexander M. Donaldson, Esq.
Moore & Van Allen, PLLC
One Hannover Square, Suite 1700
Raleigh, NC 27601
10.06. FURTHER ASSURANCE. Mecklenburg and the Holding Company each
agree to furnish to the others such further assurances with respect to the
matters contemplated herein and their respective agreements, covenants,
representations and warranties contained herein, including the opinion of
legal counsel, as such other parties may reasonably request. 50
<PAGE>
10.07. HEADINGS AND CAPTIONS. Headings and captions of the sections and
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part hereof.
10.08. ENTIRE AGREEMENT. This Agreement (including all schedules and
exhibits attached hereto and all documents incorporated herein by reference)
contains the entire agreement of the parties with respect to the transactions
described herein and supersedes any and all other oral or written agreement(s)
heretofore made, and there are no representations or inducements by or to, or
and agreements between, any of the parties hereto other than those contained
herein in writing.
10.09. SEVERABILITY OF PROVISIONS. The invalidity or unenforceability
of any term, phrase, clause, paragraph, restriction, covenant, agreement or
other provision hereof shall in no way affect the validity or enforceability of
any other provision or part hereof.
10.10. ASSIGNMENT. This Agreement may not be assigned by any party
hereto except with the prior written consent of the other parties hereto.
10.11. COUNTERPARTS. Any number of counterparts of this Agreement may be
signed and delivered, each of which shall be considered an original and which
together shall constitute one agreement.
10.12. GOVERNING LAW. This Agreement is made in and shall be construed
and enforced in accordance with the laws of North Carolina.
10.13. INSPECTION. Any right of the Holding Company or Mecklenburg
hereunder to investigate or inspect the assets, books, records, files and other
information of the other in no way shall establish any presumption that the
Holding Company or Mecklenburg should have conducted any investigation or that
such right has been exercised by the Holding Company, Mecklenburg, their
respective agents, representatives or others. Any investigations or inspections
that have been made by the Holding Company, or Mecklenburg or their respective
agents, representatives or others prior to the Closing Date shall not be deemed
in any way in derogation or limitation of the covenants, representations and
warranties made by or on behalf of the Holding Company, or Mecklenburg in this
Agreement.
51
<PAGE>
IN WITNESS WHEREOF, Mecklenburg and the Holding Company each has caused
this Agreement to be executed in its name by its duly authorized officers as of
the date first above written.
TRIANGLE BANCORP, INC.
By: /s/ Michael S. Patterson
Michael S. Patterson
President and Chief Executive Officer
ATTEST:
/s/ Susan C. Gilbert
Secretary
Secretary
BANK OF MECKLENBURG
By: /s/ John H. Ketner, Jr.
John H. Ketner, Jr.
President and Chief Executive
Officer
By: /s/ Cy N. Bahakel
Cy N. Bahakel
Chairman of the Board of Directors
ATTEST:
/s/ Judith G. Arey
Secretary
<PAGE>
APPENDIX II
FAIRNESS OPINION OF EQUITY RESEARCH SERVICES, INC.
DATED _______, 1997
EQUITY RESEARCH SERVICES, INC.
April 25, 1997
Board of Directors
Bank of Mecklenburg
2000 Randolph Road
Charlotte, NC 28207
Gentlemen:
We were retained by you to provide an opinion as to the fairness, from a
financial point of view, of the merger of Bank of Mecklenburg ("Bank
of Mecklenburg," or the "Company") with Triangle Bancorp,
Inc. ("Triangle") or a subsidiary thereof. The terms of the
merger are set forth in the Agreement and Plan of Reorganization and Merger
By and Between Bank of Mecklenburg and Triangle Bancorp, Inc.
("Agreement") dated as of April 25, 1997. Under the terms of
the Agreement, Bank of Mecklenburg will merge with a subsidiary of Triangle
and its shares of common stock outstanding immediately prior to the
effective date will be converted into Triangle common stock at an
exchange rate of 1.00 ("Exchange Rate"), subject to adjustment
as provided in the Agreement. Each Bank of Mecklenburg shareholder will
receive a number of Triangle common shares equal to the number of
shares of Bank of Mecklenburg common stock owned by such shareholder
multiplied by the Exchange Rate. No fractional shares will be issued but
Bank of Mecklenburg shareholders, in lieu of the issuance of fractional
shares, will receive cash as determined in the Agreement. The foregoing
summary is qualified in its entirety by reference to the Agreement.
Equity Research Services, Inc. ("Equity Research") is a North Carolina-based
corporation primarily engaged in: (i) performing valuations of, and
valuations related to, closely held and publicly traded companies and
(ii) conducting research on the performance and investment characteristics
of publicly-traded companies and publishing such analyses in the form of
reports which are made available to the respective companies and the
investment community. All reports generated by Equity Research for the
purpose of investor relations are designated "Investor Relations Report"
and Equity Research receives a fee (from the company whose securities are
described) for producing such reports. The reports do not contain a
purchase or investment rating but do consider certain investment
characteristics of the respective company's securities. In addition,
Equity Research regularly responds to inquiries from brokers, shareholders
and others who have questions about the respective company.
In connection with the services including and related to the "Investor
Relations Reports", the majority of Equity Research's clients are banks
which are located in North Carolina. Until September 30, 1995, one
of Equity Research's such clients was Triangle. Equity Research's
engagement by Triangle began on January 17, 1993 and involved the production
of the above mentioned "Investor Relations Reports" as well as responding
to questions about the Company as discussed above.
<PAGE>
Equity Research was selected by Bank of Mecklenburg as its financial advisor
because of its knowledge of and experience in valuations and capital markets and
expertise in the commercial banking industry. Equity Research does not trade in
the securities of either Bank of Mecklenburg or Triangle for its own account or
for its clients.
In connection with rendering its opinion to Bank of Mecklenburg's Board of
Directors, Equity Research, among other things, (i) reviewed the financial terms
of the Agreement; (ii) reviewed and analyzed the financial position and
performance of Bank of Mecklenburg and Triangle as reflected in certain
information provided for this purpose by the respective managements;
(iii) reviewed historical stock prices of Bank of Mecklenburg and Triangle as
well as, to the extent possible, trading activity in their common stocks;
(iv) reviewed information including, but not limited to, Annual Reports to
shareholders, Annual Reports on Form 10-K and Form F-2, Quarterly Reports to
shareholders, Quarterly Reports on Form 10-Q and Form F-4, proxy statements,
Uniform Bank Performance Reports and Call Reports, and conducted a general and
financial comparison of the two companies to one another, as well as to other
comparable institutions; and (v) analyzed the terms of other control
transactions involving whole bank mergers of commercial banks in the southeast.
Equity Research also analyzed overall market, economic, financial and other
considerations as well.
In providing its opinion, Equity Research, without independent verification,
relied on the accuracy and completeness of financial and other information
provided to us or publicly available, and we have not independently verified
such information. We have not performed or considered any independent appraisal
or evaluation of the assets of Bank of Mecklenburg or Triangle. Additionally,
Equity Research made numerous assumptions with respect to business conditions,
economic conditions, projections of Bank of Mecklenburg's and Triangle's
performance, as well as other matters, many of which are beyond Bank of
Mecklenburg's and Triangle's control. Any earnings or other estimates contained
in Equity Research's analysis are not necessarily indicative of future results.
Based on the foregoing, it is our opinion that the Merger is fair, from a
financial point of view and as of the date hereof, to the shareholders of Bank
of Mecklenburg.
Sincerely,
/s/ Equity Research Services, Inc.
Equity Research Services, Inc.
<PAGE>
APPENDIX III
FAIRNESS OPINION OF WHEAT, FIRST SECURITIES, INC.
DATED _______, 1997
<PAGE>
August ______, 1997
Board of Directors
Triangle Bancorp, Inc.
4300 Glenwood Avenue
Raleigh, North Carolina 27612
Members of the Board:
Triangle Bancorp, Inc. ("Triangle") and Bank of Mecklenburg
("Mecklenburg") have entered into an Agreement and a Plan of Reorganization and
Merger, dated as of April 25,1997 (the "Agreement"), pursuant to which
Mecklenburg will combine with Triangle by means of the merger (the "Merger") of
an interim North Carolina bank corporation subsidiary of Triangle with
Mecklenburg. Upon consummation of the Merger, each of the outstanding shares of
the $2.00 par value common stock of Mecklenburg ("Mecklenburg Stock") will be
converted into 1.0 share of no par value common stock of Triangle ("Triangle
Stock"), as adjusted in accordance with the terms of the Agreement (the
"Exchange Ratio"). The terms of the Merger are more fully set forth in the
Agreement.
Wheat, First Securities, Inc. ("Wheat First") as part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. In the ordinary course of our business as a broker-dealer, we
may, from time to time, have a long or short position in, and buy or sell, debt
or equity securities of Triangle or Mecklenburg for our own account or for the
accounts of our customers. Wheat First is acting as Triangle's exclusive
financial advisor in this transaction and will receive a fee from Triangle for
its services, which include the rendering of this opinion.
You have asked us whether, in our opinion, the Exchange Ratio is fair,
from a financial point of view, to the holders of Triangle's Stock. We
understand that the Merger is conditioned upon the occurrence of a number of
contingencies as set forth in the Agreement.
In arriving at the opinion set forth below, we have conducted
discussions with members of senior management of Triangle and Mecklenburg
concerning their businesses and prospects and have reviewed and relied upon
certain publicly available business and financial information and certain other
information prepared or provided to us in connection with the Merger, including,
among other things, the following:
(1) Triangle's Annual Reports to Stockholders, Annual Reports on
Form 10-K and related financial information for the three
fiscal years ended December 31, 1996;
<PAGE>
(2) Triangle's Quarterly Reports on Form 10-Q and related
financial information for the quarter ended March 31, 1997;
(3) Triangle's Proxy statement dated March 21, 1997;
(4) Mecklenburg's Annual Reports to Stockholders, Annual Reports
on Form F2 and related financial information for the three
fiscal years ended December 31, 1996;
(5) Certain financial data provided by management of Mecklenburg
for the quarter ended March 31, 1997;
(6) Mecklenburg's Proxy statement dated March 24, 1997;
(7) Certain publicly available information with respect to
historical market prices and trading activities for the
Triangle Stock and the Mecklenburg Stock and for certain
publicly traded financial institutions which Wheat First
deemed relevant;
(8) Certain publicly available information with respect to banking
companies and the financial terms of certain other mergers and
acquisitions which Wheat First deemed relevant;
(9) The Agreement;
(10) Certain estimates of the cost savings and revenue enhancements
projected by Triangle and Mecklenburg for the combined
company;
(11) Other financial information concerning the businesses and
operations of Triangle and Mecklenburg, and certain internal
financial analyses and forecasts for Triangle and Mecklenburg
prepared by the senior management of these companies; and
(12) Such financial studies, analyses, inquiries and other matters
as we deemed necessary.
In preparing our opinion, as contemplated under the terms of our
engagement, we have relied on and assumed the accuracy and completeness of all
information provided to us or publicly available, including the representations
and warranties of Triangle and Mecklenburg included in the Agreement, and we
have not assumed any responsibility for the accuracy, completeness or
reasonableness of, or any obligation to verify, the same or to conduct any
appraisal of assets or liabilities. We have relied upon the managements of
Triangle and Mecklenburg as to the reasonableness and achievability of their
financial and operational forecasts and projections, including the estimates of
cost savings and revenue enhancements expected to result from the Merger, and
the assumptions and bases therefor, provided to us, and, with your consent, we
have assumed that such forecasts and projections reflect the best currently
available estimates and judgments of such managements, and that such forecasts
and projections will be realized in the amounts and in the time periods
currently estimated by such managements. We also assumed, without independent
verification, that the aggregate allowances for loan losses and other
contingencies for Triangle and Mecklenburg are adequate to cover such losses.
Wheat First did not review any individual credit files of Triangle and
Mecklenburg, nor did it make an independent evaluation or appraisal of the
assets or liabilities of Triangle and Mecklenburg. We also assumed that, in the
course of obtaining the necessary regulatory approvals for the Merger, no
conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger, on a pro forma basis, to Triangle.
<PAGE>
Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof. Events occurring after
that date could materially affect the assumptions and conclusions contained in
our opinion. We have not undertaken to reaffirm or revise this opinion or
otherwise comment on any events occurring after the date hereof. Wheat First's
opinion is directed only to the fairness, from a financial point of view, of the
Exchange Ratio to the holders of Triangle Stock and does not address any other
aspect of the Merger nor does it constitute a recommendation to any shareholder
of Triangle as to how such shareholder should vote with respect to the Merger
and it is understood that this letter is solely for the information of the Board
of Directors of Triangle. Wheat First's opinion does not address the relative
merits of the Merger as compared to any alternative business strategies that
might exist for Triangle, nor does it address the effect of any other business
combination in which Triangle might engage.
It is understood that this opinion may be included in its entirety in
the Prospectus/Joint Proxy Statement. This opinion may not, however, be
summarized, excerpted from or otherwise publicly referred to without our prior
written consent.
On the basis of and subject to the foregoing, we are of the opinion
that as of the date hereof the Exchange Ratio is fair, from a financial point of
view, to the holders of Triangle Stock.
Very truly yours,
WHEAT, FIRST SECURITIES, INC.
<PAGE>
APPENDIX IV
EXCERPT FROM NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13.
Dissenters' Rights.
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES.
(Section Mark) 55-13-01. DEFINITIONS.
In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and in
the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under all
the circumstances, giving due consideration to the rate currently paid by the
corporation on its principal bank loans, if any, but not less than the rate
provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
<PAGE>
{Section Mark} 55-13-02. RIGHT TO DISSENT.
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation (other
than a parent corporation in a merger under G.S. 55-11-04) is a party unless (i)
approval by the shareholders of that corporation is not required under G.S.
55-11-03(g) or (ii) such shares are then redeemable by the corporation at a
price not greater than the cash to be received in exchange for such shares;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, unless such shares
are then redeemable by the corporation at a price not greater than the cash to
be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than as permitted by G.S. 55-12-01,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed in cash to the shareholders within one
year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates, alters, or
abolishes a right in respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares; (iii) alters or
abolishes a preemptive right of the holder of the shares to acquire shares or
other securities; (iv) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes; (v) reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share so created is to be
acquired for cash under G.S. 55-6-04; or (vi) changes the corporation into a
nonprofit corporation or cooperative organization;
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares under
this Article may not challenge the corporate action creating his entitlement,
including without limitation a merger solely or partly in exchange for cash or
other property, unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
<PAGE>
{Section Mark} 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.
SS. 55-13-20. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02
is submitted to a vote at a shareholders' meeting, the meeting notice must state
that shareholders are or may be entitled to assert dissenters' rights under this
Article and be accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is taken
without a vote of shareholders, the corporation shall no later than 10 days
thereafter notify in writing all shareholders entitled to assert dissenters'
rights that the action was taken and send them the dissenters' notice described
in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this section, such
failure shall not invalidate any corporate action taken; but any shareholder may
recover from the corporation any damage which he suffered from such failure in a
civil action brought in his own name within three years after the taking of the
corporate action creating dissenters' rights under G.S. 55-13-02 unless he voted
for such corporate action.
(Section Mark) 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under
G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand payment
for his
shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
<PAGE>
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his shares under this Article.
(Section Mark} 55-13-22. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under G.S. 55-13-02
is authorized at a shareholders' meeting, the corporation shall mail by
registered or certified mail, return receipt requested, a written dissenters'
notice to all shareholders who satisfied the requirements of G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after
the corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the date
the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
(Section Mark) 55-13-23. DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in G.S. 55-13-22
must demand payment and deposit his share certificates in accordance with the
terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share certificates
where required, each by the date set in the dissenters' notice, is not entitled
to payment for his shares under this Article.
(Section Mark) 55-13-24. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under G.S. 55-13-26.
<PAGE>
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
(Section Mark) 55-13-25. OFFER OF PAYMENT.
(a) As soon as the proposed corporate action is taken, or upon receipt of a
payment demand, the corporation shall offer to pay each dissenter who complied
with G.S. 55-13-23 the amount the corporation estimates to be the fair value of
his shares, plus interest accrued to the date of payment, and shall pay this
amount to each dissenter who agrees in writing to accept it in full satisfaction
of his demand.
(b) The offer of payment must be accompanied by:
(1) The corporation's most recent available balance sheet as of the
end of a fiscal year ending not more than 16 months before the date of offer of
payment, an income statement for that year, a statement of cash flows for that
year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under G.S.
55-13-28; and
(5) A copy of this Article.
(Section Mark) 55-13-26. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days after
the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must sent a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure.
(Section Mark) 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH
CORPORATION'S OFFER OR FAILURE TO PERFORM.
(a) A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due, and demand payment of his
estimate or reject the corporation's offer under G.S. 55-13-25 and demand
payment of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered unde
G.S. 55-13-25 is less than the fair value of his shares or that the
interest due is incorrectly calculated;
<PAGE>
(2) The corporation fails to make payment to a dissenter who accepts
the corporation's offer under G.S. 55-13-25 within 30 days after the dissenter's
acceptance; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for demanding
payment.
(b) A dissenter waives his right to demand payment under this section unless he
notifies the corporation of his demand in writing (i) under subdivision (a)(1)
within 30 days after the corporation offered payment for his shares or (ii)
under subdivisions (a)(2) and (a)(3) within 30 days after the corporation has
failed to perform timely. A dissenter who fails to notify the corporation of his
demand under subsection (a) within such 30-day period shall be deemed to have
withdrawn his dissent and demand for payment.
PART 3. JUDICIAL APPRAISAL OF SHARES.
(Section Mark) 55-13-30. COURT ACTION.
(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the dissenter
may commence a proceeding within 60 days after the date of his payment demand
under G.S. 55-13-28 and petition the court to determine the fair value of the
shares and accrued interest. Upon service upon it of the petition filed with the
court, the corporation shall pay to the dissenter the amount offered by the
corporation under G.S. 55-13-25.
(a) (1) If the dissenter does not commence the proceeding within the 60-day
period, the dissenter shall have an additional 30 days to either (i) accept in
writing the amount offered by the corporation under G.S. 55-13-25, upon which
the corporation shall pay such amount to the dissenter in full satisfaction of
his demand, or (ii) withdraw his demand for payment and resume the status of a
nondissenting shareholder. A dissenter who takes no action within such 30-day
period shall be deemed to have withdrawn his dissent and demand for payment.
(b) Reserved for future codification purposes.
(c) The court shall have the discretion to make all dissenters (whether or not
residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The parties are entitled to the same discovery
rights as parties in other civil proceedings. However, in a proceeding by a
dissenter in a public corporation, there is no right to a trial by jury.
<PAGE>
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
(Section Mark) 55-13-31. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court, and shall assess the costs as it
finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either
or any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
<PAGE>
===============================================================================
===============================================================================
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The NCBCA provides for indemnification by a corporation of its officers,
directors, employees and agents, and any person who is or was serving at the
corporation's request as a director, officer, employee or agent of another
entity or enterprise or as a trustee or administrator under an employee benefit
plan, against liability and expenses, including reasonable attorneys' fees, in
any proceeding (including without limitation a proceeding brought by or on
behalf of the corporation itself) arising out of their status as such or their
activities in any of the foregoing capacities.
PERMISSIBLE INDEMNIFICATION. Under the NCBCA, a corporation may, but is not
required to, indemnify any such person against liability and expenses incurred
in any such proceeding, provided such person conducted himself or herself in
good faith and (i) in the case of conduct in his or her official corporate
capacity, reasonably believed that his or her conduct was in the corporation's
best interests, and (ii) in all other cases, reasonably believed that his or her
conduct was at least not opposed to the corporation's best interests, and, in
the case of a criminal proceeding, where he or she had no reasonable cause to
believe his or her conduct was unlawful. However, a corporation may not
indemnify such person either in connection with a proceeding by or in the right
of the corporation in which such person was adjudged liable to the corporation,
or in connection with any other proceeding charging improper personal benefit to
such person (whether or not involving action in an official capacity) in which
such person was adjudged liable on the basis that personal benefit was
improperly received.
MANDATORY INDEMNIFICATION. Unless limited by the corporation's charter, the
NCBCA requires a corporation to indemnify a director or officer of the
corporation who is wholly successful, on the merits or otherwise, in the defense
of any proceeding to which such person was a party because he or she is or was a
director or officer of the corporation against reasonable expenses incurred in
connection with the proceeding.
ADVANCE FOR EXPENSES. Expenses incurred by a director, officer, employee or
agent of the corporation in defending a proceeding may be paid by the
corporation in advance of the final disposition of the proceeding as authorized
by the board of directors in the specific case, or as authorized by the charter
or bylaws or by any applicable resolution or contract, upon receipt of an
undertaking by or on behalf of such person to repay amounts advanced unless it
ultimately is determined that such person is entitled to be indemnified by the
corporation against such expenses.
VOLUNTARY INDEMNIFICATION. In addition to and separate and apart from
"permissible" and "mandatory" indemnification described above, a corporation
may, by charter, bylaw, contract or resolution, indemnify or agree to indemnify
any one or more of its directors, officers, employees or agents against
liability and expenses in any proceeding (including any proceeding brought by or
on behalf of the corporation itself) arising out of their status as such or
their activities in any of the foregoing capacities. However, the corporation
may not indemnify or agree to indemnify a person against liability or expenses
he may incur on account of activities which were at the time taken known or
believed by such person to be clearly in conflict with the best interests of the
corporation. Any provision in a corporation's charter or bylaws or in a contract
or resolution may include provisions for recovery from the corporation of
reasonable costs, expenses and attorneys' fees in connection with the
enforcement of rights to indemnification granted therein and may further include
provisions establishing reasonable procedures for determining and enforcing such
rights.
COURT-ORDERED INDEMNIFICATION. Unless otherwise provided in the
corporation's charter, a director or officer of the corporation who is a party
to a proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court deems necessary, may
order indemnification if it determines either (i) that the director or officer
is entitled to mandatory indemnification as described above, in which case the
court also will order the corporation to pay the reasonable expenses incurred to
obtain the court-ordered indemnification, or (ii) that the director or officer
is fairly and reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not such person met the requisite
<PAGE>
II-1
standard of conduct or was adjudged liable to the corporation in connection with
a proceeding by or in the right of the corporation or on the basis that personal
benefit was improperly received in connection with any other proceeding so
charging (but if adjudged so liable, indemnification is limited to reasonable
expenses incurred).
PARTIES ENTITLED TO INDEMNIFICATION. The NCBCA defines "director" to
include ex-directors and the estate or personal representative of a director.
Unless its charter provides otherwise, a corporation may indemnify and advance
expenses to an officer, employee or agent of the corporation to the same extent
as to a director and also may indemnify and advance expenses to an officer,
employee or agent who is not a director to the extent, consistent with public
policy, as may be provided in its charter or bylaws, by general or specific
action of its board of directors, or by contract.
INDEMNIFICATION BY THE REGISTRANT. The Bylaws of the Registrant provide for
indemnification of its directors, officers, employees and agents to the fullest
extent of the law, and require its Board of Directors to take all actions
necessary and appropriate to authorize such indemnification.
Under the NCBCA, a corporation also may purchase insurance on behalf of any
person who is or was a director or officer against any liability arising out of
his status as such. The Registrant currently maintains a directors' and
officers' liability insurance policy.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits and financial statement schedules are filed as part
of this Registration Statement.
(a) Exhibits
Exhibit No.
pursuant to
Item 601 of
Regulation S-K Description of Exhibit
2 Agreement and Plan of Reorganization and Merger between Bank of
Mecklenburg and Triangle Bancorp, Inc. dated April 25, 1997
(included as and incorporated by reference from Appendix I to the
Joint Proxy Statement/Prospectus filed as a part of the
Registration Statement)
3(a) Articles of Incorporation of Triangle Bancorp, Inc., amended as of
May 26, 1995 (incorporated by reference from Exhibit 3(a) of
Registrant's Form 10-K for the fiscal year ended December 31, 1996,
filed with the Commission on March 25, 1997)
3(b) Bylaws of Triangle Bancorp, Inc., amended as of April 28, 1997
4 Agreement of Triangle Bancorp, Inc. to furnish a copy of the Junior
Subordinated Indenture between Triangle Bancorp, Inc. and Bankers
Trust Company (as Trustee) dated as of June 3, 1997
5 Opinion of Alexander M. Donaldson, Senior Vice President and
General Counsel of Triangle Bancorp, Inc., as to the legality of
the securities to be registered
8 Opinion of Coopers & Lybrand L.L.P. as to tax matters
<PAGE>
10(a) Triangle Bancorp, Inc. 1988 Incentive Stock Option Plan, as amended
on December 16, 1993 and May 23, 1995 (incorporated by reference
from Exhibit 10(a) of Registrant's Registration Statement on Form
S-4 (Registration No. 33-93918) II-2 10(b) Triangle Bancorp, Inc.
1988 Non-Qualified Stock Option Plan, as amended on November 15,
1994 (incorporated by reference to Exhibit 10(b) to the
Registrant's Form 10-K for the fiscal year ended December 31, 1994
as filed with the Commission on March 31, 1995)
10(c) Triangle Bank Deferred Compensation Plan for Outside Directors
(incorporated by reference to Exhibit 10(c) to the Registrant's
Form 10-K for the fiscal year ended December 31, 1993 as filed with
the Commission on March 31, 1994)
10(d) Employment Agreement between Triangle Bank and Michael S. Patterson
(incorporated by reference to Exhibit 10(a) to Registrant's Form
10-K for the fiscal year ended December 31, 1993 filed with the
Commission on March 31, 1994)
10(e) Employment Agreement between Triangle Bank and H. Leigh Ballance,
Jr. (incorporated by reference to Exhibit 10(j) to the Registrant's
Form 10-K for the year ended December 31, 1994, as filed with the
Commission on March 31, 1995)
10(f) Deferred Compensation Agreement between Triangle Bank and Michael
S. Patterson (incorporated by reference from Exhibit 10(g) of
Registrant's Registration Statement on Form S-4 (Registration No.
33-86226))
10(g) Deferred Compensation Agreement between Triangle Bank and Debra L.
Lee (incorporated by reference from Exhibit 10(i) of Registrant's
Registration Statement on Form S-4 (Registration No. 33-86226))
10(h) Change of Control Agreement dated June 18, 1996 between Triangle
Bank and Steven R. Ogburn (incorporated by reference from Exhibit
(k) of Registrant's Form 10-K for the fiscal year ended December
31, 1996, as filed with the Commission on March 25, 1997)
10(i) Change of Control Agreement dated June 18, 1996 between Triangle
Bank and Debra L. Lee (incorporated by reference from Exhibit (l)
of Registrant's Form 10-K for the fiscal year ended December 31,
1996, as filed with the Commission on March 25, 1997)
13(a) Bank of Mecklenburg Annual Report on Form F-2 for fiscal year ended
December 31, 1996
13(b) Bank of Mecklenburg Quarterly Report on Form F-4 for quarter ended
March 31, 1997
13(c) Bank of Mecklenburg Current Report on Form F-3 dated April 1, 1997
23(a) Consent of Alexander M. Donaldson (contained in the opinion
submitted as Exhibit 5 hereto)
23(b) Consent of Coopers & Lybrand L.L.P.
23(c) Consent of KPMG Peat Marwick LLP
<PAGE>
23(d) Consent of Equity Research Services, Inc.
II-3
<PAGE>
23(e) Consent of Wheat, First Securities, Inc.
23(f) Consent of Coopers & Lybrand L.L.P. regarding tax opinion
(contained in its opinion submitted as Exhibit 8 hereto)
24 Power of Attorney (included on signature page)
99(a) Form of proxy to be used in connection with the Special Meeting of
Shareholders of Bank of Mecklenburg
99(b) Form of proxy to be used in connection with the Special Meeting of
Shareholders of Triangle Bancorp, Inc.
(b) Financial Statement Schedules
All financial statement schedules are omitted as substantially all
required information is contained in the Registrant's consolidated
financial statements which are incorporated herein by reference or
is not applicable.
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; and (iii) to include any material
information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration statement;
(2) that, for the purpose of determining any liability
under the Securities Act 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 of 1933, each
filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(b) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(C) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore,
unenforceable.
II-4
<PAGE>
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction, the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of
such issue.
(D) 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.
(E) The 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-5
<PAGE>
SIGNATURES
Pursuant to the requirement 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 Raleigh, State of North
Carolina, on June 17, 1997.
TRIANGLE BANCORP, INC.
BY:/s/ Michael S. Patterson
Michael S. Patterson
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Michael
S. Patterson his or her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he or she might, or could,
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Michael S. Patterson President, Chief Executive June 17, 1997
- ------------------------------------
(Michael S. Patterson) Officer, Chairman and Director
(Principal Executive Officer)
/s/ Debra L. Lee Chief Financial Officer June 17, 1997
- ---------------------------------------
(Debra L. Lee) (Principal Financial Officer
and Principal Accounting Officer)
Director June 17, 1997
- -------------------------------------
(Carole S. Anders)
/s/ Charles H. Ashford, Jr. Director June 17, 1997
- ----------------------------------
(Charles H. Ashford, Jr.)
/s/ H. Leigh Ballance, Jr. Director June 17, 1997
- -----------------------------------
(H. Leigh Ballance, Jr.)
Director June 17, 1997
- -----------------------------------
(Edwin B. Borden)
/s/ Robert E. Bryan, Jr. Director June 17, 1997
- -----------------------------------
(Robert E. Bryan, Jr.)
/s/ David T. Clancy Director June 17, 1997
- -----------------------------------
(David T. Clancy)
Director June 17, 1997
- ----------------------------------
(N. Leo Daughtry)
II-6
<PAGE>
/s/ Syd W. Dunn, Jr. Director June 17, 1997
- ----------------------------------
(Syd W. Dunn, Jr.)
Director June 17, 1997
- ----------------------------------
(Willie S. Edwards)
/s/ James P. Godwin, Sr. Director June 17, 1997
- ----------------------------------
(James P. Godwin, Sr.)
Director June 17, 1997
- -----------------------------------
(Robert L. Guthrie)
/s/ John B. Harris, Jr. Director June 17, 1997
- -----------------------------------
(John B. Harris, Jr.)
Director June 17, 1997
- -----------------------------------
(George W. Holt)
/s/ Earl Johnson, Jr. Director June 17, 1997
- ------------------------------------
(Earl Johnson, Jr.)
Director June 17, 1997
- ------------------------------------
(Edythe P. Lumsden)
Director June 17, 1997
- ------------------------------------
(J.L. Maxwell, Jr.)
/s/ Michael Maxwell Director June 17, 1997
- ------------------------------------
(Michael Maxwell)
Director June 17, 1997
- ------------------------------------
(Wendell H. Murphy)
/s/ Patrick Pope Director June 17, 1997
- ------------------------------------
(Patrick Pope)
/s/ William Pope Director June 17, 1997
- ------------------------------------
(William Pope)
Director June 17, 1997
- ------------------------------------
(Billy N. Quick, Sr.)
/s/ J. Dal Snipes Director June 17, 1997
- --------------------------------------
(J. Dal Snipes)
/s/ N. Johnson Tilghman Director June 17, 1997
- --------------------------------
(N. Johnson Tilghman)
/s/ Sydnor M. White, Jr. Director June 17, 1997
- ---------------------------------
(Sydnor M. White, Jr.)
<PAGE>
II-7
/s/ J. Blount Williams Director June 17, 1997
- ----------------------------------
(J. Blount Williams)
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
EXHIBIT INDEX
Exhibit Number
Pursuant to
Item 601 of
Regulation S-K Description Page No.
<S> <C> <C>
2 Agreement and Plan of Reorganization and Merger between Bank of
Mecklenburg and Triangle Bancorp, Inc. dated April 25, 1997
(included as and incorporated by reference from Appendix I to the
Joint Proxy Statement/Prospectus filed as part of the Registration
Statement)
3(a) Articles of Incorporation of Triangle Bancorp, Inc., amended as of
May 26, 1995 (incorporated by reference from Exhibit 3(a) of
Registrant's Form 10-K for the fiscal year ended December 31, 1996,
filed with the Commission on March 25, 1997)
3(b) Bylaws of Triangle Bancorp, Inc., amended as of April 28, 1997
4 Agreement of Triangle Bancorp, Inc. to furnish a copy of the Junior
Subordinated Indenture between Triangle Bancorp, Inc. and Bankers
Trust Company (as Trustee) dated as of June 3, 1997
5 Opinion of Alexander M. Donaldson, Senior Vice President and
General Counsel of Triangle Bancorp, Inc. as to the legality of the
securities to be registered
8 Opinion of Coopers & Lybrand L.L.P. as to income tax matters
10(a) Triangle Bancorp, Inc. 1988 Incentive Stock Option Plan, as amended
on December 16, 1993 and May 23, 1995 (incorporated by reference
from Exhibit 10(a) to the Registrant's Registration Statement on
Form S-4 (Registration No. 33-93918)
10(b) Triangle Bancorp, Inc. 1988 Non-Qualified Stock Option Plan, as
amended on November 15, 1994 (incorporated by reference to Exhibit
10(b) to the Registrant's Form 10-K for the fiscal year ended
December 31, 1994 as filed with the Commission on March 31, 1995)
10(c) Triangle Bank Deferred Compensation Plan for Outside Directors
(incorporated by reference to Exhibit 10(c) to the Registrant's
Form 10-K for the fiscal year ended December 31, 1993 as filed with
the Commission on March 31, 1994)
10(d) Employment Agreement between Triangle Bank and Michael S. Patterson
(incorporated by reference to Exhibit 10(a) to Registrant's Form
10-K for the fiscal year ended December 31, 1993 filed with the
Commission on March 31, 1994)
II-12
<PAGE>
Exhibit Number
Pursuant to
Item 601 of
Regulation S-K Description Page No.
10(e) Employment Agreement between Triangle Bank and H. Leigh Ballance,
Jr. (incorporated by reference to Exhibit 10(j) to the Registrant's
Form 10-K for the year ended December 31, 1994, filed with the
Commission on March 31, 1995)
10(f) Deferred Compensation Agreement between Triangle Bank and Michael
S. Patterson (incorporated by reference from Exhibit 10(g) of
Registrant's Registration Statement on Form S-4 (Registration No.
33-86226))
10g) Deferred Compensation Agreement between Triangle Bank and Debra L.
Lee (incorporated by reference from Exhibit 10(i) of Registrant's
Registration Statement on Form S-4 (Registration No. 33-86226))
10(h) Change of Control Agreement dated June 18, 1996 between Triangle
Bank and Steven R. Ogburn (incorporated by reference from Exhibit
(k) of Registrant's Form 10-K for the fiscal year ended December
31, 1996, filed with the Commission on March 25, 1997)
10(i) Change of Control Agreement dated June 18, 1996 between Triangle
Bank and Debra L. Lee (incorporated by reference from Exhibit (l)
of Registrant's Form 10-K for the fiscal year ended December 31,
1996, filed with the Commission on March 25, 1997)
13(a) Bank of Mecklenburg Annual Report on Form F-2 for fiscal year ended
December 31, 1996
13(b) Bank of Mecklenburg Quarterly Report on Form F-4 for quarter ended
March 31, 1997
13(c) Bank of Mecklenburg Current Report on Form F-3 dated April 1, 1997
23(a) Consent of Alexander M. Donaldson (contained in its opinion
submitted as Exhibit 5 hereto)
23(b) Consent of Coopers & Lybrand L.L.P. 23(c) Consent of KPMG Peat
Marwick LLP
23(d) Consent of Equity Research Services, Inc.
23(e) Consent of Wheat, First Securities, Inc.
23(f) Consent of Coopers & Lybrand L.L.P. regarding tax opinion
(contained in its opinion submitted as Exhibit 8 hereto)
24 Power of Attorney (included on signature page)
II-13
<PAGE>
99(a) Form of proxy to be used in connection with the Special Meeting of
Shareholders of Bank of Mecklenburg
99(b) Form of proxy to be used in connection with the Special Meeting of
Shareholders of Triangle Bancorp, Inc.
(b) Financial Statement Schedules
All financial statement schedules are omitted as substantially all
required information is contained in the Registrants consolidated
financial statements which are incorporated herein by reference or
is not applicable.
</TABLE>
II-14
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
TRIANGLE BANCORP, INC.
AS AMENDED APRIL 28, 1997 (SHAREHOLDERS) ARTICLE III, SECTION 2(A)
AS AMENDED FEBRUARY 23, 1995 (SHAREHOLDERS) ARTICLE III, SECTION 2(A)
AS AMENDED MAY 17, 1994 (SHAREHOLDERS)
AS AMENDED MAY 11, 1993 (SHAREHOLDERS)
AS AMENDED AUGUST 18, 1992 (BOARD OF DIRECTORS)
<PAGE>
TABLE OF CONTENTS
ARTICLE I
OFFICES
1. PRINCIPAL OFFICE. . . . . . . . . . . . . . . . . . . 1
2. REGISTERED OFFICE . . . . . . . . . . . . . . . . . . 1
3. OTHER OFFICES . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
MEETINGS OF SHAREHOLDERS
1. PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . 1
2. ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . 2
3. SUBSTITUTE ANNUAL MEETING . . . . . . . . . . . . . . 2
4. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . 2
5. NOTICE OF MEETINGS. . . . . . . . . . . . . . . . . . 3
6. SHAREHOLDERS LIST . . . . . . . . . . . . . . . . . . 5
7. QUORUM. . . . . . . . . . . . . . . . . . . . . . . . 5
8. VOTING OF SHARES AND VOTING GROUPS. . . . . . . . . . 6
9. PROXIES . . . . . . . . . . . . . . . . . . . . . . . 7
10. INSPECTORS OF ELECTION. . . . . . . . . . . . . . . . 8
11. SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . 9
ARTICLE III
DIRECTORS
1. GENERAL POWERS. . . . . . . . . . . . . . . . . . . . 10
2. NUMBER, TERM, AND QUALIFICATION . . . . . . . . . . . 10
3. ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . 11
4. REMOVAL . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
5. VACANCIES . . . . . . . . . . . . . . . . . . . . . . 13
6. CHAIRMAN. . . . . . . . . . . . . . . . . . . . . . . 13
7. COMPENSATION. . . . . . . . . . . . . . . . . . . . . 14
8. EXECUTIVE AND OTHER COMMITTEES. . . . . . . . . . . . 14
9. DIRECTORS EMERITUS. . . . . . . . . . . . . . . . . . 16
ARTICLE IV
MEETINGS OF DIRECTORS
1. REGULAR MEETINGS. . . . . . . . . . . . . . . . . . . 17
2. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . 17
3. NOTICE OF MEETINGS. . . . . . . . . . . . . . . . . . 17
4. QUORUM. . . . . . . . . . . . . . . . . . . . . . . . 18
5. MANNER OF ACTING. . . . . . . . . . . . . . . . . . . 18
6. INFORMAL ACTION BY DIRECTORS. . . . . . . . . . . . . 19
7. ATTENDANCE BY TELEPHONE . . . . . . . . . . . . . . . 20
ARTICLE V
OFFICERS
1. NUMBER. . . . . . . . . . . . . . . . . . . . . . . . 20
2. APPOINTMENT AND TERM. . . . . . . . . . . . . . . . . 20
3. REMOVAL . . . . . . . . . . . . . . . . . . . . . . . 21
4. COMPENSATION. . . . . . . . . . . . . . . . . . . . . 21
5. PRESIDENT . . . . . . . . . . . . . . . . . . . . . . 21
6. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS,
AND VICE-PRESIDENTS. . . . . . . . . . . . . . . . . 22
7. SECRETARY . . . . . . . . . . . . . . . . . . . . . . 23
<PAGE>
8. VICE PRESIDENT, FINANCE . . . . . . . . . . . . . . . 24
9. ASSISTANT SECRETARIES AND TREASURERS. . . . . . . . . 24
10. CONTROLLER AND ASSISTANT CONTROLLERS. . . . . . . . . 25
11. EXECUTIVE OFFICERS. . . . . . . . . . . . . . . . . . 25
12. BONDS . . . . . . . . . . . . . . . . . . . . . . . . 25
13. VOTING UPON STOCKS. . . . . . . . . . . . . . . . . . 26
ARTICLE VI
CERTIFICATES FOR AND TRANSFER OF SHARES
1. CERTIFICATES FOR SHARES . . . . . . . . . . . . . . . 26
2. TRANSFER OF SHARES. . . . . . . . . . . . . . . . . . 27
3. TRANSFER AGENT AND REGISTRAR. . . . . . . . . . . . . 27
4. RECORD DATE . . . . . . . . . . . . . . . . . . . . . 28
5. LOST CERTIFICATES . . . . . . . . . . . . . . . . . . 29
6. HOLDER OF RECORD. . . . . . . . . . . . . . . . . . . 29
7. SHARES HELD BY NOMINEES . . . . . . . . . . . . . . . 29
8. ACQUISITION BY CORPORATION OF ITS OWN SHARES. . . . . 31
9. SHAREHOLDER PROTECTION ACT. . . . . . . . . . . . . . 31
10. CONTROL SHARE ACQUISITION ACT . . . . . . . . . . . . 31
ARTICLE VII
INDEMNIFICATION AND REIMBURSEMENT
OF DIRECTORS AND OFFICERS
1. INDEMNIFICATION FOR EXPENSES AND LIABILITIES. . . . . 32
2. ADVANCE PAYMENT OF EXPENSES . . . . . . . . . . . . . 33
<PAGE>
3. INSURANCE . . . . . . . . . . . . . . . . . . . . . . 34
4. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VIII
GENERAL PROVISIONS
1. DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . 35
2. SEAL. . . . . . . . . . . . . . . . . . . . . . . . . 35
3. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . 36
4. EFFECTIVE DATE OF NOTICE. . . . . . . . . . . . . . . 36
5. CORPORATE RECORDS . . . . . . . . . . . . . . . . . . 36
6. BYLAW AMENDMENTS. . . . . . . . . . . . . . . . . . . 37
7. AMENDMENTS TO ARTICLES OF INCORPORATION . . . . . . . 38
<PAGE>
BYLAWS
OF
TRIANGLE BANCORP, INC.
ARTICLE I
OFFICES
1. PRINCIPAL OFFICE. The principal office of the Corporation shall be
located in Wake County, North Carolina or such other place as is designated by
the Board of Directors.
2. REGISTERED OFFICE. The registered office of the Corporation required by
law to be maintained in the State of North Carolina may be, but need not be,
identical with the principal office.
3. OTHER OFFICES. The Corporation may have offices at such other places,
either within or without the State of North Carolina, as the Board of Directors
may from time to time determine or as the affairs of the Corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
1. PLACE OF MEETINGS. All meetings of shareholders shall be held at the
principal office of the Corporation or at such other
<PAGE>
place, either within or without the State of North Carolina, as shall be
designated in the notice of the meeting or agreed upon by the Board of
Directors.
2. ANNUAL MEETING. The annual meeting of the shareholders shall be held at
the principal office of the Corporation or at such other place, either within or
without the State of North Carolina, on such day and at such time during the
second quarter of the Corporation's fiscal year as the Board of Directors shall
from time to time determine, for the purpose of electing Directors of the
Corporation and for the transaction of such other business as may be properly
brought before the meeting.
3. SUBSTITUTE ANNUAL MEETING. If the annual meeting shall not be held
within the time period designated by these Bylaws, a substitute annual meeting
may be called in accordance with the provisions of Paragraph 4 of this Article
II. A meeting so called shall be designated and treated for all purposes as the
annual meeting.
4. SPECIAL MEETINGS. Special meetings of the shareholders may be called at
any time by the Chairman of the Board of Directors, the President, the
Secretary, or the Board of Directors of the Corporation.
<PAGE>
5. NOTICE OF MEETINGS.
(a) Written or printed notice stating the time and place of the
meeting shall be delivered not less than ten nor more than sixty days before the
date thereof, either personally or by telegraph, teletype or other form of wire
or wireless communication, or by facsimile transmission, mail, or by private
carrier, or by any other means permitted by law, by or at the direction of the
Board of Directors, Chairman of the Board, President, Secretary, or other person
calling the meeting, to each shareholder of record entitled to vote at such
meeting, provided that such notice must be given to all shareholders, including
nonvoting shareholders, with respect to any meeting at which a merger, share
exchange, sale of assets other than in the regular course of business, or
voluntary dissolution is to be considered and in such other instances as
required by law. If a new record date for the adjourned meeting is fixed
pursuant to Paragraph 4 of Article VI, notice of the adjourned meeting shall be
given to persons who are shareholders as of the new record date. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the record of
shareholders of the Corporation, with postage thereon prepaid.
(b) In the case of an annual or substitute annual meeting, the notice
of meeting need not specifically state the business to be transacted thereat
unless it is a matter, other than
<PAGE>
election of Directors, on which the vote of the shareholders is expressly
required by the provisions of the North Carolina Business Corporation Act or
notice of such purpose is otherwise required by law to be provided. In the case
of a special meeting, the notice of meeting shall specifically state the purpose
or purposes for which the meeting is called.
(c) When a meeting is adjourned for more than one hundred twenty days
or a new record date is or must be fixed as required by law, notice of the
adjourned meeting shall be given as in the case of an original meeting. When a
meeting is adjourned for one hundred twenty days or less in any one adjournment,
it shall not be necessary to give any notice of the new date, time and place of
the adjourned meeting or of the business to be transacted thereat other than by
announcement at the meeting at which the adjournment is taken.
(d) A shareholder in a signed writing may waive notice of any meeting
before or after the date and time stated in the notice by delivering such waiver
to the Corporation for inclusion in the minutes. Attendance by a shareholder at
a meeting constitutes a waiver of notice of such meeting, unless at the
beginning of the meeting the shareholder objects to holding the meeting or
transacting business at the meeting, or objects to considering a matter not
within the purpose or purposes described in the meeting notice before it is
voted on.
<PAGE>
6. SHAREHOLDERS LIST. After fixing the record date for a meeting, the
Secretary of the Corporation shall prepare an alphabetical list of the
shareholders entitled to notice of such meeting or any adjournment thereof,
arranged by voting group, class and series, with the address of and number of
shares held by each. Such list shall be kept on file at the principal office of
the Corporation, or at a place identified in the meeting notice in the city
where the meeting will be held, beginning two business days after notice of such
meeting is given and continuing through the meeting, and on written demand shall
be subject to inspection or copying by any shareholder, his agent or attorney at
any time during regular business hours. This list shall also be produced and
kept open at the time and place of the meeting and shall be subject to
inspection by any shareholder, his agent or attorney during the entire time of
the meeting or any adjournment.
7. QUORUM.
(a) Unless otherwise provided by law, a majority of the votes entitled
to be cast on a matter by a separate voting group shall constitute a quorum of
such voting group on that matter at a meeting of shareholders. A separate voting
group may only take action on a matter at a meeting if a quorum of those shares
are present with respect to that matter. In the absence of a quorum at the
opening of any meeting of shareholders, such meeting may be adjourned from time
to time by the vote of a majority of the shares voting on the motion to adjourn,
but no other business may be transacted until and unless a quorum is present.
When a quorum is
<PAGE>
present at any adjourned meeting, any business may be transacted which might
have been transacted at the original meeting. If a quorum is present at the
original meeting, a quorum need not be present at an adjourned meeting to
transact business.
(b) At a meeting at which a quorum is present, a separate voting group
may continue to do business until adjournment, notwithstanding the withdrawal of
sufficient shareholders to leave less than a quorum of the separate voting
group.
8. VOTING OF SHARES AND VOTING GROUPS.
(a) Except as otherwise provided by the Articles of
Incorporation or by law, each outstanding share having voting rights shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. All shares entitled to vote and be counted together collectively
on a matter as provided by the Articles of Incorporation or by the North
Carolina Business Corporation Act shall constitute a single voting group.
Additional required voting groups shall be determined in accordance with the
Articles of Incorporation, the Bylaws, and the North Carolina Business
Corporation Act.
(b) Except in the election of Directors, at a shareholder meeting duly
held and at which a quorum is present, action on a matter by a voting group
shall be approved if the votes cast within the voting group favoring the action
exceed the votes cast
<PAGE>
opposing the action, unless the vote by a greater number is required by law or
by the Articles of Incorporation or Bylaws of the Corporation. For such actions,
abstentions shall not be treated as negative votes. Corporate action on such
matters shall be taken only when approved by each and every voting group
entitled to vote as a separate voting group on such matter as provided by the
Articles of Incorporation or Bylaws or by the North Carolina Business
Corporation Act.
(c) Voting on all matters except the election of Directors shall be by
voice vote or by a show of hands unless the chairman of the meeting directs that
voting on such matter shall be by ballot.
(d) Absent special circumstances, shares of the Corporation shall not
be entitled to vote if they are owned, directly or indirectly, by another
corporation in which the Corporation owns, directly or indirectly, a majority of
the shares entitled to vote for directors of the second corporation; provided
that this provision does not limit the power of the Corporation to vote its own
shares held by it in a fiduciary capacity.
9. PROXIES. Shares may be voted either in person or by one or more agents
authorized by a written proxy executed by the shareholder or by his duly
authorized attorney-in-fact. A proxy shall not be valid after the expiration of
eleven months from the date of its execution, unless the person executing it
specifies
<PAGE>
therein the length of time for which it is to continue in force, or limits its
use to a particular meeting. Any proxy shall be revocable by the shareholder
unless the written appointment expressly and conspicuously provides that it is
irrevocable and the appointment is coupled with an interest as required by law.
The shareholder may revoke the proxy by filing with the Secretary of the
Corporation either a written instrument of revocation or a duly executed proxy
bearing a later date or by attending the meeting and voting his shares in
person.
10. INSPECTORS OF ELECTION.
(a) Appointment of Inspectors of Election. In advance of any meeting
of shareholders, the Board of Directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. If inspectors of election are not so appointed, the
chairman of any such meeting may appoint inspectors of election at the meeting.
The number of inspectors shall be either one or three. In case any person
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment by the Board of Directors in advance of the meeting
or at the meeting by the person acting as chairman.
(b) Duties of Inspectors. The inspectors of election shall determine
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies,
<PAGE>
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine the result and do such acts as may be
proper to conduct the election or vote with fairness to all shareholders. The
inspectors of election shall perform their duties impartially, in good faith, to
the best of their ability and as expeditiously as is practical.
(c) Vote of Inspectors. If there are three inspectors of election, the
decision, act, or certificate of a majority shall be effective in all respects
as the decision, act, or certificate of all.
(d) Report of Inspectors. On request of the chairman of the meeting,
the inspectors shall make a report in writing of any challenge or question or
matter determined by them and shall execute a certificate of any fact found by
them. Any report or certificate made by them shall be prima facie evidence of
the facts stated therein.
11. SHAREHOLDER PROPOSALS. Any shareholder wishing to nominate one or more
Directors or bring any other business before a meeting of shareholders must
provide notice to the Corporation at least 50 days before the meeting in writing
by registered mail, return receipt requested, of the business or nomination to
be presented by him or her at the shareholders' meeting. In the absence of such
notice to the Corporation, a shareholder shall not
<PAGE>
be entitled to present any business or nominate at any meeting of shareholders.
ARTICLE III
DIRECTORS
1. GENERAL POWERS. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the
Corporation shall be managed by, the Board of Directors or by such
committees as the Board of Directors may establish pursuant to
these Bylaws.
2. NUMBER, TERM, AND QUALIFICATION.
(a) The number of Directors of the Corporation shall be not less than
ten nor more than twenty-six as from time to time may be fixed or changed within
said minimum or maximum by the affirmative vote of a majority of Directors
present at any regular or special meeting of the Board of Directors at which a
quorum is present. Such minimum and maximum may not be changed by the Board of
Directors, but only by the affirmative vote of 75% of all eligible votes
present, in person or by proxy, at a meeting of shareholders at which a quorum
is present. Such meeting of shareholders unless the notice of a meeting states
that the purpose, or one of the purposes, of the meeting is to change the number
of Directors of the Corporation.
Note: The provisions of this Article III, Section 2.(a) have been adopted by the
shareholders of the Corporation and may not be amended except by the
shareholders in accordance with the provisions of Article VIII, Section 6.(a)
hereof.
<PAGE>
(b) At the first annual meeting of shareholders, the Directors shall
be divided into three classes, as nearly equal in number as possible, with the
term of office of the first class to expire at the first annual meeting of
shareholders after their election, the term of office of the second class to
expire at the second annual meeting of shareholders after their election, and
the term of office of the third class to expire at the third annual meeting of
shareholders after their election. At each annual meeting of shareholders
following such initial classification and election, Directors elected to succeed
those Directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of shareholders after their
election. A Director shall hold office until the annual meeting for the year in
which his term expires and until his successor is elected and qualified, or
until his earlier death, resignation, retirement, removal, or disqualification.
In the event of any increase or decrease in the number of Directors, the
additional or eliminated directorships shall be so classified or chosen so that
all classes of Directors shall remain and become equal in number as nearly as
possible. Directors need not be residents of the State of North Carolina or
shareholders of the Corporation.
3. ELECTION OF DIRECTORS. Except as provided in Paragraph 5 of this Article
III, Directors shall be elected at the annual meeting of shareholders; and those
persons who receive the highest number of votes at a meeting at which a quorum
is present shall be deemed to have been elected. If any shareholder so demands,
election of Directors shall be by ballot.
<PAGE>
4. REMOVAL.
(a) A Director may be removed from office with cause by the affirmative
vote of 75 percent of all eligible votes present at a meeting of shareholders at
which a quorum is present. A Director may be removed from office without cause
by the affirmative vote of 75 percent of all eligible votes present at a meeting
of shareholders at which a quorum is present, provided that removal without
cause is recommended to the shareholders by the Board of Directors pursuant to a
vote of not less than 75 percent of the Directors then in office. If a Director
is elected by a separate voting group, only the members of that voting group may
participate in the vote to remove him. For purposes of this Section, "cause" is
defined as personal dishonesty, incompetence, mental or physical incapacity,
breach of fiduciary duty involving personal profit, a failure to perform stated
duties, or a violation of any law, rule or regulation (other than a traffic
violation or similar routine offense) (based on a conviction for such offense or
an opinion of counsel to the Corporation to such effect). The entire Board of
Directors may not be removed except pursuant to the removal of individual
Directors in accordance with the foregoing provisions.
(b) No Director may be removed at a meeting of shareholders unless the
notice of the meeting states that the purpose, or one of the purposes, of the
meeting is to remove that Director.
<PAGE>
Note: The provisions of Section 4.(a) are contained in the
Articles of Incorporation of the Corporation and are included in
the Bylaws only for ease of reference. These Bylaw provisions have
not been adopted by the shareholders.
5. VACANCIES. A vacancy occurring in the Board of Directors, including,
without limitation, a vacancy created by an increase in the authorized number of
Directors or resulting from the shareholders' failure to elect the full
authorized number of Directors, may only be filled by the Directors remaining in
office, or if the Directors remaining in office constitute less than a quorum of
the Directors, by the affirmative vote of a majority of all remaining Directors
or by the sole remaining Director; provided that if any Director was elected by
a voting group, a vacancy in that position may be filled only by any remaining
Director or Directors elected by that voting group, if any, and if there are
none, by members of the related voting group. A Director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office.
6. CHAIRMAN. There may be a Chairman of the Board of
Directors elected by the Directors from their number at any meeting
of the Board. The Chairman of the Board shall preside at all meetings of the
Board of Directors and perform such other duties as may be directed by the
Board. In the absence of the Chairman, the President shall preside at meetings
of the Board. The Chairman will not be considered an officer of the Corporation.
The Chairman will
<PAGE>
not participate in the operating management of the Corporation other than in the
capacity of a director. Further, the Chairman will have no authority to sign and
execute any documents or instruments on behalf of the Corporation.
7. COMPENSATION. The Board of Directors may provide for the
compensation of Directors for their services as such and may
provide for the payment of any and all expenses incurred by the
Directors in connection with such services.
8. EXECUTIVE AND OTHER COMMITTEES.
(a) The Board of Directors, by resolution adopted by 80 percent of the
Directors then in office, may designate from among its members an Executive
Committee and one or more other committees.
(b) Each committee shall consist of two or more Directors, and each,
to the extent authorized by law or provided in the resolution, shall have and
may exercise all of the authority of the Board of Directors, except no such
committee may: (1) authorize distributions; (2) approve or propose to
shareholders action that is required to be approved by shareholders under the
North Carolina Business Corporation Act or any successor to such statutes; (3)
fill vacancies on the Board of Directors or on any of its committees; (4) amend
the Articles of Incorporation; (5) adopt, amend, or repeal these Bylaws; (6)
approve a plan of merger not requiring shareholder approval; (7) authorize or
approve
<PAGE>
reacquisition of shares, except according to a formula or method prescribed by
the Board of Directors; or (8) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares, except that the
Board of Directors may authorize a committee (or a senior executive officer of
the Corporation) to do so within limits specifically prescribed by the Board of
Directors. (c) Any resolutions adopted or other action taken by any such
committee within the scope of the authority delegated to it by the Board of
Directors shall be deemed for all purposes to be adopted or taken by the Board
of Directors. The designation of any committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility or liability imposed upon it or him by law.
(d) Regular meetings of any such committee may be held without notice
at such time and place as such committee may fix from time to time by
resolution. Special meetings of any such committee may be called by any member
thereof upon not less than one day's notice stating the place, date and hour of
such meeting, which notice may be written or oral and if mailed, shall be deemed
to be delivered when deposited in the United States mail addressed to any member
of the committee at his business address. Any member of any committee may in a
signed writing waive notice of any meeting, and no notice of any meeting need be
given to any member thereof who attends in person. The notice of a meeting of
any
<PAGE>
committee need not state the business proposed to be transacted at the meeting.
(e) A majority of the members of any such committee shall constitute a
quorum for the transaction of business at any meeting thereof, and actions of
such committee must be authorized by the affirmative vote of a majority of the
members of such committee.
(f) Any member of any such committee may be removed at any time with
or without cause by resolution adopted by the affirmative vote of at least 80
percent of the Directors then in office, and vacancies in the membership of a
committee resulting from death, resignation, disqualification, or removal shall
be filled by the Board of Directors pursuant to the affirmative vote of 80
percent of the Directors then in office.
(g) Any such committee shall elect a presiding officer from among its
members and may fix its own rules of procedure which shall not be inconsistent
with these Bylaws. It shall keep regular minutes of its proceedings and report
the same to the Board of Directors for its information at the meeting thereof
held next after the proceedings shall have been taken.
9. DIRECTORS EMERITUS. The Board of Directors may, by resolution duly
adopted, appoint Directors Emeritus of the Corporation for outstanding
contributions to the Corporation. Such Directors Emeritus shall have no right to
vote on matters before
<PAGE>
the Board of Directors or to attend meetings of the Board of Directors.
ARTICLE IV
MEETINGS OF DIRECTORS
1. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be
held immediately after, and at the same place as, the annual meeting of
shareholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings.
2. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the
Board (if one has been duly elected), the President or any two
Directors. Such meetings may be held either within or without the
State of North Carolina.
3. NOTICE OF MEETINGS.
(a) Regular meetings of the Board of Directors may be
held without notice.
(b) The person or persons calling a special meeting of the Board of
Directors shall, at least two days before the meeting, give notice thereof
either personally or by telephone, telegraph, teletype or other form of wire or
wireless communication or by facsimile transmission, mail or private carrier or
by any other means permitted by law. Such notice need not specify the business
<PAGE>
to be transacted at, or the purpose of, the meeting that is called. Notice of an
adjourned meeting need not be given if the time and place are fixed at the
meeting adjourning and if the period of adjournment does not exceed ten days in
any one adjournment.
(c) A Director, in a signed writing, may waive notice of any meeting
before or after the date and time stated in the notice. Attendance by a Director
at a meeting shall constitute a waiver of notice of such meeting, except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened and does not vote for or assent to action taken at the meeting.
4. QUORUM. A majority of the Directors in office immediately
before the meeting shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors.
5. MANNER OF ACTING.
(a) Except as otherwise provided in this paragraph, the act of a
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors, unless a greater number is required
by law, the Articles of Incorporation, or a Bylaw adopted by the shareholders.
(b) A Director who is present at a meeting of the Board of Directors
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his
<PAGE>
contrary vote is recorded or his dissent is otherwise entered in the minutes of
the meeting or unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right of
dissent shall not apply to a Director who voted in favor of such action.
(c) The vote of a majority of the number of Directors then in office
shall be required to adopt a resolution constituting an Executive Committee or
other committee of the Board of Directors. The vote of a majority of the
Directors then holding office shall be required to adopt a resolution dissolving
the Corporation without action by the shareholders in circumstances authorized
by law. Vacancies in the Board of Directors may be filled as provided in
Paragraph 5 of Article III of these Bylaws.
6. INFORMAL ACTION BY DIRECTORS. Action taken by the Directors or members
of a committee of the Board of Directors without a meeting is nevertheless Board
or committee action if written consent to the action in question is signed by
all of the Directors or members of the committee, as the case may be, and filed
with the minutes of the proceedings of the Board of Directors or committee,
whether done before or after the action so taken. Such action will become
effective when the last Director or committee member signs the consent, unless
the consent specifies a different date. Such consent will have the same force
and effect
<PAGE>
as a unanimous vote of the Board of Directors or the committee, as the case may
be.
7. ATTENDANCE BY TELEPHONE. Any one or more Directors or members of a
committee may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications device which allows
all persons participating in the meeting to hear each other simultaneously, and
such participation in the meeting shall be deemed presence in person at such
meeting.
ARTICLE V
OFFICERS
1. NUMBER. The officers of the Corporation shall consist of
a President, a Secretary, a Vice President of Finance, and such Executive Vice
Presidents, Senior Vice Presidents, other Vice Presidents, Assistant
Secretaries, and other officers as the Board of Directors may from time to time
appoint. Any two or more offices, other than that of President and Secretary,
may be held by the same person. In no event, however, may an officer act in more
than one capacity where action of two or more officers is required.
2. APPOINTMENT AND TERM. The officers of the Corporation shall be appointed
by the Board of Directors pursuant to the affirmative vote of at least 80
percent of the Directors then in office. Such appointment may be made at any
regular or special
<PAGE>
meeting of the Board of Directors. Each officer shall hold office until his
death, resignation, retirement, removal, disqualification, or his successor is
appointed and qualifies.
3. REMOVAL. Any officer or agent appointed by the Board of Directors may be
removed by the Board with or without cause pursuant to the affirmative vote of
at least 80 percent of the Directors then in office; but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
4. COMPENSATION. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors.
5. PRESIDENT. The President shall be the chief executive officer of the
Corporation and, subject to the control of the Board of Directors, shall
supervise and control the management of the Corporation in accordance with these
Bylaws. He shall preside at all meetings of shareholders and, in the absence of
the Chairman of the Board of Directors, at all meetings of the Board of
Directors. He shall sign, with any other proper officer, certificates for shares
of the Corporation and any deeds, mortgages, bonds, contracts, or other
instruments which may be lawfully executed on behalf of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be delegated by the Board
of Directors to some other officer or agent; and, in general, he shall perform
all duties incident to the office of President and such
<PAGE>
other duties as may be prescribed by the Board of Directors from time to time.
6. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS, AND VICE-PRESIDENTS.
The Executive Vice Presidents and Senior Vice Presidents shall be superior in
authority to all other Vice Presidents. The Executive Vice Presidents and Senior
Vice Presidents, in order of their appointment, unless otherwise determined by
the Board of Directors, shall, in the absence or disability of the President,
perform the duties and exercise the powers of that office and shall have
authority to sign, with any other proper officer, certificates for shares of the
Corporation and any deeds, mortgages, bonds, contracts, or other instruments
which may be lawfully executed on behalf of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be delegated by the Board of
Directors to some other officer or agent. In addition, they shall perform such
other duties and have such other powers as the President or the Board of
Directors shall prescribe. Vice Presidents shall perform only such duties and
have only such powers as the Board of Directors shall specifically prescribe. In
the absence or disability of the President and all Executive Vice Presidents and
Senior Vice Presidents, Vice Presidents, in the order of their appointment,
unless otherwise determined by the Board of Directors, shall perform the duties
and exercise the powers of that office. In addition, they shall perform such
other duties and have such other powers as the
<PAGE>
President or the Board of Directors shall prescribe. The Board of Directors
shall designate one or more Vice Presidents to be responsible for Finance and
may designate one or more Vice Presidents to be responsible for certain other
functions, including, without limitation, Operations and Personnel.
7. SECRETARY. The Secretary shall keep accurate records of the acts and
proceedings of all meetings of shareholders, Directors and committees. He shall
give all notices required by law and by these Bylaws. He shall have general
charge of the corporate books and records and of the corporate seal, and he
shall affix the corporate seal to any lawfully executed instrument requiring it.
He shall have general charge of the stock transfer books of the Corporation and
shall keep, at the registered or principal office of the Corporation, a record
of shareholders showing the name and address of each shareholder and the number
and class of the shares held by each. He shall deliver to the Secretary of State
of North Carolina for filing annual reports as required under the provisions
contained in Section 55-16-22 of the North Carolina Business Corporation Act or
any successor to such statute. He shall sign such instruments as may require his
signature, and, in general, attest the signature or certify the incumbency or
signature of any other officer of the Corporation and shall perform all duties
incident to the office of Secretary and such other duties as may be assigned him
from time to time by the President or by the Board of Directors.
<PAGE>
8. VICE PRESIDENT, FINANCE. The Vice President, Finance shall have custody
of all funds and securities belonging to the Corporation and shall receive,
deposit or disburse the same under the direction of the Board of Directors. He
shall supervise the accounting affairs of the Corporation and keep full and
accurate accounts of the finances of the Corporation in books especially
provided for that purpose, which may be consolidated or combined statements of
the Corporation and one or more of its subsidiaries as appropriate, that include
a balance sheet as of the end of the fiscal year, an income statement for that
year, and a statement of cash flows for the year unless that information appears
elsewhere in the financial statements. If financial statements are prepared for
the Corporation on the basis of generally accepted accounting principles, the
annual financial statements must also be prepared on that basis. The Corporation
shall mail the annual financial statements, or a written notice of their
availability, to each shareholder within one hundred twenty days of the close of
each fiscal year. The Vice President, Finance shall, in general, perform all
duties incident to his office and such other duties as may be assigned to him
from time to time by the President or by the Board of Directors.
9. ASSISTANT SECRETARIES AND TREASURERS. The Assistant Secretaries and
Assistant Treasurers shall, in the absence or disability of the Secretary or the
Treasurer, perform the respective duties and exercise the respective powers of
those offices, and they shall, in general, perform such other duties as
<PAGE>
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the President or by the Board of Directors.
10. CONTROLLER AND ASSISTANT CONTROLLERS. The Controller shall, under the
supervision of the Vice President, Finance, have charge of the accounting
affairs of the Corporation and shall have such other powers and perform such
other duties as the Board of Directors shall designate. Each Assistant
Controller shall have such powers and perform such duties as may be assigned by
the Board of Directors, and the Assistant Controllers shall exercise the powers
of the Controller during that officer's absence or inability to act.
11. EXECUTIVE OFFICERS. Except as otherwise designated by
the Board of Directors, the Corporation's executive officers shall
consist of the President, the Senior and Executive Vice Presidents, and such of
the other Vice Presidents as the Board of Directors may from time to time
specifically designate as executive officers, being those persons in
policy-making functions of the Corporation.
12. BONDS. The Board of Directors, by resolution, may require any or all
officers, agents and employees of the Corporation to give bond to the
Corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of their respective offices or positions, and to comply with such
other conditions as may from time to time be required by the Board
<PAGE>
of Directors.
13. VOTING UPON STOCKS. Unless otherwise ordered by the Board of Directors,
the Chairman of the Board or the President shall have full power and authority
on behalf of the Corporation to attend, act, and vote at meetings on the
shareholders of any corporation in which this Corporation may hold stock, and at
such meetings shall possess and may exercise any and all rights and powers
incident to the ownership of such stock and which, as the owner, the Corporation
might have possessed and exercised if present. The Board of Directors may by
resolution from time to time confer such power and authority upon any other
person or persons.
ARTICLE VI
CERTIFICATES FOR AND TRANSFER OF SHARES
1. CERTIFICATES FOR SHARES. Shares of the capital stock of the Corporation
shall be represented by certificates. Such certificates shall be in such form as
required by law and as determined by the Board of Directors, and such
certificates shall be issued to every shareholder for the fully paid shares
owned by him. Each certificate shall be signed by the Chairman of the Board, the
President or any Vice President or a person who has been designated as the chief
executive officer of the Corporation and by the Secretary, Assistant Secretary,
Treasurer, or Assistant
<PAGE>
Treasurer and may be sealed with the seal of the Corporation or a facsimile
thereof. The signatures of any such officers upon a certificate may be
facsimiles or may be engraved or printed. In case any officer who has signed or
whose facsimile or other signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
date of its issue. The certificates shall be consecutively numbered or otherwise
identified; and the name and address of the persons to whom they are issued,
with the number of shares and date of issue, shall be entered on the stock
transfer books of the Corporation.
2. TRANSFER OF SHARES. Transfer of shares shall be made on the stock
transfer books of the Corporation only upon surrender of the certificates for
the shares sought to be transferred by the record holder thereof or by his duly
authorized agent, transferee, or legal representative. All certificates
surrendered for transfer shall be canceled before new certificates for the
transferred shares shall be issued.
3. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint one or more transfer agents and one or more registrars of
transfer and may require all stock certificates to be signed or
countersigned by the transfer agent and registered by the registrar
of transfers.
<PAGE>
4. RECORD DATE.
(a) For the purpose of determining shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment thereof or entitled
to receive payment of any dividend or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case not to be more than seventy days before the meeting or
action requiring a determination of shareholders.
(b) If no record date is fixed by the Board of Directors for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders or of shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
(c) When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this paragraph, such
determination shall apply to any adjournment thereof unless the Board of
Directors fixes a new record date, which it shall do if the meeting is adjourned
to a date more than one hundred twenty days after the date fixed for the
original
<PAGE>
meeting.
5. LOST CERTIFICATES. The Board of Directors may authorize the issuance of
a new share certificate in place of a certificate claimed to have been lost or
destroyed, upon receipt of an affidavit of such fact from the person claiming
the loss or destruction. When authorizing such issuance of a new certificate,
the Board of Directors may require the claimant to give the Corporation a bond
in such sum as it may direct to indemnify the Corporation against loss from any
claim with respect to the certificate claimed to have been lost or destroyed; or
the Board of Directors may, by resolution reciting that the circumstances
justify such action, authorize the issuance of the new certificate without
requiring such a bond.
6. HOLDER OF RECORD. Except as otherwise required by law, the Corporation
may treat the person in whose name the shares stand of record on its books as
the absolute owner of the shares and the person exclusively entitled to receive
notification and distributions, to vote, and otherwise to exercise the rights,
powers, and privileges of ownership of such shares.
7. SHARES HELD BY NOMINEES.
(a) The Corporation shall recognize the beneficial owner of shares
registered in the name of a nominee as the owner and shareholder of such shares
for certain purposes if the nominee in whose name such shares are registered
files with the Secretary of the Corporation a written certificate in a form
prescribed by the
<PAGE>
Corporation, signed by the nominee and indicating the following: (1) the name,
address, and taxpayer identification number of the nominee; (2) the name,
address, and taxpayer identification number of the beneficial owner; (3) the
number and class or series of shares registered in the name of the nominee as to
which the beneficial owner shall be recognized as the shareholder; and (4) the
purposes for which the beneficial owner shall be recognized as the shareholder.
(b) The purposes for which the Corporation shall recognize a
beneficial owner as the shareholder may include the following: (1) receiving
notice of, voting at and otherwise participating in shareholders' meetings; (2)
executing consents with respect to the shares; (3) exercising dissenters' rights
under Article 13 of the North Carolina Business Corporation Act; (4) receiving
distributions and share dividends with respect to the shares; (5) exercising
inspection rights; (6) receiving reports, financial statements, proxy
statements, and other communications from the Corporation; (7) making any demand
upon the Corporation required or permitted by law; and (8) exercising any other
rights or receiving any other benefits of a shareholder with respect to the
shares.
(c) The certificate shall be effective ten business days after its
receipt by the Corporation and until it is changed by the nominee, unless the
certificate specifies a later effective time or an earlier termination date.
(d) If the certificate affects less than all of the
<PAGE>
shares registered in the name of the nominee, the Corporation may require the
shares affected by the certificate to be registered separately on the books of
the Corporation and be represented by a share certificate that bears a
conspicuous legend stating that there is a nominee certificate in effect with
respect to the shares represented by that share certificate.
8. ACQUISITION BY CORPORATION OF ITS OWN SHARES. The Corporation may
acquire its own shares and shares so acquired shall constitute authorized but
unissued shares. Unless otherwise prohibited by the Articles of Incorporation,
the Corporation may reissue such shares. If reissue is prohibited, the Articles
of Incorporation shall be amended to reduce the number of authorized shares by
the number of shares so acquired. Such required amendment may be adopted by the
Board of Directors without shareholder action.
9. SHAREHOLDER PROTECTION ACT. The provisions of Article 9 of Chapter 55 of
the General Statutes of North Carolina, as such Article may be amended from time
to time, shall not apply to the Corporation.
10. CONTROL SHARE ACQUISITION ACT. The provisions of Article 9A of Chapter
55 of the General Statutes of North Carolina, as such Article may be amended
from time to time, shall not apply to the Corporation.
<PAGE>
ARTICLE VII
INDEMNIFICATION AND REIMBURSEMENT
OF DIRECTORS AND OFFICERS
1. INDEMNIFICATION FOR EXPENSES AND LIABILITIES.
(a) Any person who at any time serves or has served: (1)
as a director, officer, employee or agent of the Corporation, (2) at the request
of the Corporation as a director, officer, partner, trustee, employee or agent
of another foreign or domestic corporation, partnership, joint venture, trust,
or other enterprise, or (3) at the request of the Corporation as a trustee or
administrator under an employee benefit plan, shall have a right to be
indemnified by the Corporation to the fullest extent from time to time permitted
by law against Liability and Expenses in any Proceeding (including without
limitation a Proceeding brought by or on behalf of the Corporation itself)
arising out of his status as such or activities in any of the foregoing
capacities or results from him being called as a witness at a time when he was
not a named defendant or respondent to any Proceeding.
(b) The Board of Directors of the Corporation shall take all such
action as may be necessary and appropriate to authorize the Corporation to pay
the indemnification required by this provision, including, without limitation,
to the extent needed, making a good faith evaluation of the manner in which the
claimant for indemnity acted and of the reasonable amount of indemnity due
<PAGE>
him.
(c) Any person who at any time serves or has served in any of the
aforesaid capacities for or on behalf of the Corporation shall be deemed to be
doing or to have done so in reliance upon, and as consideration for, the rights
provided for herein. Any repeal or modification of these indemnification
provisions shall not affect any rights or obligations existing at the time of
such repeal or modification. The rights provided for herein shall inure to the
benefit of the legal representatives of any such person and shall not be
exclusive of any other rights to which such person may be entitled apart from
this provision.
(d) The rights granted herein shall not be limited by the provisions
contained in Sections 55-8-51 through 55-8-56 of the North Carolina Business
Corporation Act or any successor to such statutes.
2. ADVANCE PAYMENT OF EXPENSES. The Corporation shall (upon receipt of an
undertaking by or on behalf of the Director, officer, employee or agent involved
to repay the Expenses described herein unless it shall ultimately be determined
that he is entitled to be indemnified by the Corporation against such Expenses)
pay Expenses incurred by such Director, officer, employee or agent in defending
<PAGE>
a Proceeding or appearing as a witness at a time when he has not been named as a
defendant or a respondent with respect thereto in advance of the final
disposition of such Proceeding.
3. INSURANCE. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee, or agent of another domestic
or foreign corporation, partnership, joint venture, trust, or other enterprise
or as a trustee or administrator under an employee benefit plan against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him or her against such liability.
4. DEFINITIONS. The following terms as used in this Article shall have the
following meanings. "Proceeding" means any threatened, pending or completed
action, suit, or proceeding and any appeal therein (and any inquiry or
investigation that could lead to such action, suit, or proceeding), whether
civil, criminal, administrative, investigative or arbitrative and whether formal
or informal. "Expenses" means expenses of every kind, including counsel fees.
"Liability" means the obligation to pay a judgment, settlement, penalty, fine
(including an excise tax assessed with respect to an employee benefit plan),
reasonable expenses incurred with respect to a Proceeding and all reasonable
expenses incurred
<PAGE>
in enforcing the indemnification rights provided herein. "Director," "officer,"
"employee," and "agent" include the estate or personal representative of a
Director, officer, employee, or agent. "Corporation" shall include any domestic
or foreign predecessor of this Corporation in a merger or other transaction in
which the predecessor's existence ceased upon consummation of the transaction.
ARTICLE VIII
GENERAL PROVISIONS
1. DISTRIBUTIONS. The Board of Directors may from time to
time declare, and the Corporation may pay, distributions and share
dividends on its outstanding shares in the manner and upon the
terms and conditions provided by law and by its Articles of
Incorporation.
2. SEAL. The corporate seal shall have the name of the Corporation
inscribed thereon and shall be in such form as may be approved from time to time
by the Board of Directors. Such seal may be an impression or stamp and may be
used by the officers of the Corporation by causing it, or a facsimile thereof,
to be impressed or affixed or in any other manner reproduced. In addition to any
form of seal adopted by the Board of Directors, the officers of the Corporation
may use as the corporate seal a seal in the form of a circle containing the name
of the Corporation and the
<PAGE>
state of its incorporation (or an abbreviation thereof) on the circumference and
the word "Seal" in the center.
3. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
4. EFFECTIVE DATE OF NOTICE. Except as provided in Paragraph 5.(a) of
Article II, written notice shall be effective at the earliest of the following:
(1) when received; (2) five days after its deposit in the United States mail, as
evidenced by the postmark, if mailed with postage thereon prepaid and correctly
addressed; (3) upon confirmation of receipt by answerback code, if sent by
facsimile transmission; (4) upon transmission, if sent by telegraph or teletype;
or (5) on the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested and the receipt is signed by or on
behalf of the addressee.
5. CORPORATE RECORDS. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account and
minute books, may be kept on or be in the form of punch cards, magnetic tape,
photographs, microphotographs or any other information storage device; provided
that the records so kept can be converted into clearly legible form within a
reasonable time. The Corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same. The Corporation shall
maintain at its principal office
<PAGE>
the following records: (1) Articles of Incorporation or Restated Articles of
Incorporation and all amendments thereto; (2) Bylaws or Restated Bylaws and all
amendments thereto; (3) resolutions by the Board of Directors creating classes
or series of shares and affixing rights, preferences or limitations to shares;
(4) minutes of all shareholder meetings or action taken without a meeting for
the past three years; (5) all written communications to shareholders for the
past three years, including financial statements; and (6) the Corporation's most
recent annual report filed with the North Carolina Secretary of State.
6. BYLAW AMENDMENTS.
(a) Except as otherwise provided herein, these Bylaws may be amended
or repealed and new Bylaws may be adopted by the affirmative vote of a majority
of the Directors present at any regular or special meeting of the Board of
Directors at which a quorum is present or by the shareholders at any regular or
special meeting of shareholders at which a quorum is present if the votes cast
favoring such action exceed the votes cast opposing such action.
(b) The Board of Directors shall have no power to adopt a Bylaw: (1)
changing the statutory requirement for a quorum of Directors or action by
Directors or changing the statutory requirement for a quorum of shareholders or
action by shareholders; (2) providing for the management of the Corporation
otherwise than by the Board of Directors or the committees thereof; (3)
increasing
<PAGE>
or decreasing the fixed number for the size of the Board of Directors or range
of Directors, or changing from a fixed number to a range, or vice versa; or (4)
classifying and staggering the election of Directors.
(c) No Bylaw adopted, amended or repealed by the shareholders may be
readopted, amended or repealed by the Board of Directors, except to the extent
that the Articles of Incorporation or a Bylaw adopted by the shareholders
authorizes the Board of Directors to adopt, amend or repeal that particular
Bylaw or the Bylaws generally.
7. AMENDMENTS TO ARTICLES OF INCORPORATION. To the extent permitted by law,
the Board of Directors may amend the Articles of Incorporation without
shareholder approval to (1) delete the initial directors' names and addresses;
(2) change the initial registered agent or office in any state in which it is
qualified to do business, provided such change is on file with the respective
Secretary of State; (3) change each issued and unissued share of an outstanding
class into a greater number of whole shares, provided that class is the
Corporation's only outstanding share class; (4) change the corporate name by
substituting "corporation," "incorporated," "company," "limited," or the
abbreviations therefor for a similar word or abbreviation or by adding, deleting
or changing a geographic designation in the name; (5) make any other change
expressly permitted by the North Carolina Business Corporation Act to be made
without shareholder action. All other
<PAGE>
amendments to the Articles of Incorporation must be approved by the affirmative
vote of 75 percent of the votes present at a meeting of shareholders at which a
quorum is present, in accordance with Article X of the Corporation's Articles of
Incorporation. The notice of any such meeting must state that the purpose, or
one of the purposes, of the meeting is to consider the proposed amendment, and
the notice must be accompanied by a copy or summary of the amendment or
amendments. The Board of Directors must recommend any amendment to the Articles
to be considered by shareholders as set forth in, and subject to the terms of,
North Carolina General Statutes ss.55-10-03(a).
Note: This Bylaw provision has not been adopted by the share-
holders of the Corporation, but reflects the provisions of the
Articles of Incorporation for ease of reference.
<PAGE>
June 16, 1997
Securities and Exchange Commission
Washington, DC
To Whom It May Concern:
This letter will serve as the agreement of Triangle Bancorp, Inc. ("Company") to
provide to the Securities and Exchange Commission ("Commission") a copy of the
Junior Subordinated Indenture dated as of June 3, 1997, between the Company and
Bankers Trust Company. This letter of agreement is being provided pursuant to
the requirements of Item 601 (b) (4) (ii) of Regulation S-K.
On May 23, 1997, the Company created Triangle Capital Trust ("Trust"), a
statutory business trust created under the laws of the State of Delaware, as a
wholly-owned subsidiary. The Trust exists for the sole purpose of issuing common
and preferred securities and investing the proceeds thereof in 9.375% junior
subordinated deferrable interest debentures ("Debentures") issued by the
Company. The Debentures mature on June 1, 2027. On June 3, 1997, the Trust sold
and issued $619,000 in common securities to the Company and $19,950,000 in
preferred securities to eight qualified institutional buyers. The common and
preferred securities of the Trust are collectively referred to as the "Capital
Securities".
Holders of the Capital Securities are entitled to receive preferential
cumulative cash distributions accumulating from the date of original issuance
and payable semi-annually in arrears on the first day of June and December of
each year, commencing December 1, 1997, at an annual rate equal to 9.375%. The
distribution rate and the distribution payment dates and other payment dates for
the Capital Securities correspond to the interest rate and interest payment
dates and other payment dates on the Debentures, which are the sole assets of
the Trust.
The Company, through the Amended and Restated Trust Agreement dated June 3, 1997
among the Company, Bankers Trust (Delaware) and Bankers Trust Company ("Trust
Agreement"), the Guarantee dated June 3, 1997 of the Company, the Debentures and
the Junior Subordinated Indenture dated as of June 3, 1997 between the Company
and Bankers Trust Company ("Indenture"), will guarantee all the Trust's
obligations under the Capital Securities as provided in the Guarantee, the Trust
Agreement, the Debentures and the Indenture.
As of March 31, 1997, the Company had assets of approximately $1.01 billion. The
Capital Securities represent approximately $20.4 million which therefore is only
approximately 2.5% of the Company's assets.
<PAGE>
The Capital Securities were issued in a transaction exempt from the registration
requirements of Securities Act of 1933, as amended.
The Company hereby agrees to provide a copy of the Indenture, the Guarantee, the
Debentures and the Trust Agreement to the Commission upon request.
TRIANGLE BANCORP, INC.
By: /s/ Alexander M. Donaldson
_____________________________
Alexander M. Donaldson
Senior Vice President and General Counsel
June 17, 1997
Board of Directors
Triangle Bancorp, Inc.
4300 Glenwood Avenue
Raleigh, North Carolina 27612
RE: Registration Statement on Form S-4 to Effect
Acquisition of Bank of Mecklenburg
Ladies and Gentlemen:
I am Senior Vice President and General Counsel of Triangle Bancorp, Inc.
("Bancorp") and in such capacity I am familiar with the Company's proposed
acquisition (the "Acquisition") of Bank of Mecklenburg, Charlotte, North
Carolina ("Mecklenburg"). As part of the Acquisition, Bancorp will file with the
Securities and Exchange Commission a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to which shares of Bancorp's common stock, no par
value (the "Common Stock"), are to be registered.
In my capacity as General Counsel, I have examined originals or copies,
certified or otherwise identified to my satisfaction, of (i) the certificate of
incorporation and bylaws of Bancorp, (ii) the corporate resolutions and other
records of actions taken by the Board of Directors of Bancorp pertaining to the
Acquisition, (iii) the Agreement and Plan of Reorganization and Merger by and
between Bancorp and Mecklenburg dated April 25, 1997 (the "Agreement"), (iv) the
Registration Statement, (v) the relevant provisions of the Securities Act,
Chapters 53 and 55 of the North Carolina General Statues, the Bank Holding
Company Act of 1956, as amended, and the regulations promulgated under all of
the aforementioned statues, and (vi) such other documents, records,
certificates, papers and legal matters as I have considered necessary as the
basis for the opinions given herein. In addition, I have made reasonable
inquiries of the officers of Bancorp as to all relevant items. In all
examinations of documents, I have assumed the genuineness of all original
documents and all signatures and the conformity to original documents of all
copies submitted to me as certified, conformed or photostatic copies.
<PAGE>
On the basis of such examination (and subject to the Registration Statement
becoming and remaining effective, approval of the Acquisition by Bancorp and
Mecklenburg shareholders, receipt of all required regulatory approvals, and
consummation of the Acquisition on the terms and in the manner described in the
Agreement), I am of the opinion that the shares of Common Stock to be issued to
Mecklenburg's shareholders, upon the issuance thereof in accordance with the
terms and conditions of the Agreement, will be legally and validly issued, fully
paid and nonassessable.
This opinion is furnished by me solely for your benefit in connection with
the transaction described herein and may not be quoted or relied upon by, nor
copies be delivered to, any other person or entity, or used for any other
purposes, without my prior express written consent. I hereby expressly disclaim
any duty or responsibility to update this opinion or the information upon which
it is based after the date hereof.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and the reference to my name and this opinion in the
Joint Proxy Statement/Prospectus which is a part of the Registration Statement
under the caption "Legal and Tax Matters".
Very truly yours,
/s/ Alexander M. Donaldson
Alexander M. Donaldson
Senior Vice President and General Counsel
Exhibit 8
<TABLE>
(Cooper & Lybrand Letterhead}
<S> <C> <C>
Coopers Coopers & Lybrand L.L.P. 150 Fayetteville Street Mall Telephone (919) 755-3000
& Lybrand Logo Suite 2300
a professional services firm Raleigh, North Carolina 27601 Facsimile (919) 755-3030
</TABLE>
June 18, 1997
Triangle Bancorp, Inc.
c/o Mr. Michael S. Patterson
4300 Glenwood Avenue
Raleigh, North Carolina 27605
Re: Agreement and Plan of Reorganization and Merger by and
between Bank of Mecklenburg and Triangle Bancorp, Inc.
Dear Mr. Patterson:
Pursuant to your request and as required by Article VII, Section 7.01(f) of the
Agreement and Plan of Reorganization and Merger dated as of April 25, 1997 (the
"Agreement") by and between Bank of Mecklenburg and Triangle Bancorp, Inc., we
are providing you our opinion of certain federal income tax consequences of the
transaction described herein. Unless otherwise noted, all section references
herein shall be to the Internal Revenue Code of 1986, as amended (the "Code")
and the regulations thereunder.
Additionally, we hereby consent to the filing of this opinion as an exhibit to
the Registration Statement on Form S-4 filed by Triangle Bancorp, Inc. relating
to its shares of common stock to be issued to the shareholders of Bank of
Mecklenburg and to the reference made in the Registration Statement to this
opinion and to our firm.
Facts
A. Parties to the Proposed Transaction
1. Triangle Bancorp, Inc. ("Triangle")
Triangle is a North Carolina business corporation with its
principal office and place of business located at 4300 Glenwood Avenue, Raleigh,
North Carolina. Triangle is authorized by its Articles of Incorporation to issue
20,000,000 shares of voting common stock, each of no par value (the "Triangle
Stock"), of which there were 10,488,854 shares issued and outstanding as of
March 31, 1997.
2. Bank of Mecklenburg
Bank of Mecklenburg is a North Carolina banking corporation with
its principal office and place of business located at 2000 Randolph Road,
Charlotte, North Carolina. Bank of Mecklenburg is authorized by its Articles of
Incorporation to issue 10,000,000 shares of voting common stock each of $2.00
par value ("Bank of Mecklenburg Stock"), of which there were 2,118,945 shares
issued and outstanding as of March 31, 1997.
3. Shareholders of Bank of Mecklenburg ("Shareholders")
Bank of Mecklenburg is a publicly owned company. Bank of
Mecklenburg Stock is reported over-the-counter in the "pink sheets" by the
National Daily Quotation System published by the National Quotation Bureau, Inc.
Page 1
<PAGE>
4. Triangle-Mecklenburg Interim Bank
Triangle-Mecklenburg Interim Bank is a North Carolina banking
corporation to be formed as a wholly-owned subsidiary of Triangle solely in
order to effectuate the proposed merger. Triangle-Mecklenburg Interim Bank will
conduct no business operations and will be merged out of existence shortly after
its formation.
B. Proposed Transaction Between the Parties
Pursuant to the Agreement and in accordance with North Carolina
Law, Triangle-Mecklenburg Interim Bank shall be merged with and into Bank of
Mecklenburg (the "Merger") with Bank of Mecklenburg surviving the Merger. At
that time, the corporate existence of Triangle-Mecklenburg Interim Bank shall
cease, while the corporate existence of Bank of Mecklenburg shall continue
unaffected and unimpaired by the Merger.
Upon consummation of the Merger, Bank of Mecklenburg shall
become and operate as a wholly-owned subsidiary of Triangle and will continue to
conduct the business of a North Carolina banking corporation at the then legally
established branches and main offices of Bank of Mecklenburg. The duration of
the corporate existence of Bank of Mecklenburg, as the surviving corporation,
shall be perpetual and unlimited.
The Merger is expected to provide Triangle with certain business
advantages in comparison to Triangle's current structure, including increased
ability to expand the business and economies of scale.
Pursuant to the Agreement, the Shareholders will receive (through a
designated transfer agent) one share of Triangle Stock for each share of Bank of
Mecklenburg Stock held immediately prior to the Effective Time of the Merger (as
defined below). In the event the exchange of shares results in the creation of
fractional shares, Triangle will deliver cash to the designated transfer agent
in an amount equal to the aggregate Market Value (as defined in the Agreement)
of all such fractional shares, which shall be remitted to the former
Shareholders in accordance with their respective interests. The consideration
for fractional shares is solely for the purpose of avoiding the inconvenience
and expense of Triangle issuing fractional shares and does not represent
separately bargained for consideration.
Likewise, any warrants and options granted by Bank of Mecklenburg to
purchase shares of Bank of Mecklenburg Stock will be converted into warrants and
options to purchase the same number of shares of Triangle Stock multiplied by
the Exchange Ratio (as defined by the Agreement) on the same terms and
conditions as currently in effect.
The "Effective Time" of the Merger is defined in Article I,
Section 1.07 of the Agreement as the date and time when the Merger becomes
effective as set forth in the Articles of Merger filed with the North Carolina
Secretary of State in accordance with North Carolina law. The Articles of Merger
will be filed once the Agreement has been approved by the required governmental
and regulatory authorities.
C. Additional Representations
In addition to the foregoing, the following pertinent representations
have been made by the parties to the proposed transaction:
1. The Merger will be consummated in compliance with the material terms
of the Agreement and none of the material terms and conditions therein have
been waived or modified and the parties to the transaction have no plan or
intention to waive or modify further any such material condition.
2. The ratio for the conversion of shares of Bank of Mecklenburg Stock
for stock of Triangle and options of Bank of Mecklenburg for options of Triangle
in the Merger was negotiated through arm's length bargaining. Accordingly, the
fair market value of the Triangle Stock and its related options to be received
by the Shareholders and employees
Page 2
<PAGE>
in the Merger will be approximately equal to the fair market
value of the Bank of Mecklenburg Stock and options surrendered by such
Shareholders and employees in the conversion.
3. The management of Bank of Mecklenburg represents and the management
of Triangle represents, to the best of its knowledge, that there is no plan or
intention by any 5% or greater stockholder of Bank of Mecklenburg to sell,
exchange, transfer by gift or otherwise dispose of any of the shares of common
stock of Triangle to be received by them in the Merger, other than shares of
stock surrendered by dissenters for cash or surrendered for cash in lieu of
fractional shares of Triangle. Additionally, neither the management of Triangle
nor Bank of Mecklenburg know of any plan or intention by any stockholders of
Bank of Mecklenburg to sell, exchange, transfer by gift or otherwise dispose of
any other of the shares of common stock of Triangle to be received by them in
the Merger. Neither the management of Triangle nor Bank of Mecklenburg are aware
of any transfers of Bank of Mecklenburg Stock by any holders thereof prior to
the Effective Time which were made in contemplation of the Merger.
4. Following the Merger, Bank of Mecklenburg will hold at least ninety
percent of the fair market value of its net assets and at least seventy percent
of the fair market value of its gross assets and at least ninety percent of the
fair market value of Triangle-Mecklenburg Interim Bank's net assets and at least
seventy percent of the fair market value of its gross assets held immediately
prior to the proposed transaction. For this purpose, amounts used to pay
dissenters or to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made immediately prior to
the Merger will be considered as assets held immediately prior to the Merger.
Bank of Mecklenburg has not redeemed any of the Bank of Mecklenburg Stock, made
any distribution with respect to any of the Bank of Mecklenburg Stock, or
disposed of any of its assets in anticipation of or as a part of a plan for the
acquisition of Bank of Mecklenburg by Triangle. Triangle-Mecklenburg Interim
Bank has not redeemed any of the Triangle-Mecklenburg Interim Bank stock, made
any distribution with respect to any of the Triangle-Mecklenburg Interim Bank
stock, or disposed of any of its assets in anticipation of or as a part of a
plan for the acquisition of Triangle-Mecklenburg Interim Bank by Bank of
Mecklenburg.
5. Prior to the transaction, Triangle will be in control of
Triangle-Mecklenburg Interim Bank within the meaning of Section 368(c) of the
Code.
6. Following the transaction, Bank of Mecklenburg will not issue
additional shares of its stock that would result in Triangle losing control of
Bank of Mecklenburg within the meaning of Section 368(c) of the Code.
7. Triangle has no plan or intention to reacquire any of its stock
issued in the Merger.
8. Triangle has no plan or intention to liquidate Bank of Mecklenburg;
to merge Bank of Mecklenburg with or into another corporation; to sell or
otherwise dispose of stock of Bank of Mecklenburg; or to cause Bank of
Mecklenburg to sell or otherwise dispose of any of its assets or any of the
assets acquired in the Merger, except for dispositions made in the ordinary
course of its business or transfers described in Section 368(a)(2)(C) of the
Code.
9. Following the Merger, Bank of Mecklenburg will continue its historic
business or use a significant portion of its historic business assets in a
business.
10. The assumption by Bank of Mecklenburg of the liabilities of
Triangle-Mecklenburg Interim Bank pursuant to the Merger is for a bona fide
business purpose and the principal purpose of such assumption is not the
avoidance of federal income tax on the transfer of assets of
Triangle-Mecklenburg Interim Bank to Bank of Mecklenburg pursuant to the Merger.
11. Triangle, Triangle-Mecklenburg Interim Bank, Bank of Mecklenburg
and Bank of Mecklenburg shareholders will pay their respective expenses, if any,
incurred in connection with the Merger.
Page 3
<PAGE>
12. There is no intercorporate indebtedness existing between Triangle,
Bank of Mecklenburg and Triangle-Mecklenburg Interim Bank that was issued,
acquired, or will be settled at a discount.
13. Neither Triangle, Triangle-Mecklenburg Interim Bank nor Bank of
Mecklenburg are investment companies as defined in Sections 368(a)(2)(F)(iii)
and (iv) of the Code.
14. Bank of Mecklenburg is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. On the date of the Merger, the fair market value of the assets of
Bank of Mecklenburg will exceed the sum of its liabilities (including
liabilities, if any, to which its assets are subject).
16. No stock of Bank of Mecklenburg will be issued in the Merger;
however, stock of Bank of Mecklenburg may be issued to Triangle, its parent, in
order to satisfy regulatory capital requirements.
17. The payment of cash in lieu of fractional shares of Triangle Stock
was not separately bargained for consideration and is being made solely for the
purpose of saving Triangle the expense and inconvenience of issuing fractional
shares.
18. None of the compensation received by any stockholder-employee of
Bank of Mecklenburg pursuant to any employment, consulting, or similar
arrangement is or will be separate consideration for, or allocable to, any of
his shares of the Bank of Mecklenburg Stock. None of the shares of common stock
received by any stockholder-employee of Bank of Mecklenburg pursuant to the
Merger is or will be separate consideration for, or allocable to, any such
employment, consulting, or similar arrangement. The compensation paid to any
stockholder-employee of Bank of Mecklenburg pursuant to any such employment,
consulting, or similar arrangement is or will be for services actually rendered
and will be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
19. Triangle and Triangle-Mecklenburg Interim Bank have not owned
during the past five years, any shares of the stock of Bank of Mecklenburg.
20. It is anticipated that less than 10% of the Bank of Mecklenburg
Stock outstanding will be surrendered for cash either by dissenters or for
fractional shares.
The facts, assumptions, and representations set forth above have been reviewed
by the management of the aforementioned corporations involved in the Merger.
Letters verifying these facts, assumptions, and representations have been
received from management of the corporations involved in this transaction. These
facts, assumptions, and representations are a material basis for the opinions
contained herein. We have been instructed to rely on them in preparing this
opinion letter. We have not independently investigated the validity of the
facts, assumptions, or representations set forth above.
Issues
I. Will the Merger of Triangle-Mecklenburg Interim Bank into Bank of Mecklenburg
with Bank of Mecklenburg surviving and the simultaneous cancellation of Bank of
Mecklenburg Stock with the Shareholders being entitled to receive one share of
Triangle Stock for each Bank of Mecklenburg share constitute a tax-free
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code?
II. Will any taxable gain be recognized by a Shareholder of Bank of Mecklenburg
upon such Shareholder's receipt of Triangle Stock solely in exchange for his or
her Bank of Mecklenburg Stock?
Page 4
<PAGE>
III. Will each Shareholder's basis in Triangle Stock received in the Merger be
the same as the basis of the Bank of Mecklenburg Stock surrendered in the
Merger.
IV. Will the holding period of the Triangle Stock received by the Shareholders
include the holding period of the Bank of Mecklenburg Stock surrendered in
exchange therefor, if Bank of Mecklenburg Stock is a capital asset in the hands
of such Shareholders at the Effective Time of the Merger?
V. Will the payment of cash in lieu of fractional share interests of Triangle
Stock be treated as if fractional shares were distributed as part of the Merger
and then redeemed by Triangle in payment of and in exchange for the
Shareholders' Triangle Stock as provided for in Sections 302 or 301, depending
on the attribution rules of Section 318?
VI. Will the payment of cash to dissenting Shareholders of Bank of Mecklenburg
in perfection of their dissenters' rights be treated by such Shareholders as
distributions in redemption of Triangle Stock, as provided in Sections 302 or
301, depending on the attribution rules of Section 318?
Conclusions
For federal income tax purposes, the following conclusions will be reached:
I. Tax-Free Reorganization Status
Except with respect to the impact of Section 585(c)(2) of the Code and
any related recapture of loan loss reserves which may arise from the application
of Section 585 of the Code, the transaction will constitute a tax-free
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E).
II. Gain/Loss to Shareholders
Except as provided in Sections V and VI below, under Section 354(a)(1)
of the Code, no gain or loss will be recognized by the Shareholders upon receipt
of Triangle Stock (including any fractional share interests to which they may be
entitled) solely in exchange for shares of the Bank of Mecklenburg.
III. Basis of Triangle Stock Received
The basis of Triangle Stock (including fractional share interests to
which the Shareholders may be entitled) to be received by the Shareholders will
be the same as the aggregate federal income tax basis of the Bank of Mecklenburg
Stock surrendered in exchange therefor pursuant to Section 358(a)(1). The basis
allocated to fractional shares of Triangle Stock will reduce the amount
recognized from the deemed redemption of the fractional shares.
No opinion is expressed herein as to what Triangle's basis will be in
the stock of Bank of Mecklenburg subsequent to the transaction.
IV. Carryover of Holding Period of Bank of Mecklenburg Stock Surrendered
Pursuant to Section 1223(1) of the Code, the holding period of the
Triangle Stock received by the Shareholders (including fractional share
interests to which the Shareholders may be entitled) will include the period
during which Shareholders held the shares of the Bank of Mecklenburg Stock
surrendered in exchange therefor, provided that the Bank of Mecklenburg Stock
was held as a capital asset on the date of the exchange.
Page 5
<PAGE>
V. Treatment of Receipt of Cash in Lieu of Fractional Shares
The payment of cash in lieu of fractional share interests of Triangle
Stock will be treated as if fractional shares of Triangle Stock were distributed
as part of the Merger and then redeemed by Triangle as provided for in Sections
302 or 301, depending on the attribution rules of Section 318.
VI. Treatment of Receipt of Cash by Dissenting Shareholders
The receipt of cash by a dissenting Shareholder in perfection of his or
her dissenter's rights will be treated as received by that Shareholder as a
distribution in redemption of his or her Bank of Mecklenburg Stock subject to
the provisions of Sections 302 or 301, depending on the attribution rules of
Section 318.
Discussion
I. Tax-Free Reorganization Status
A. Statement of Law
Tax-free reorganizations are defined by Section 368 of the Code.
The purpose of the reorganization provisions of the Code is to exempt from
taxation specifically described exchanges incident to readjustments of corporate
structures which are required by business exigencies, and which effect a
readjustment of a continuing interest in property under a different corporate
form. Requisite to a reorganization being considered as such under the Code are
the following:
1. Continuity of the business enterprise;
2. Continuity of interest in the business enterprise by
the persons who were the owners prior to the reorganization;
3. A business purpose;
4. A plan of reorganization; and
5. A lack of an overall plan of tax avoidance wherein such
overall plan uses a corporate reorganization to disguise
the real character of the transaction.
Other pertinent reorganization provisions of the Code are as follows: Section
368(b) states that the term "a party to a reorganization" includes both
corporations in the case of a reorganization resulting from the acquisition by
one corporation of stock or properties of another corporation, as well as the
corporation in control of the acquiring corporation. Section 368(a)(1)(A)
provides that the term "reorganization" includes "a statutory merger or
consolidation." Section 368(a)(2)(E), entitled "STATUTORY MERGER USING VOTING
STOCK OF CORPORATION CONTROLLING MERGED CORPORATION" provides "[a] transaction
otherwise qualifying under paragraph (1)(A) shall not be disqualified by reason
of the fact that stock of a corporation (referred to in this subparagraph as the
'controlling corporation') which before the merger was in control of the merged
corporation is used in the transaction, if -
(i) after the transaction, the corporation surviving the merger holds
substantially all of its properties and of the properties of the merged
corporation (other than stock of the controlling corporation distributed
in
Page 6
<PAGE>
the transaction); and
(ii) in the transaction, shareholders of the surviving corporation exchanged,
for an amount of voting stock of the controlling corporation, an amount
of stock in the surviving corporation which constitutes control of such
corporation."
B. Application of Law
The requirement of continuity of business enterprise will be met
since Bank of Mecklenburg will continue its existing business utilizing
substantially all of its assets. The requirement of continuity of shareholder
(i.e. proprietary) interest will be met since Triangle will issue Triangle Stock
for Bank of Mecklenburg Stock and no Shareholder will sell, exchange, or
otherwise dispose of a number of shares of Triangle Stock received in the Merger
that would reduce the Shareholders' aggregate ownership of Triangle Stock to a
number of shares having a value, at the time of consummation of the proposed
transaction, of less than 50 percent of the total fair market value of the Bank
of Mecklenburg Stock outstanding immediately prior to the Effective Time of the
Merger. In measuring continuity of interest, shares of Bank of Mecklenburg Stock
surrendered by dissenters or exchanged for cash in lieu of fractional shares of
Triangle Stock are treated as outstanding Bank of Mecklenburg Stock on the date
of the Merger.
Further, because the Merger will provide the parties to the
transaction with certain business advantages in comparison to the current
structures of the parties, including an increased ability to expand Triangle's
business, which would help achieve economies of scale, a valid busines purpose
exists for the parties entering into the Merger. The Agreement and related
documents constitute a plan of reorganization. Finally, there appears to be no
overall plan of tax avoidance wherein a corporate reorganization is being used
to disguise the real character of the transaction.
In addition, the Merger will be effected in accordance with
North Carolina law. The retention by Bank of Mecklenburg of substantially all of
its assets and Triangle-Mecklenburg Interim Bank's assets and the exchange of
Bank of Mecklenburg Stock constituting control (as defined in Section 368(c)) of
Bank of Mecklenburg for shares of Triangle Stock satisfies the statutory
requirements constituting a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
II. Gain/Loss to Shareholders
A. Statement of Law
Section 354(a)(1) provides, "[n]o gain or loss shall be
recognized if stock or securities in a corporation a party to a reorganization
are, in pursuance of the plan of reorganization, exchanged solely for stock or
securities in such corporation or in another corporation a party to the
reorganization."
B. Application of Law
Pursuant to Section 368(b), Triangle and Bank of Mecklenburg are
parties to the reorganization and based on the foregoing statement of law, the
application of said statement to the facts and representations set forth herein
will be as follows:
1. Under Section 354(a)(1) of the Code and, except to the extent
set forth below, Shareholders will not recognize any gain or loss upon the
receipt of Triangle voting common stock (including any fractional share
interests to which they may be entitled) solely in exchange for th shares of
Bank of Mecklenburg voting common stock.
2. Any payments of cash to Shareholders in lieu of Triangle
issuing
Page 7
<PAGE>
fractional shares to such Shareholders will be treated as a distribution of
Triangle Stock followed by a redemption of such fractional shares of Triangle
Stock. The cash payment should be treated as a redemption in full payment in
exchange for the stock as provided for in Section 302 of the Code. (For a more
detailed discussion of the federal income tax treatment of cash payments made to
Shareholders in lieu of Triangle issuing fractional shares to such Shareholders,
see Section V. below.)
III. Basis of Triangle Stock Received
A. Statement of Law
In general, Section 358(a)(1) of the Code provides that in the
case of an exchange to which Section 361 or Section 354 applies, "[t]he basis of
the property permitted to be received under such section without the recognition
of gain or loss shall be the same as that of the property exchanged . . . ."
B. Application of Law
Because the proposed exchange of stock meets the requirements of
Sections 368(a)(1)(A) and 368(a)(2)(E) and is a transaction to which Section 354
applies, applying Section 358 to the Shareholders will result in the aggregate
basis of Triangle Stock (including fractional share intere to which the
Shareholders may be entitled) to be received by the Shareholders being the same
as the aggregate federal income tax basis of the Bank of Mecklenburg Stock
surrendered in exchange therefor.
IV. Carryover of Holding Period of Bank of Mecklenburg Stock Surrendered
A. Statement of Law
Section 1223 of the Code provides, in pertinent part, that in
determining the period for which a taxpayer has held property received in an
exchange, there shall be included the period for which the property exchanged
was held, if the property has, for purposes of determining gain or loss from a
sale or exchange, the same basis in whole or in part to a taxpayer as the
property exchanged and at the time of such exchange the property exchanged was a
capital asset as defined in Section 1221 of the Code.
B. Application of Law
Because the proposed exchange of stock meets the requirements of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code and is a transaction to which
Sections 354 and 358 apply, the holding period of Triangle Stock to be received
by Shareholders (including fractional share interests to which they may be
entitled) will include the period during which Shareholders held the shares of
Bank of Mecklenburg Stock surrendered in exchange therefor, provided that the
Bank of Mecklenburg Stock was held as a capital asset on the date of the
exchange pursuant to Section 1223(1) of the Code.
V. Treatment of Receipt of Cash in Lieu of Fractional Shares
A. Statement of Law
In Rev. Rul. 66-365, 1966-2 C.B. 116, the Internal Revenue
Service (the "Service") concluded that where shareholders of the acquired
corporation who are entitled to a fractional interest in the acquiring
corporation's common stock pursuant to the terms of a reorganization agreement
will be paid cash in lieu of the fractional
Page 8
<PAGE>
share interests to which they are entitled, any such payment shall be treated as
a distribution in full payment in exchange for the fractional share interest of
such shareholder in accordance with Section 302 of the Code.
In Rev. Proc. 77-41, 1977-2 C.B. 574, the Internal Revenue
Service further provided that where the payment of cash in lieu of fractional
share interests will be solely for the purpose of avoiding the expense and
inconvenience of the acquiring corporation issuing fractional shares an does not
represent separately bargained for consideration and is not essentially
equivalent to a dividend, such cash payments should be treated as distributions
in full payment or exchange for the stock redeemed as provided for in Section
302.
B. Application of Law
Any payment of cash to Shareholders in lieu of Triangle issuing
fractional shares to such Shareholders should be treated as a distribution of
fractional shares of Triangle Stock followed by a redemption of such fractional
shares as provided for in Sections 302 or 301, depending on the attribution
rules of Section 318. See Rev. Rul. 66-365, 1966-2 C.B. 116.
VI. Treatment of Receipt of Cash by Dissenting Shareholders
A. Statement of Law
In Rev. Ruling 68-285, 1968-1 C.B. 147, the Internal Revenue
Service concluded that where shareholders of the acquired corporation who are
entitled to certain rights of dissension with regard to a proposed
reorganization are paid cash by the target corporation in exchange for their
interests in the target, then the receipt of such cash payments is treated as a
distribution in redemption of their target stock. This redemption will be taxed
either as a distribution under Section 301 or an exchange under Section 302,
depending on the attribution rules of Section 318.
Where only cash was received by shareholders in a
reorganization, the cash was held a distribution in exchange for stock under
Section 302. Rev. Rul. 74-515, 1974-2 C.B. 118. See also Regs. Sec. 1.354-1(d),
Example 3, which concludes that other property, e.g. cash, received by
shareholders in exchange for their stock is governed by Section 302. Payments
subject to the provisions of Section 302 are either taxed as a distribution
under Section 301 or an exchange under Section 302.
B. Application of Law
A payment of cash to a Shareholder who is perfecting his or her
right of dissension in exchange for shares of Bank of Mecklenburg Stock should
be treated as a redemption of such shares regardless of whether payment is made
from funds of Bank of Mecklenburg or Triangle. Such payment will be subject to
the provisions of Sections 302 or 301, depending on the attribution rules of
Section 318.
Opinion
Based upon the foregoing and taking into consideration the statement contained
in the Section marked "Caveat" below, it is our opinion that the Merger will
produce the following federal income tax consequences:
1. A tax-free reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E);
2. Except with respect to any cash payments to Shareholders in lieu of
fractional shares or dissenter's rights, no gain or loss will be recognized to
Shareholders upon receipt of Triangle Stock (including any fractional share
interests to which they may be entitled) solely in exchange for shares of the
Bank of Mecklenburg Stock;
Page 9
<PAGE>
3. The aggregate federal income tax basis of the Triangle Stock (including
fractional share interests to which the Shareholders may be entitled) received
by the Shareholders will be the same as the aggregate federal income tax basis
of the Bank of Mecklenburg Stock surrendered in exchange therefor;
4. The holding period of the Triangle Stock received by Shareholders will
include the period for which the exchanged Bank of Mecklenburg Stock was held,
provided the exchanged Bank of Mecklenburg Stock was held as a capital asset by
said Shareholders on the date of the exchange;
5. The payment of cash in lieu of fractional share interests of Triangle Stock
will be treated as if fractional shares were distributed as part of the Merger
and then redeemed by Triangle in payment of and in exchange for the
Shareholders' Triangle Stock as provided for in Sections 302 or 301, depending
on the attribution rules of Section 318. Assuming a shareholder's stock is a
capital asset, a Shareholder receiving such cash will recognize capital gain or
loss equal to the difference between the amount of cash received and the
Shareholder's adjusted basis in the fractional share interest.
6. The receipt of cash by a dissenting Shareholder in perfection of his or her
dissenter's rights will be treated as received by that Shareholder as a
distribution in redemption of his or her Bank of Mecklenburg Stock subject to
the provisions of Sections 302 or 301, depending on the attribution rules of
Section 318.
Caveat
The foregoing opinion addresses only those items set forth in that section of
this opinion letter labeled "Issues" and therefore, no tax opinion is hereby
expressed regarding any other federal, state, local, or other tax issues or
about any other matter not specifically mentioned herein.
No opinion is expressed regarding the tax consequences of the conversion of
outstanding warrants and options to purchase common stock of Bank of Mecklenburg
into Triangle warrants and Triangle options. Holders of Bank of Mecklenburg's
outstanding warrants and options should consult their own tax advisors regarding
the effect of the proposed Merger.
No opinion is expressed regarding any tax consequences affecting recapture of
loan loss reserves and the related bad debt reserves for any of the parties to
the Merger which may arise from the application of Section 585 of the Code.
Our opinion is based on the relevant provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the regulations thereunder, and the judicial and
administrative interpretations thereof. There are no assurances that the
conclusions reached herein will be accepted by the Internal Revenue Service or
judicial authorities if challenged. Any legislative, regulatory, administrative,
or judicial decisions subsequent to the date of this opinion may have an impact
on the validity of our conclusions. Unless you specifically request otherwise,
we will not update our opinion for changes to the law, regulations, or the
judicial and administrative interpretations thereof.
If any of the statements of facts, assumptions, or representations contained
herein are substantially determined to be incorrect in whole or in part such
that it would have a material effect upon the tax treatment of the issues
addressed herein, then no opinion is expressed as to the tax treatment of the
proposed transaction.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
--------------------------
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D. C.
FORM F-2
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
FDIC CERTIFICATE NO. 27553-1
BANK OF MECKLENBURG
(exact name of bank as specified in charter)
NORTH CAROLINA
state or other jurisdiction of incorporation)
2000 RANDOLPH ROAD, CHARLOTTE, NC 28207
(ADDRESS OF PRINCIPAL OFFICE)
56-1588228
(I. R. S. employer identification no.)
(704) 375-2265
(Bank's telephone number - including area code)
SECURITIES REGISTERED UNDER SECTION 12 (G) OF THE ACT
TITLE OF EACH CLASS OF SECURITIES
Common Stock ($2.00 par value)
Number of shares of common stock outstanding
2,118,445
INDICATED BY CHECK MARK IF DISCLOSURE, AS A "SMALL BUSINESS ISSUER" AS
DEFINED UNDER 17 CFR 240 12b-2, IS PROVIDING ALTERNATIVE DISCLOSURES AS
PERMITTED FOR SMALL BUSINESS ISSUERS IN THIS FORM F-2DISCLOSURES AS PERMITTED
FOR SMALL BUSINESS ISSUERS IN THIS FORM F-2 .
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT
FILERS PURSUANT TO ITEM 10 IS NOT CONTAINED HEREIN, AND WILL NOT BE
CONTAINED, TO THE BEST OF BANK'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM F-2 OR ANY AMENDMENT OF THIS FORM F-2 x
--- .
MARKET VALUE OF TOTAL VOTING STOCK OF THE BANK AS OF FEBRUARY 28, 1997
IS $29,665,230. VALUE IS DETERMINED ACCORDING TO PURCHASE SALES PRICE
OF $14.00, WHICH IS THE AVERAGE ASKED PRICE AS OF FEBRUARY 28, 1997.
INDICATE BY CHECK MARK WHETHER THE BANK (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT
THE BANK WAS REQUIRED TO FILE REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST NINETY DAYS YES_X__ NO___
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Shareholders for the year ended
December 31, 1996, reference in Part I, Item 2; Part
II, Item 5, 6, 7; Part III, Item 8.
2. Notice of Annual Meeting of Shareholders and Proxy
Statement to be held April 22 1997, reference in Part
I, Item 4; Part III, Item 9A, 10.
1
<PAGE>
PART I
ITEM 1: BUSINESS
A. General Information
Bank of Mecklenburg and subsidiary (hereafter, called the "Bank") operates as a
full service commercial bank with its principal office located at 2000 Randolph
Road, Charlotte, North Carolina. The Bank was incorporated September 8, 1988,
pursuant to Chapter 53 of the General Statutes of North Carolina and operates
under the jurisdiction of the North Carolina State Banking Commission and the
Rules and Regulations of the Federal Deposit Insurance Corporation. The Bank is
not a member of the Federal Reserve System.
As of the date of incorporation, there were 3,000,000 shares authorized, with
1,320,687 shares of common stock issued to 1,396 shareholders. During 1993, the
Board of Directors declared a 5 for 4 stock split to shareholders of record on
May 11, 1993. 330,121 shares were distributed on June 4, 1993, bringing the
total number of shares outstanding to 1,650,808. During 1994, all outstanding
options under the Bank's non-qualified stock option plan were exercised or
forfeited, with 41,414 shares issued. During 1995, the Bank declared a second 5
for 4 stock split, with 422,632 shares issued, and also issued 3,591 shares
under a qualified stock option plan. Also during 1995, the Bank reduced the
stated par value of its common stock from $5 per share to $2.
In April, 1996, the Bank's shareholders approved the 1996 Director Stock
Option Plan under which directors are eligible to receive grants of options. In
June of 1996, twelve directors were granted options to purchase 15,000 shares of
the Bank's common stock (a total of 180,000 shares). These options vest at 20%
annually, beginning in June 1997.
Total shares at December 31, 1996 were 2,118,445.
2
<PAGE>
B. Description of Business
The Bank operates under the banking laws of North Carolina and the Rules and
Regulations of the Federal Deposit Insurance Corporation. The Bank conducts a
general commercial banking operation (with the exception of trust services). In
connection with its commercial banking activities, the Bank offers a full range
of loan and deposit products, including personal and commercial checking,
savings and time deposits, money market accounts, funds transfer, safe deposit
facilities, direct deposit and commercial and consumer loans to business and
individual customers.
In addition to these loan and deposit products, the Bank provides automated
teller machine (ATM) access through its own machine and through all HONOR ATM
machines in the United States, Canada and at various foreign locations. The Bank
also provides credit card services and Visa(R) debit/POS (point of sale) cards
to its customers.
At December 31, 1996 the Bank conducted all its business from its three
locations in Charlotte, North Carolina. The Bank's headquarters building and
principal office is located at 2000 Randolph Road, Charlotte, and its retail
branch offices are located at 6816 Morrison Boulevard, and 1000 East Boulevard,
Charlotte.
During December 1995, the Bank executed an agreement with Essex Savings Bank FSB
to purchase their Charlotte Branch office (located at 1000 East Boulevard) and
the related deposits. This transaction received regulatory approval in early
1996 and was finalized on March 15, 1996. This third office serves as an
additional outlet for retail products and services.
3
<PAGE>
Description of Business (continued)
The Bank's primary service area is the area located in Charlotte, Mecklenburg
County, North Carolina, that extends approximately five miles in all directions
from the Bank's offices.
The Bank's secondary service area encompasses the entire county of Mecklenburg,
North Carolina. Charlotte, centrally located in Mecklenburg County, is situated
in the south central part of North Carolina, just north of the South Carolina
border, and is the largest city between Washington and Atlanta. Charlotte is
widely considered the financial center for the Carolinas. Mecklenburg County has
experienced steady growth in population, personal income and employment. This
growth has increased the demand for banking services in the Bank's service area.
Charlotte, with a population of approximately 471,000, is the largest city
within the nation's fifth largest urban area. Mecklenburg County's population
exceeds 612,000 and the growth rate exceeds 17%.
The existing and future banking market in Charlotte, as well as Mecklenburg
County and the surrounding trade area, offers opportunities for a locally-owned
commercial bank, as indicated by the size of the market and the growth
experienced in prior years. This belief is based on recent economic growth
trends throughout the trade area, and the performance of other financial
institutions in the market as well as the future economic outlook for the area
and the specific services which the Bank offers. Population movement to the
area, employment growth and new economic expansion are expected to continue.
4
<PAGE>
Description of Business (continued)
A primary component of the Bank's competitive strategy is to provide highly
personalized financial services for its clients. Bank of Mecklenburg draws the
majority of its customers from businesses and professionals who work near its
locations and from the residential areas within its primary service area.
It is the Bank's objective to serve the financial needs of the entire community,
including professional and upper income individuals and small and medium size
business enterprises. The Bank will continue to concentrate on this market with
a professional staff which is sensitive to local needs and knowledgeable of
banking products.
At the present time there are a number of commercial banks operating in the
Mecklenburg County area, including a substantial majority of the ten largest
banks in the state. Several of these are headquartered in Charlotte.
Additionally, there are a number of non-bank institutions such as savings and
loan institutions and credit unions operating in Mecklenburg County. There are
also a number of nondeposit-type institutions in Mecklenburg County such as
investment securities broker dealers, insurance companies and consumer finance
companies. Some of these institutions are active in providing services formerly
reserved for commercial banks. It must be noted that the Bank operates with a
smaller staff and has more limited resources than some of these banks and
non-bank institutions at the present time.
The Bank continues to seek opportunities to provide additional services for its
customers and the general population. The Bank began an assessment of its
technological resources and current trends in banking in 1996 and developed a
three year technology strategic plan to take advantage of current and future
technologies, add product lines to its existing offerings and develope new
methods of delivery of services to its customer base.
5
<PAGE>
Description of Business (continued)
During 1994, management received regulatory approval to enter into contracts
with third party vendors to provide trust services and brokerage services to
customers and the general public. After receiving approval, the Bank formed
Mecklenburg Financial Services, Inc., a wholly owned subsidiary of the Bank, to
enter into agreements to provide the non-deposit investment products and trust
services. An agreement was reached with Legg Mason Financial Services, Inc. /
Bankers Financial Partners, Inc. to offer securities and insurance products.
Management feels that the Bank's effective use of support services and
electronic technology as well as competitive pricing has attracted and will
continue to attract customers.
The Bank's deposit base is not made up of any one large depositor nor does a
small group of depositors make up a large percentage of the Bank's total
deposits. Management has no reason to believe that the loss of any one depositor
would materially affect the operations of the Bank.
6
<PAGE>
Description of Business (continued)
Deposits by type as a percentage of total deposits as of December 31, 1996,
1995, 1994, 1993, and 1992 are presented below.
TABLE 1
<PAGE>
<TABLE>
<CAPTION>
Deposits At December 31,
1996 1995 1994 1993 1992
------ ------- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Non-Interest bearing demand
deposits 7.93% 9.10% 11.22% 11.00% 12.85%
Interest bearing transaction
accounts 31.76 30.70 32.60 27.42 28.97
Savings .73 .94 1.73 1.78 2.51
Time deposits $100M and over 24.32 23.41 14.93 18.35 13.29
Other time deposits 35.26 35.85 39.52 41.45 42.38
------ ------ ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00%
------ ------ ------ ------ ------
</TABLE>
Neither services offered by the Bank nor its customer base cause any abnormal
seasonal fluctuations in the Bank's business. The Bank does not anticipate the
need to raise additional capital in the foreseeable future.
The Bank was capitalized from the gross proceeds of its stock offering in 1988,
at $14,528,257. This equity capital permits the Bank to compete effectively in
its marketplace with older, larger banks.
The principal source of earnings for the Bank is net interest income, the amount
of income generated from loans and investments (earning assets) less the
interest cost of interest bearing liabilities, although gains on securites
became a more significant source in 1996. Management continues to seek to
improve net interest income by the management of both asset and liability rates.
Investments are largely marketable high quality investments and daily
investments (federal funds sold) which can be readily converted to cash.
7
<PAGE>
Description of Business (continued)
The Bank holds no patents or registered trademarks, licenses, franchises or
concessions other than those required by regulatory authorities.
The Bank has undertaken no material research activities relating to new
services.
The number of persons employed by the Bank in its three offices, as of December
31, 1996, was 33 full time and 3 part time.
ITEM 2: PROPERTIES
The Bank's three offices are owned in fee simple. The headquarters office is
located at 2000 Randolph Road, Charlotte, the Morrocroft Office is located at
6816 Morrison Boulevard, and the Dilworth Office is located at 1000 East
Boulevard, Charlotte.
Refer to Exhibit 7(I) Annual Report to Shareholders for the year ended December
31, 1996, page 14, Note 7 Incorporated herein by reference.
ITEM 3: LEGAL PROCEEDINGS
The Bank is a defendant in various litigation arising during the normal course
of business. In the opinion of management, resolution of these matters will not
result in a material adverse effect of the Bank's financial position. Management
is not aware of any unasserted claims or assessments that could result in
losses, if any, that would be material to the financial statements.
8
<PAGE>
ITEM 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Refer to Exhibit 7(II) Notice of Annual Meeting of Shareholders for the year
ended December 31, 1996, pages 2, 3 - Incorporated herein by reference.
PART II
ITEM 5: MARKET FOR THE BANK'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Refer to Exhibit 7(I) Annual Report to Shareholders for the year ended December
31, 1996, page 27 - Incorporated herein by reference.
ITEM 6: SELECTED FINANCIAL DATA
Refer to Exhibit 7(I) Annual Report to Shareholders for the year ended December
31, 1996, pages 24, 25, 26, 27 Incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes included with this report, the
statistical tables appearing throughout the discussion and analysis and
management's discussion in Exhibit 7(I) Annual Report to Shareholders for the
year ended December 31, 1996, pages 24 through 47 - incorporated herein by
reference and pages 9 through 22 of this report on Form F-2, Annual Report under
section 13 of the Securities Exchange Act of 1934.
9
<PAGE>
Net Interest Income and Volume/Rate Variance
The following table contains the dollar amount of change in interest income and
interest expense and segregates the dollar amount of change due to rate and
volume variances for the year ended December 31, 1996 compared to the year ended
December 31, 1995, and the year ended December 31, 1995 compared to the year
ended December 31, 1994. The change in interest income or expense attributable
to the combination of rate variance and volume variance is included in this
table, but such amount has been allocated between, and included in, the amounts
shown as changes due to rate and changes due to volume. The allocation of the
change due to rate/volume variance was made equally to rate variance and volume
variance. For purposes of this table interest income on loans includes fees
earned on loans, totalling $191,000 in 1996, $128,000 in 1995 and $90,000 in
1994.
10
<PAGE>
11
<PAGE>
Allocation of the Allowance for Loan Losses
The following table presents an allocation of the allowance for loan losses by
the categories indicated and the percentage that loans in each category bear to
total loans. It should be noted that these allocations are estimates and are
subject to revisions as conditions change.
TABLE 3
Allowance for Loan Losses by Type
(dollars in thousands)
December 31,
1996 % 1995 %
---- ------- ---- ----
Commercial $ 501 34.40% $ 384 32.84%
Real Estate* 556 59.56 450 55.46
Consumer 118 6.04 140 11.70
----- ------ ----- ------
Total $1,175 100.00% $ 973 100.00%
====== ====== ===== ======
<TABLE>
<CAPTION>
December 31,
1994 % 1993 % 1991 %
---- ------ ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 420 32.21% $ 380 37.17% $ 306 34.47%
Real Estate* 375 54.61 357 45.73 338 43.85
Consumer 105 13.18 120 17.10 130 21.68
----- ------ ------ ------ ------ ------
Total $ 900 100.00% $ 857 100.00% $ 774 100.00%
===== ====== ===== ====== ====== ======
</TABLE>
* Includes home equity lines of credit
All of the Bank's allowance for loan losses has been allocated to the categories
of loans indicated based upon historical loss experience and the Bank's
assessment of its loan portfolio.
12
<PAGE>
Deposits
The following table presents average balances by category and average rates paid
for the years ended December 31, 1996, December 31, 1995, and December 31, 1994.
TABLE 4
Average Deposits
(dollars in thousands) Year ended December 31, 1996
----------------------------
Average Interest Average
Balance Expense Rate Paid
Demand
Noninterest bearing $11,806 $ - - %
Interest bearing 51,495 2,315 4.50
Savings 1,545 54 3.46
Time, $ 100,000 or more 41,000 2,357 5.75
Other time 60,634 3,635 6.00
------- ------- ----
Total $166,480 $ 8,361 5.02%
======== ======= ====
Average rate paid on
interest bearing deposits 5.41%
=====
Year ended December 31, 1995
Average Interest Average
Balance Expense Rate Paid
Demand
Noninterest bearing $ 9,685 $ - - %
Interest bearing 35,425 1,657 4.68
Savings 1,526 49 3.22
Time, $ 100,000 or more 21,458 1,254 5.85
Other time 46,171 2,663 5.77
------- ------- ----
Total $114,265 $ 5,623 4.92%
======== ======= ====
Average rate paid on
interest bearing deposits 3.91%
======
Year ended December 31, 1994
Average Interest Average
Balance Expense Rate Paid
Demand
Noninterest bearing $ 9,354 $ - - %
Interest bearing 26,187 844 3.22
Savings 1,712 40 2.34
Time, $ 100,000 or more 15,056 666 4.42
Other time 38,385 1,628 4.24
------- ------- ----
Total $90,694 $ 3,178 3.50%
======= ======= ====
Average rate paid on
interest bearing deposits 3.91%
=====
13
<PAGE>
FHLB Variable Rate Advance and Other Borrowed Funds
The following is a schedule of FHLB variable rate advances, securities sold
under repurchase agreements, federal funds purchased and other short-term
borrowings.
TABLE 5
FHLB Advance and Other Borrowed Funds
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
Interest Maximum
Balance Rate Average Amount
as of as of Average Interest (at any
12-31 12-31 Balance Rate month end)
------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
FHLB advance $48,000 5.66% $40,759 5.53% $48,000
Federal funds purchased
and securities sold
under agreement
to repurchase 22,676 5.05 21,777 5.54 29,703
Other short-term
borrowings 342 5.15 279 4.30 400
------- ---- ------- ---- -------
Total short-term
borrowings $71,018 5.46% $62,815 5.53% $78,103
====== ==== ======= ==== =======
<CAPTION>
Year Ended December 31, 1995
Interest Maximum
Balance Rate Average Amount
as of as of Average Interest (at any
12-31 12-31 Balance Rate month end)
<S> <C> <C> <C> <C> <C>
FHLB advance $40,000 5.81% $17,288 6.05% $40,000
Federal funds purchased
and securities sold
under agreement
to repurchase 9,900 4.81 8,657 5.12 16,077
Other short-term
borrowings 391 5.15 294 5.59 400
------- ---- ------- ---- -------
Total short-term
borrowings $50,291 5.60% $26,239 5.74% $56,477
======= ==== ======= ==== =======
</TABLE>
14
<PAGE>
FHLB Advance and Other Borrowed Funds (continued)
Year Ended December 31, 1994
Interest Maximum
Balance Rate Average Amount
as of as of Average Interest (at any
12-31 12-31 Balance Rate month end)
FHLB Advance
Federal funds purchased
and securities sold
under agreement
to repurchase $3,704 2.64% $4,004 2.71% $6,372
Other short-term
borrowings 400 2.68 320 2.72 400
------ ---- ------- ---- -------
Total short-term
borrowings $4,104 2.64% $4,324 2.71% $6,772
====== ==== ====== ==== ======
15
<PAGE>
16
<PAGE>
17
<PAGE>
Refer to exhibit 7(I) Annual Report to Shareholders for year ended December 31,
1996, pages 11, 12, 13, Notes 3, 4 - Incorporated herein by reference.
Return on Equity and Assets
Refer to Exhibit 7(I) Annual Report to Shareholders for the year ended December
31, 1996 page 27 - Incorporated herein by reference.
18
<PAGE>
Liquidity and Interest Rate Sensitivity Liquidity is the ability to meetcurrent
and future obligations through liquidation or maturity of existing
assets or the acquisition of additional liabilities.
The objectives of the Bank's funds management policy are to provide adequate
liquidity to meet the needs of depositors and borrowers at all times, meet the
basic needs for ongoing operations of the Bank, and comply with regulatory
requirements.
Liquidity is provided by the ability to attract deposits, a strong capital base,
and the ability to use alternative funding sources. As additional funding
sources, the Bank maintains Federal Funds lines at correspondent banks to draw
on. Since 1993, the Bank has also been a member of the Federal Home Loan Bank to
provide another alternative for funding needs. During 1996, the Bank also used
reverse repurchase agreements as funding for the purchases of securities for its
available-for-sale securities portfolio. These alternative funding sources were
used exclusively during 1996 to fund this leveraged portion of the Bank's
available-for-sale securites portfolio.
The Bank has determined that the use of off-balance sheet derivative instruments
provides an effective way to manage interest rate sensitivity by modifying the
repricing or maturity characterisitics of on-balance sheet assets or
liabilities. To identify, quantify and manage this risk, the Bank employs
computer simulation modeling to measure and manage the effect of flucuations in
interest rates on the value of its assets and liabilities.
Interest rate risk protection products such as interest rate swaps, caps and
floors are utilized to manage interest rate risk, in addition to traditional
techniques. The Bank expects to continue the prudent application and usage of
interest rate risk protection products to actively manage interest rate risk.
19
<PAGE>
Refer to Exhibit 7(I) Annual Report to Shareholders for the year ended December
31, 1996, pages 20, 21, 39, 40, 41, 42,43 - Incorporated herein by reference.
PART III
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to Exhibit 7(I) Annual Report to Shareholders for the year ended December
31, 1996, pages 3 - 23 Incorporated herein by reference.
ITEM 9: DIRECTORS AND EXECUTIVE OFFICERS OF THE BANK
A. Directors of the Bank
Refer to Exhibit 7(II) Notice of Annual Meeting of Shareholders, pages 5, 6,
7 - Incorporated herein by reference.
B. Principal Officers of the Bank
Set forth below are the names, ages and positions of the officers of the Bank.
For the purposes of this report, the term "Officer" means any officer (as
defined in Section 335.2(s) of the Federal Deposit Insurance Corporation's
Regulations) who participates in major policy-making functions (other than in
the capacity of a director).
NAME AGE POSITION WITH BANK
John H. Ketner, Jr. 55 President & CEO
Principal business experience:
President and Chief Executive Officer of Bank of Mecklenburg since 1988.
Formerly employed as Sr. Vice President for Southeastern Savings and Loan
Company since 1986; prior to 1986, Vice President/Treasurer, Cannon Mills
Company.
20
<PAGE>
B. Principal Officers of the Bank (continued)
Jean R. Galloway 48 Vice President
Secretary/Treasurer,
Chief Financial Officer
Principal business experience:
Vice President and Chief Financial Officer of Bank of Mecklenburg since 1994.
Vice President and Cashier of Bank of Mecklenburg from 1988 to 1994. Formerly
employed as Vice President & Cashier, Darlington County Bank, Darlington, South
Carolina, since 1985; prior to 1985, Assistant Cashier and Operations
Supervisor, South Carolina National Bank and First National Bank of South
Carolina, Darlington, South Carolina.
Frank W. Ix 45 Senior Vice President
Senior Loan Officer
Principal business experience:
Senior Vice President of Bank of Mecklenburg since 1989. Formerly employed as
Vice President of Wachovia Bank & Trust Co., N.A., Charlotte, North Carolina,
since 1976.
Gregory Lee Gibson 39 Senior Vice President/Investment Officer
Principal business experience:
Investment officer of Bank of Mecklenburg since 1994. Formerly employed as Sr.
Vice President of Rock Hill National Bank (RHNB Corp), Rock Hill, South
Carolina, since 1985.
All officers of the Bank are elected for one year terms by the Board of
Directors, effective the first Board meeting following the annual shareholders
meeting.
21
<PAGE>
ITEM 10: MANAGEMENT REMUNERATION AND TRANSACTIONS
Refer to Exhibit 7(II), Notice of Annual Meeting of Shareholders, pages 9, 10,11
- - Incorporated herein by reference.
PART IV
ITEM 11: EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND
REPORTS ON FORM F-3
A. Contents
(1) Financial Statements:
Independent Auditors Report - Incorporated by reference to
Annual Report to Shareholders for the year ended December 31,
1996, page 2.
Consolidated Balance Sheets as of December 31, 1996, and
December 31, 1995 - Incorporated by reference to Annual Report
to Shareholders for the year ended December 31, 1996, page 3.
Consolidated Statements of Income for the years ended December
31, 1996, December 31, 1995, and December 31, 1994 -
Incorporated by reference to Annual Report to Shareholders for
the year ended December 31, 1996, page 4.
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1996, December 31, 1995, and December 31,
1994 - Incorporated by reference to Annual Report to
Shareholders for the year ended December 31, 1996, page 5.
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, December 31, 1995, and December 31, 1994 -
Incorporated by reference to Annual Report to Shareholders for
the year ended December 31, 1996, page 6.
Notes to Consolidated Financial Statements - Incorporated by
reference to Annual Report to Shareholders for the years ended
December 31, 1996, December 31, 1995, and December 31, 1994,
pages 7 - 23.
22
<PAGE>
Additional financial statement schedules furnished pursuant to the requirements
of Form F-2:
<TABLE>
<S> <C>
(2) I. U.S. Treasury Securities, Obligations of other U.S. Government
Agencies, and Corporations, Obligations of States and Political
Subdivisions, and other Bonds, Notes and Debentures: Refer to
Annual Report to Shareholders for the year ended December 31,
1996, pages 11, 12, 13 Incorporated herein by reference.
II. Loans to Officers, Directors, Principal Security Holders, and any Associates of the Foregoing
Persons: Refer to Annual Report to Shareholders for the year ended December 31, 1996, page 14
- Incorporated herein by reference.
III. Loans: Refer to Annual Report to Shareholders for the year ended December 31, 1996, pages 13,
36, 37 - Incorporated herein by reference.
IV. Bank Premises and Equipment: Refer to Annual Report to Shareholders for the year ended
December 31, 1996, page 14, - Incorporated herein by reference.
V. Allowance for Possible Loan Losses: Refer to Annual Report to Shareholders for the year ended
December 31, 1996, pages 13, 33, 34 - Incorporated herein by reference.
</TABLE>
Schedules not listed are omitted because of the absence of conditions under
which they are required or because the information required thereby is included
in the financial statements or notes thereto.
B. Reports on form F-3
No reports on Form F-3 have been filed during the last quarter of the
period covered by this report.
23
<PAGE>
C. Exhibits
(1) Articles of Incorporation (as amended April 18,1995):
No amendments have been made.
(2) Bylaws:
No amendments have been made to Bylaws.
(3) Instruments defining the rights of Security Holders
Including Indentures:
None
(4) Material Contracts:
None
(5) Statements Re Computation of Per share Earnings:
None
(6) Statements of Recomputation of Ratios:
None
(7) I. Annual Report to Shareholders for the year ended
December 31, 1996.
II. Notice of Annual Meeting of Shareholders and Proxy
Statement to be held April 22, 1997.
(8) Letters Re Change in Accounting Principles:
No change in accounting principles.
(9) Previously unfiled documents:
None
(10) Subsidiaries of the Bank:
(a) Mecklenburg Financial Services, Inc.
wholly owned subsidiary, incorporated-
North Carolina, March 7, 1994
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Bank
has duly caused this registration statement to be signed on its behalf by the
undersigned, duly authorized.
BANK OF MECKLENBURG
Charlotte, North Carolina
Date: By:_____________________
John H. Ketner, Jr.
President & Chief Executive Officer
Date: By:____________________
Jean R. Galloway
Vice President
Chief Financial Officer
25
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
AS DIRECTORS:
By: DATE:
Helen C. Adams
By: DATE:
H. Perrin Anderson
By: DATE:
Cy N. Bahakel
By: DATE:
Carl G. Belk
By: DATE:
William E. Bryant, Jr.
By: DATE:
Claude T. Davis, Sr.
By: DATE:
Aubrey J. Elam
By: DATE:
Dee-Dee W. Harris
By: DATE:
John H. Ketner, Jr.
By: DATE:
John T. Roper
By: DATE:
Paul J. Simon
By: DATE:
Allan W. Singer
26
<PAGE>
<PAGE>
EXHIBIT 7(I)
BANK OF MECKLENBURG AND SUBSIDIARY
SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
The selected financial data presented below for the years ended December 31,
1996, 1995, 1994, 1993, and 1992 have been derived from the audited financial
statements of the Bank. The selected financial data should be read in
conjunction with the financial statements and notes thereto and "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
included elsewhere in this Annual Report.
Period-end Balances
December 31, 1996, 1995, 1994, 1993 and 1992
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Cash and due from banks $ 5,564 $ 4,578 $ 3,623 $ 4,264 $ 2,173
(noninterest bearing)
Due from banks 545 879 1,004 - -
(interest bearing) 145
Federal funds sold 1,000 5,095 53,029 5,450 1,825
Available-for-sale securities 136,490 84,595 10,528 - -
Investment securities 1,000 13,167 1,289 39,892 32,244
FHLB stock 3,934 4,024 59,162 281 -
Loans 113,856 80,823 (900) 55,197 48,043
Allowance for loan losses (1,175) (973) 58,262 (857) (774)
------- ------- ------- --------- -------
Net loans 112,681 79,850 5,788 54,340 47,269
------- ------- ------- --------- -------
Premises and equipment 6,245 5,600 1,877 5,844 5,720
Other assets 2,830 2,443 698 654
------- ------- ------- --------- -------
Total assets $ 270,289 $ 200,231 $ 135,545 $110,769 $ 89,885
======= ======= ======= ========= =======
Noninterest bearing deposits 14,110 11,855 11,341 9,984 9,124
Interest bearing deposits 163,878 118,433 89,771 80,747 61,912
------- ------- ------- --------- -------
Total deposits 177,988 130,288 101,112 90,731 71,036
FHLB advance 48,000 40,000 10,000 - -
Other borrowed funds 23,018 10,292 8,741 4,104 3,710
Other liabilities 2,443 2,188 1,111 878 763
------- ------- ------- --------- -------
Total liabilities 251,449 182,768 120,964 95,713 75,509
------- ------- ------- --------- -------
Shareholders' equity 18,840 17,463 14,581 15,056 14,376
------- ------- ------- --------- -------
Total liabilities and
shareholders' equity $270,289 $ 200,231 $ 135,545 $110,769 $ 89,885
======= ======= ======= ========= =======
</TABLE>
24
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Selected Financial Data - continued
Average Balances
(dollars in thousands)
Presented below are average balances for the years ended December 31, 1996,
1995, 1994, 1993, and 1992.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Cash and due from banks $ 6,729 $ 4,243 $ 3,395 $ 2,548 $ 1,988
Federal funds sold 1,341 950 2,100 2,012 2,467
Available-for-sale securities 133,702 65,543 42,962 - -
Investment securities 4,105 11,243 8,083 34,423 22,309
FHLB stock 3,902 1,817 1,065 208 -
Loans 92,557 67,819 56,598 49,728 45,583
Allowance for loan losses (1,084) (930) (881) (818) (734)
-------- -------- ----------- --------- --------
Net loans 91,473 66,889 55,717 48,910 44,849
-------- -------- ----------- --------- --------
Premises and equipment 5,935 5,714 5,853 5,920 5,819
assets 1,882 1,665 929 689 610
-------- -------- ----------- --------- --------
Other assets
$ 249,069 $ 158,064 $120,104 $ 94,710 $ 78,042
======== ========= =========== ========= ========
Total assets
Deposits
Noninterest bearing deposits 11,806 9,684 9,354 7,216 4,949
Interest bearing deposits 51,495 35,425 26,187 19,954 16,738
Savings 1,545 1,526 1,712 1,629 1,809
Time, $100,000 or more 41,000 21,656 15,056 12,883 11,797
Other time deposits 60,634 45,973 38,385 33,094 22,935
-------- -------- ----------- --------- --------
Total deposits 166,480 114,264 90,694 74,776 58,228
FHLB advance 40,759 17,288 7,781 - -
Other borrowed funds 22,056 8,951 6,059 4,324 4,916
Other liabilities 2,233 1,453 768 928 750
-------- -------- ----------- --------- --------
Total liabilities 231,528 141,956 105,302 80,028 63,894
-------- -------- ----------- --------- --------
Shareholders' equity 17,541 16,108 14,802 14,682 14,148
-------- -------- ----------- --------- --------
Total liabilities and
shareholders' equity $249,069 $ 158,064 $120,104 $ 94,710 $ 78,042
======== ========= =========== ========= ========
</TABLE>
25
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Selected Financial Data - continued
Results of Operations
(dollars in thousands except per share)
Presented below are results of operations for the years ended December 31, 1996,
1995, 1994, 1993, and 1992.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Interest and dividend income(1) $ 17,093 $ 11,484 $ 7,562 $ 5,785 $ 5,175
Interest expense 11,712 7,129 3,752 2,591 2,585
-------- --------- -------- --------- --------
Net interest income 5,381 4,355 3,810 3,194 2,590
Provision for loan losses (230) (95) ( 49) (125) (215)
Other income 1,408 379 98 160 91
Other expense (3,552) (2,883) (2,404) (2,261) (2,076)
-------- --------- -------- --------- --------
Income before
income taxes, cumulative
effect of change in accounting
principle, and extraordinary
item 3,007 1,756 1,455 968 390
Income tax expense (1,088) (500) (453) (364) (179)
-------- --------- -------- --------- --------
Income before cumulative
effect of change in accounting
principle and extraordinary
item 1,919 1,256 1,002 604 211
Cumulative effect of change
in accounting principle - - - 76 -
Reduction of income taxes
arising from carryforward of
prior years operating losses - - - - 133
-------- --------- -------- --------- -------
Net income $ 1,919 $ 1,256 $ 1,002 $ 680 $ 344
======== ========= ======== ========= =======
</TABLE>
(1) Includes fee income on loans
Per Share(1)
Net income per share is based on 2,118,445 average shares outstanding in 1996,
2,116,849 average shares outstanding in 1995, 2,078,500 average shares
outstanding in 1994 and 2,063,510 average shares outstanding for all other
periods presented.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income before
cumulative effect of change
in accounting principle and
extraordinary item $ .91 $ .59 $ .48 $ .29 $ .10
Net income $ .91 $ .59 $ .48 $ .33 $ .17
Cash dividends $ .12 $ .12 .10 - -
</TABLE>
(1) Adjusted for 5 for 4 stock split to shareholders of record on May 16, 1995
and on May 11, 1993.
26
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Selected Financial Data - continued
Shareholders' Equity
(dollars in thousands except per share)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
At year end (2) $18,933 $ 17,268 $ 16,241 $ 15,056 $ 14,376
Average shareholders'
equity (3) 17,896 16,600 15,526 14,682 14,148
Book value per share (1)
At year end (2) 8.94 8.15 7.68 7.30 6.97
Average book value (3) 8.45 7.84 7.47 7.12 6.86
</TABLE>
(1) Adjusted for 5 for 4 stock split to shareholders of record on May 16,1995
and on May 11, 1993.
(2) Excludes net unrealized gains or losses on available-for-sale securities at
December 31, 1996, 1995 and 1994.
(3) Excludes average 1996, 1995 and 1994 net unrealized gains or losses on
available-for-sale securities.
Selected Financial Data - continued
Key Financial Ratios
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Return on average assets .77% .79% .83% .72% .44%
Return on average equity (1) 10.73% 7.57% 6.45% 4.63% 2.43%
Net interest margin 2.28% 2.93% 3.39% 3.70% 3.68%
Average shareholders'
equity/average assets (1) 7.19% 10.50% 12.93% 15.50% 18.13%
Equity/total assets at
year end (1) 7.01% 8.62% 11.98% 13.59% 15.99%
</TABLE>
(1) average equity and equity excludes net unrealized gain or loss on
available-for-sale securities.
Market for Common Stock and Dividends
The Banks common stock has been listed locally as an interdealer stock since
1993 when the Bank reached an agreement with the securities firm of Legg Mason
Wood Walker, Inc. to become the outside market maker in the Bank's common stock.
Market value per share at December 31, 1996 was $13.00 compared to $11.00 at
December 31, 1995 and adjusted market values of $8.40 at December 31, 1994 and
$7.70 at December 31, 1993.
The Bank authorized 3,000,000 shares of common stock in 1988 and prior to
opening on July 12, 1989, issued 1,320,687 shares. During 1993, the Board of
Directors declared a 5 for 4 stock split and 330,121 additional shares were
distributed, bringing the Bank's outstanding shares to 1,650,808. During 1994,
all outstanding options under the Bank's non-qualified stock option plan were
exercised or forfeited, with 41,414 shares being issued and no options remaining
available for future grants. The Bank's outstanding shares at December 31, 1994
totaled 1,692,222. During 1995, the Board again declared a 5 for 4 stock split
with 422,632 shares issued. 3,591 shares were also issued under the Bank's
qualified stock option plan. Also during 1995, the Bank increased its shares
authorized from 3 million to 10 million and reduced the stated par value of its
common stock from $5 per share to $2 per share. Total shares outstanding at
December 31, 1995 and 1996 were 2,118,445.
As of December 31, 1996, there were approximately 1,115 shareholders of record
of the Bank's common stock.
The Bank paid and/or declared cash dividends totaling approximately $254,000
during 1996 and 1995 and $201,000 during 1994 to its shareholders. There were no
cash dividends declared or paid for the years ended December 31, 1993 or 1992.
The holders of the Bank's common stock are entitled to share equally in
dividends declared by the Board of Directors. Dividends are payable only from
the retained earnings of the Bank.
27
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes included elsewhere in this report.
Introduction
Bank of Mecklenburg (the Bank) transacts general commercial banking business
(with the exception of trust services) through its three offices in Charlotte
(Mecklenburg County), North Carolina. The Bank's main office is located at 2000
Randolph Road, Charlotte, and its branch offices are located at 6816 Morrison
Boulevard and 1000 East Boulevard, Charlotte. The Bank offers a full range of
loan and deposit products, including commercial and consumer loans, personal and
commercial checking, savings and time deposits, money market accounts, funds
transfer, and safe deposit facilities. In addition to traditional loan and
deposit products, the Bank provides automated teller machine (ATM) access at its
own machine and through network machines in the United States and at various
foreign locations. The Bank also provides credit card services and Visa(R)
debit/POS (point of sale) cards.
The Bank continues to seek additional services and products to benefit our
customers and explore methods of delivering financial products to our customers.
During 1995, the Bank executed an agreement with Essex Savings Bank FSB to
purchase their Charlotte branch office and its deposits. This transaction
received regulatory approval and was finalized March 15, 1996. This acquisition
strengthens our retail banking system and serves as an additional outlet for our
products and services.
The Bank has a continuing commitment to meet its customers' financial needs with
unique and beneficial packages of financial services.
28
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Introduction-continued
During 1994, the Bank formed Mecklenburg Financial Services, Inc., a wholly
owned subsidiary of the Bank. Mecklenburg Financial Services has executed
agreements with third party vendors to provide non-deposit investment products,
including an agreement with Bankers Financial Partners, Inc. and Legg Mason
Financial Service Inc. to offer securities and insurance products to our
customers and the public. The Bank continues to look for other services to
enhance customer relations and provide services desired by our customers.
The Bank's leveraged investment program, begun in 1995, was implemented to more
effectively utilize the Bank's capital and increase gross earnings. Over the
course of 1995, a plan was developed to secure wholesale short term borrowings
to be invested (primarily in long term marketable mortgage securities). During
1996, these securities were funded with variable rate Federal Home Loan Bank
advances and other wholesale borrowings with interest rate risk managed through
the use of interest rate caps, floors, and swaps. Because the investment
portfolio constituted the largest component of interest earning assets during
1995 and 1996 and due to the complexity of the program, the Bank secured the
services of an outside advisor to assist in managing the program and quantifying
and managing the Bank's interest rate risk. During 1996, the Bank further
developed and integrated the leveraged investment program initiated in the later
part of 1995. The design of this program is to add additional leverage to the
Bank's balance sheet in a low risk manner so as to more efficiently employ the
Bank's capital and increase overall earnings. Moreover, the interest rate risk
management strategies employed for this program were applied to the entire Bank
in 1996. Periodic market valuations of the Bank's balance sheet and off balance
sheet positions were secured during 1996 to measure the effectiveness of the
interest rate risk management strategies. The Liquidity and Interest
Rate Sensitivity and Securities sections provides information concerning the
program and the off-balance sheet interest rate products the Bank utilizes to
manage interest rate risk associated with these assets.
Competition
Commercial banking in the Bank's market area is highly competitive. The Bank
competes in its service area with other commercial banks and various other
financial institutions which engage in similar activities. The Bank competes for
deposits with other commercial banks, savings and loan associations, credit
unions, and issuers of securities such as money market funds. In originating
loans, the Bank competes with other commercial banks, savings and loan
associations, credit unions, and various other lenders.
Supervision and Regulation
The Bank operates under the banking laws of North Carolina and the rules and
regulations of the Federal Deposit Insurance Corporation.
29
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Results of Operations
The following discussion relates to the results of operations for the years
ended December 31, 1996, 1995, and 1994.
General
The Bank had net income for the year ended December 31, 1996 of $1,919,000 or
$.91 per share compared to $1,256,000 or $.59 per share for the year ended
December 31, 1995, and $1,002,000 or $.48 per share for the year ended December
31, 1994.
The improvement in earnings in 1996 over prior periods resulted primarily from
the Bank's successful efforts to increase average earning assets and net
interest income over previous periods.
Management anticipates that by continuing to increase average earning assets,
maintaining asset quality and controlling operating expenses, the Bank will be
able to further improve net income in 1997. However, results of operations could
be negatively impacted by a decline in economic conditions or if interest rate
changes have a negative effect on the Bank's net interest margin.
Net Interest Income
Net interest income, the principal source of the Bank's earnings, is the amount
of income generated by earning assets (primarily loans and securities) less the
interest expense incurred on interest bearing liabilities (primarily deposits
and borrowed funds). The volume, rate, and mix of both earning assets and
interest bearing liabilities determine net interest income.
Interest income is the major source of the Bank's earnings, although securities
gains became a more significant component during 1996. Loan and securities
income were the major components of interest income in 1996. Interest income
totaled $17,093,000 for the year ended December 31, 1996, $11,484,000 for the
year ended December 31, 1995 and $7,562,000 for the year ended December 31,
1994.
These increases in interest income, including FHLB dividend income, were largely
due to higher volumes of average interest earning assets. Average investments,
the largest component of interest earning assets in 1996 and 1995, totaled
$141,709,000 and $79,348,000, respectively. Average loans, which represented the
second largest component of interest earning assets in 1996 and 1995, totaled
$92,557,000 and 67,819,000, respectively.
The Bank's average yield on earning assets during 1996 was 7.19%, a decrease of
.53% over 1995's average yield of 7.72% and an increase of .46% over 1994's
average yield of 6.73%. The decline in 1996's average yield over 1995's was
attributable to the change in the mix of earning assets and lower average rates
earned on earning assets. Average loans, with higher interest rates than
invested funds (securities, interest bearing balances, federal funds sold, and
FHLB stock), while comprising 45.57% of earning assets during 1995 decreased to
38.91% of average earning assets during 1996. At the same time the average rate
earned on loans decreased by .27% and the average rate earned on invested funds
decreased by .37%.
30
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Net Interest Income-continued
Total interest expense for 1996 was $11,834,000, compared to $7,129,000 in 1995,
and $3,752,000 in 1994, an increase of $4,705,000 over 1995 and $8,082,000 over
1994. This increase in interest expense was primarily attributable to an
increase in average interest bearing liabilities of $86,670,000. Average
interest bearing deposits grew by $50,094,000 in 1996 and other borrowed funds
(primarily FHLB advances) grew by $36,576,000.
Although the Bank increased its net interest income by $1,027,000 in 1996, its
net interest margin (net interest income divided by average earning assets)
decreased from 2.93% in 1995 to 2.21% in 1996.
Net interest income was adversely affected in 1996 by a decrease in the Bank's
net interest spread (the difference in the weighted average yield on average
earning assets and the weighted average rate on average interest bearing
liabilities). Net interest spread for 1996, 1995 and 1994 was 1.75%, 2.27% and
2.79%, respectively.
It is anticipated that continued growth in the Bank's investment portfolios,
including the Bank's leveraged investment portfolio (securities funded with
wholesale borrowings) and the use of off-balance sheet transactions to manage
interest rate sensitivity will have some negative impact on the Bank's net
interest margin and spread during 1997. Although net interest margin and spread
are not management's primary focus, it is management's ongoing objective to
improve net interest income while maintaining asset quality.
For more information on the Bank's use of securities and off-balance sheet
transactions to manage interest rate sensitivity, refer to the Liquidity and
Interest Rate Sensitivity section.
Net Interest Income Summary
The following table reflects the components of net interest income, setting
forth for the years ended December 31, 1996, 1995 and 1994 average earning
assets and interest bearing liabilities; interest income earned on earning
assets and interest expense paid on interest bearing liabilities; average rates
earned on earning assets and average rates paid on interest bearing liabilities;
the Bank's net interest spread (the difference between the average rate earned
on interest earning assets and the average rate paid on interest bearing
liabilities) and the net interest margin (net interest income divided by average
earning assets).
31
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Net Interest Income Summary
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
Interest Interest
Average Income/ Avg. Average Income/ Avg.
Balance % Expense Rate Balance % Expense Rate
------- ------ -------- ----- ------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (1) $92,557 38.91% $ 8,454 9.13% $67,819 45.57% $ 6,372 9.40%
Interest bearing
deposits 2,248 .95 133 5.93 701 .47 40 5.74
Available-for-sale
securities (2) 133,702 56.21 7,947 5.94 66,288 44.54 4,329 6.53
Investment securities 4,105 1.73 205 5.00 11,243 7.56 558 4.96
FHLB stock 3,902 1.64 280 7.19 1,817 1.22 132 7.25
Federal funds sold 1,341 .56 74 5.51 950 .64 53 5.60
-------- ------- -------- -------- ------- --------
Total earning assets $237,855 100.00% $17,093 7.19% $148,818 100.00% $11,484 7.72%
======== ======= ======== ===== ======== ======= ======== =====
Interest bearing
Deposits
Demand deposits (3) $51,495 23.68% $ 2,306 4.48% $35,425 27.08% $ 1,657 4.68%
Savings 1,545 .71 54 3.46 1,526 1.17 49 3.22
Time deposits
100,000 or more 41,000 18.85 2,244 5.47 21,458 16.40 1,254 5.85
Other time
deposits 60,634 27.88 3,635 6.00 46,171 35.29 2,663 5.77
--------- ------- -------- -------- ------- -------
Total deposits 154,674 71.12 8,239 $104,580 79.94 5,623 5.38
FHLB advances 40,759 18.74 2,253 5.53 17,288 13.22 1,046 6.05
Other borrowed
funds 22,056 10.14 1,220 5.53 8,951 6.84 460 5.14
--------- ------- -------- -------- -------- -------
Total interest
bearing liabilities $217,489 100.00% $11,712 5.39% $130,819 100.00% $ 7,129 5.45%
========= ======= ======== ===== ======== ======== ======= =====
Net interest income/
spread (4) $ 5,381 1.75% $ 4,355 2.27%
-------- ----- ------- -----
Net interest margin 2.26% 2.93%
----- -----
</TABLE>
(1) Interest income on loans includes loan fee income.
(2) Excludes average unrealized gain (loss) on available-for-sale securities.
(3) Includes Money Market accounts.
(4) The interest rate spread is the interest earning assets rate less the
interest bearing liabilities rate.
32
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Net Interest Income Summary - continued
<TABLE>
<CAPTION>
1994
Interest
Average Income/ Avg.
Balance % Expense Rate
--------- ------- -------- -----
<S> <C> <C> <C> <C>
Gross loans(1) $56,598 50.40% $ 4,632 8.18%
Investment bearing
deposits 437 .39 21 4.81
Available-for-sale
securities(2) 44,004 39.19 2,360 5.36
Investment securities 8,083 7.20 388 4.80
FHLB stock 1,065 .95 68 6.38
Federal funds sold 2,100 1.87 93 4.43
--------- ------- --------
Total earning assets $112,287 100.00% $ 7,562 6.73%
========= ======= ======== =====
Interest bearing
deposits
Demand deposits(3) $26,187 27.51% $ 844 3.22%
Savings 1,712 1.80 40 2.34
Time deposits,
$100,000 or more 15,056 15.82 666 4.42
Other time
deposits 38,385 40.33 1,628 4.24
--------- ------- --------
Total deposits $81,340 85.46 3,178 3.91
FHLB advance 7,781 8.17 352 4.52
Other borrowed funds 6,059 6.37 222 3.66
--------- ------- --------
Total interest
bearing liabilities $95,180 100.00% $ 3,752 3.94%
========= ======= ======== ======
Net interest income/
spread (4) $ 3,810 2.79%
-------- ------
Net interest margin 3.39%
------
</TABLE>
(1) Interest income on loans includes loan fee income.
(2) Excludes average unrealized loss on available-for-sale securities.
(3) Includes Money Market accounts.
(4) The interest rate spread is the interest earning assets rate less the
interest bearing liabilities rate.
TABLE 2
Net Interest Income Changes due to Volume and Rate
(dollars in thousands)
<TABLE>
<CAPTION>
Increase
(Decrease)
1996 vs 1995
Total Due to Due to
Change Volume Rate
<S> <C> <C> <C>
Interest Income
Loans $2,082 $2,292 $ (210)
Securities 3,265 3,683 (418)
Federal Funds sold 21 22 (1)
Other 241 246 (5)
--------- --------- --------
Total Interest income 5,609 6,243 (634)
--------- --------- --------
Interest Expense
Deposits:
Demand 658 737 (79)
Savings 5 1 4
Time $100,000
or more 1,103 1,133 (30)
Other time deposits 972 851 121
FHLB Advance and
other borrowed
funds 1,967 2,061 (94)
--------- --------- --------
Total interest expense 4,705 4,783 (78)
--------- --------- --------
Net interest income $ 904 $1,460 $ (556)
--------- --------- --------
</TABLE>
<PAGE>
Sheet 1 (2)
Net Interest Income Changes due to Volume and Rate-continued
(dollars in thousands)
Increase
(Decrease)
1995 vs 1994
Total Due to Due to
Change Volume Rate
Interest Income
Loans $ 1,740 $ 993 $ 747
Securities 2,001 1,383 618
Federal Funds sold (40) (60) 20
Other 221 207 14
------- -------- --------
Total Interest income 3,922 2,523 1,399
------- -------- --------
Interest Expense
Deposits:
Demand 813 356 457
Savings 9 (4) 13
Time $100,000
or more 589 335 254
Other time deposits 1,034 371 663
FHLB Advance and
other borrowed
funds 932 673 259
------- -------- --------
Total interest expense 3,377 1,731 1,646
------- -------- --------
Net interest income $ 545 $ 792 $ (247)
------- -------- --------
Page 1
Provision for Loan Losses
The provision for loan losses represents the charge to earnings needed to
maintain the allowance for possible loan losses at a level deemed adequate.
The provision for loan losses is determined by factors such as growth in the
loan portfolio, management's evaluation of current economic conditions and their
effect on the loan portfolio, and a continuing evaluation of the loan portfolio.
On an ongoing basis, management evaluates the relative quality of each loan and
assigns a corresponding loan risk rating.
33
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Provision for Loan losses-continued
The loan portfolio is periodically reviewed to determine whether any changes in
loan grades are necessary. This loan risk grading system assists management in
determining the overall risk in the loan portfolio and factors into the
estimation of the appropriate level of the allowance for loan losses.
At December 31, 1996, the Bank's allowance for loan losses totaled $1,175,000
(1.03% of total loans) compared to $973,000 (1.20% of total loans) at December
31, 1995, and $900,000 (1.52% of total loans) at December 31, 1994. The
provision for loan losses in 1996 was $230,000, compared to $95,000 in 1995 and
$49,000 in 1994. The provision for loan losses is based upon management's
judgement as to the adequacy of the allowance to absorb future losses. Net
charge-offs were $28,000 or .02% of average loans in 1996, $22,000 or .03% of
average loans in 1995 and $6,000 or .01% of average loans in 1994.
The following is a summary of the changes in the allowance for loan losses for
the years ended December 31, 1996, 1995, and 1994.
Allowance for Loan Losses
(dollars in thousands) December 31,
1996 1995 1994
-------- -------- ---------
Beginning balance $ 973 $ 900 $ 857
Provision for loan losses 230 95 49
Charge offs:
Commercial - (37) ( 6)
Real estate (29) - -
Consumer - - ( 1)
-------- -------- ---------
Total charge offs (29) (37) ( 7)
-------- -------- ---------
Recoveries:
Commercial 1 15 1
Real estate - - -
Consumer - - -
-------- -------- ---------
Total recoveries 1 15 1
-------- -------- ---------
Net charge offs (28) (22) ( 6)
-------- -------- ---------
Ending balance $ 1,175 $ 973 $ 900
-------- -------- ---------
34
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Nonperforming Assets
There were no nonperforming assets (nonaccrual loans and accruing loans past due
90 days or more) at December 31, 1996 or December 31, 1995. Nonperforming assets
totaled $195,669 or .33% of total loans at December 31, 1994. Loans are placed
on nonaccrual status when payments of interest and/or principal have remained
delinquent for a period of over 90 days and/or when management's evaluation
indicates probable default prior to the 90 day delinquency period unless the
loan is both well secured and in the process of collection.
The following table provides an analysis of nonperforming assets as of December
31, 1996, 1995, and 1994.
Analysis of Nonperforming Assets
(dollars in thousands)
1996 1995 1994
--------- --------- ---------
Nonaccrual loans $ - $ - $ 196
Accruing loans past due
90 days or more - - -
--------- --------- ---------
Total $ - $ - $ 196
========= ========= =========
Total nonperforming assets as
a percentage of total loans - % - % .33%
--------- --------- ---------
There was no interest income that would have been recorded on nonaccrual loans
had they performed in accordance with their original terms for the year ended
December 31, 1996 or 1995. Interest income that would have been recorded in 1994
totaled $22,300.
The allowance for loan losses is maintained at a level considered adequate to
provide for potential loan losses. The adequacy of the allowance is based on
management's continuing evaluation of the loan portfolio through an internal
loan review process. Current economic conditions, past loan loss experience,
underlying collateral securing loans, off balance sheet commitments and such
other factors that deserve recognition in estimating potential loan losses are
considered in the review process. Management realizes that economic conditions
affect loan losses and no assurances can be made that further evaluation of the
loan portfolio based on prevailing conditions may not require additions to the
allowance. Management does, however, consider the allowance for loan losses to
be adequate based on evaluation and analysis of the loan portfolio.
Management will continue to maintain conservative underwriting standards and a
diversified portfolio and monitor economic conditions. In the event that
economic or other conditions change, management will assess the impact on the
allowance for loan losses and will make appropriate adjustments if necessary.
Various regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies may require the
Bank to recognize additions to the allowance based on information available to
them at the time of their examination.
35
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Other Operating Income
The Bank's noninterest income for 1996 included service charge and fee income on
deposit accounts and other miscellaneous income of $224,000,compared to $183,000
in 1995 and $165,000 in 1994. This increase in 1996 is primarily attributable to
increased miscellaneous fee income, primarily mortgage preparation fees. The
Bank plans to continue to explore other sources of miscellaneous noninterest
income in the future.
During 1996, noninterest income was also impacted by a net securities gain of
$21,000 from the sale of available-for-sale securities and a net securities loss
of $70,000 from the sale of held-to-maturity securities. Also included in
securities gains for 1996 was a net gain of $1,207,000 relating to the Bank's
off-balance sheet derivative products, in conjunction with the Bank's investment
portfolio and leveraged investment program. The Bank recognized gains of
$337,000 from sales and $870,000 net mark to market gains on interest rate caps,
floors and swaps upon the disposition of the related assets. The Bank also
recognized gains of $25,000 during 1996 from the sale of previously purchased
SBA loans. In comparison, in 1995 the Bank recognized net gains of $197,000 from
the sale of available-for-sale securities and other investment products, and in
1994, the Bank recognized net losses of $67,000 from the sale of
available-for-sale securities.
Other Operating Expense
Noninterest expenses for the year ended December 31, 1996 totaled $3,552,000
compared to $2,882,000 in 1995, and $2,404,000 in 1994. The most significant
portions of noninterest expense for all years since 1993 were salaries and
benefits expense, professional fees and occupancy expense.
Noninterest expense to total average assets was 1.38% in 1996 compared to 1.82%
in 1995, and 2.00% in 1994. The Bank strives to manage noninterest expense as
effectively as possible and recognizes that these expenses should be evaluated
in relationship to the value generated.
The Bank continues to seek ways to improve long-term shareholder value through
growth, the use of available technologies and through operating efficiencies. It
is expected that operating expenses will increase during 1997 by the initial
implementation of various technologies intended to create operating efficiencies
and revenue generation.
36
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Loans
The loan portfolio constituted the Bank's second largest average earning asset.
Average loans totaled $92,557,000 in 1996, $67,819,000 in 1995, and $56,598,000
in 1994.
Loans at December 31, 1996, 1995, 1994, 1993, and 1992 are summarized as
follows:
Loans
(dollars in thousands)
1996 % 1995 %
-------- ------- ------- -------
Commercial $39,167 34.40% $26,545 32.84%
Real estate 62,577 54.96 39,144 48.43
Home equity 5,233 4.60 5,679 7.03
Consumer 6,335 5.56 8,862 10.97
Other 544 0.48 593 .77
-------- ------- ------- -------
Total loans $113,856 100.00% $80,823 100.00%
======== ======= ======= =======
<TABLE>
<CAPTION>
1994 % 1993 % 1992 %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial $19,056 32.21% $20,518 37.17% $16,563 34.47%
Real estate 27,353 46.23 20,875 37.82 15,270 31.79
Home Equity 4,956 8.38 4,364 7.91 5,794 12.06
Consumer 7,689 13.00 9,350 16.94 10,274 21.39
Other 108 .18 90 .16 142 .29
------- ------- ------- ------- ------- -------
Total Loans $59,162 100.00% $55,197 100.00% $48,043 100.00%
======= ======= ======= ======= ======= =======
</TABLE>
The following table presents an analysis of loan maturities and repricing data
at December 31, 1996, 1995, and 1994.
Maturity and Repricing Frequency for Loans
(dollars in thousands) December 31,
1996 1995 1994
--------- -------- ---------
Fixed rate loans with a remaining
maturity of:
Three months or less $ 6,233 $ 2,472 $ 837
Over three months through twelve months 3,851 2,062 1,925
Over one year through five years 36,338 17,412 7,921
Over five years 6,213 3,182 2,258
--------- -------- ---------
Total fixed rate loans and leases $ 52,635 $ 25,128 $ 12,941
========= ======== =========
Floating rate loans with a repricing
frequency of:
Quarterly or more frequently $ 61,221 $ 55,695 $ 46,025
--------- -------- ---------
Total floating rate loans and leases $ 61,221 $ 55,695 $ 46,025
--------- -------- ---------
Total loans (excluding nonaccrual loans) $113,856 $ 80,823 $ 58,966
========= ======== =========
37
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Federal Funds Sold
Federal funds sold at the end of 1996 totaled $1,000,000 compared to $5,095,000
at the end of 1995 and $145,000 at the end of 1994. Average federal funds sold
for 1996, 1995 and 1994, respectively were $1,341,000, $950,000 and $2,100,000.
Securities
Of the $137,490,000 total securities at December 31, 1996, $1,000,000 were
designated as held-to-maturity investments (investment securities). The Bank's
remaining securities held at December 31, 1996 were designated as
available-for-sale securities. The securities classified as investment
securities are those which the Bank has both the positive intent and ability to
hold until maturity and are accounted for at historical cost.
The available-for-sale securities include securities the Bank may sell at some
future time because of changes in liquidity needs (to meet future funding
requirements), interest rates, mortgage spreads, management of the Bank's
interest rate risk or for other reasons. These securities are accounted for at
current fair value with changes in fair value recorded, net of tax, as a
component of shareholders' equity.
In the fourth quarter of 1995, the Bank began a strategic leveraging program.
This program consisted of the funding of purchases of additional securities
(included in 1996 and 1995 as a part of the Bank's available-for-sale portfolio)
with FHLB advances and other borrowings. The Bank also initiated the use of an
analytical methodology for benchmarking the value of various fixed income
instruments for all available-for-sale securities, including but not limited to,
that portion of the available-for-sale portfolio funded with borrowings. This
methodology, known as "option adjusted spread" or "OAS" analysis strives to
evaluate the relative value of various market sectors and individual securities
by quantifying and pricing options embedded within securities.
This methodology of comparing all available alternatives on an equivalent basis
was employed during 1996 to make asset selections. During the first half of
1996, assets within the Bank's AFS portfolio were liquidated and repositioned in
accordance with OAS analysis valuations. Additionally, municipal securities,
designated as investment securities at December 31, 1995 were liquidated in
total so as to redirect these assets into instruments with higher demonstrated
value on an OAS basis. Management's objective in the use of this strategy is to
identify, purchase and hold assets with wide option adjusted spreads and acquire
interest rate swaps and options to reduce the interest rate risk component of
these assets to approximately the level of the 91 day U.S. Treasury bill.
As this management strategy evolved during 1996, and as increasing the Bank's
leverage was considered in the Bank's 1997 business plan, additional flexibility
to more readily employ available assets when market conditions permit was
determined to be a priority.
38
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Securities-continued
As a result of this strategy and the Bank's 1997 strategic business plan, it has
been determined that a group of assets will be segregated into a trading
portfolio during the first quarter of 1997. In addition to providing increased
flexibility, the establishment of a trading account will enable the use of
financial instruments currently not available in the management of the Bank's
available-for-sale portfolio. A trading account will also enable a more rigorous
management approach for managing assets as market volatility fluctuates. Assets
within the trading account and their corresponding hedges will be accounted for
at their current value at each future reporting period and changes in their
market value will be reflected in the Bank's income statements. Trading activity
will introduce market volatility in the Bank's income statements and may result
in a somewhat more asymmetric earning trendline.
Available-for-sale securities and Investment Securities
Available-for-sale securities and investment securities held at December 31,
1996, 1995 and 1994 are summarized as follows.
TABLE 6
Available-for-sale Securities
(dollars in thousands)
December 31, 1996
<TABLE>
<CAPTION>
Weighted
Amortized Market Gross Unrealized Average
Cost Value Gain Loss Yield
<S> <C> <C> <C> <C> <C>
U. S. Government
obligations due:
After one year but
within five years $ 1,029 $ 1,009 $ -- $ 19 4.87%
U. S. Government agency
obligations due:
Within one year 422 420 -- 2 4.80
After one year but
within five years 490 496 6 -- 6.56
After ten years 6,551 6,593 42 -- 7.50
Mortgage-backed
securities:
GNMA 53,323 53,735 412 -- 6.50
FNMA 18,645 18,723 78 -- 7.02
FHLMC 51,814 51,599 -- 215 7.51
Equity Securities 64 64 -- -- --
Total Securities 132,338 132,639 538 236 7.00%
End-User derivatives
Swaps 1,011 643 282 650 --
Caps 2,399 2,500 152 51 --
Floors 882 707 39 215 --
Total End-user derivatives 4,292 3,850 473 916 --
Total 136,630 136,489 1,011 1,152 7.00%
</TABLE>
Investment Securities
(dollars in thousands)
December 31, 1996 Weighted
Amortized Market Gross Unrealized Average
Cost Value Gain Loss Yield
North Carolina Education
Authority Bond
Due after five years but
within ten years 1,000 1,000 -- -- 5.78
$1,000 $1,000 $ -- $-- 5.78%
16
<PAGE>
Sheet 1 (2)
Available-for-sale Securities and Investment Securities-
continued
Available-for-sale Securities
(dollars in thousands)
December 31, 1995
Weighted
Amortized Market Gross Unrealized Average
Cost Value Gain Loss Yield
U. S. Government
obligations due:
After one year but
within five years $ 3,038 $ 3,005 $ -- $ 33 4.84%
U. S. Government agency
obligations due:
After one year but
within five years 1,844 1,842 -- 3 6.67
Mortgage-backed
securities:
GNMA 16,931 16,906 1 26 6.44
FNMA 17,197 17,237 88 47 6.70
FHLMC 45,289 45,605 350 34 6.79
------- ------ ---- ----- ------
84,299 84,595 439 143 6.63%
------- ------- ---- ------- --------
Investment Securities
(dollars in thousands)
December 31, 1995
Weighted
Amortized Market Gross Unrealized Average
Cost Value Gain Loss Yield
Municipal bonds due:
After five years but
within ten years 5,438 5,557 115 26 4.78%
After ten years 7,699 7,659 49 90 5.04
-------- ------ ------- ------- ------
$13,137 $13,216 $ 164 $ 116 4.93%
------- ------- ------- ------- ------
17
Page 1
<PAGE>
<PAGE>
Deposits
At December 31, 1996 total deposits were $177,988,000 compared to $130,288,000
at December 31, 1995, and $101,112,000 at December 31, 1994. These funds were
used primarily to fund increases in the loan and available-for-sale securities
portfolios. Because deposits are the principal source of funds for continued
growth, the Bank attempts to structure rates so as to promote deposit and asset
growth while at the same time increasing the overall profitability of the Bank.
Total interest bearing demand deposits at December 31, 1996 were $56,537,000
compared to $40,000,000 at December 31, 1995, and $32,961,000 at December 31,
1994. Noninterest bearing demand deposits totaled $14,110,000, $11,855,000 and
$11,341,000 at December 31, 1996, 1995, and 1994, respectively. These increases
in demand deposits (both interest bearing and noninterest bearing) have resulted
from the introduction of various deposit products including the Bank's Money
Fund account (an interest bearing account that pays interest based on a money
market index which grew from $22,172,000 at December 31,1994 to $31,550,000 at
December 31, 1995 and $45,363,000 at December 31, 1996. Contributing to the
increase in interest bearing and noninterest bearing demand deposits were the
deposits assumed when the Bank purchased its third office (formerly the
Charlotte office of Essex Savings Bank) in March, 1996.
In comparison, time deposits of $100,000 or more totaled $43,286,000 or 24.32%
of total deposits at December 31, 1996, $30,501,000 or 23.41% of total deposits
at December 31, 1995 and $15,097,000 or 14.93% of total deposits at December 31,
1994.
Included in time deposits of $100,000 or more at December 31, 1996 were deposits
totaling $4,000,000 to state or political subdivisions in the U.S. which were
secured or collateralized as required by state law.
39
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Deposits-continued
The following table provides maturity information relating to time deposits of
$100,000 or more.
Analysis of Time Deposits of $100,000 or More
(dollars in thousands)
1996 1995 1994
-------- -------- -------
Remaining maturity of three months or less $ 16,626 $ 13,065 $ 6,528
Remaining maturity over three through
twelve months 20,712 16,071 7,172
Remaining maturity over twelve months 5,948 1,365 1,397
-------- -------- -------
Total time deposits of $100,000 or more $ 43,286 $ 30,501 $15,097
======== ======== =======
FHLB Advance and Other Borrowed Funds
During 1994, the Bank secured a FHLB advance totaling $10,000,000 which matures
March 23, 1998. Also during 1995, the Bank secured additional FHLB advances of
$20,000,000 and $10,000,000. The $10,000,000 FHLB advance repriced monthly and
matured April 13, 1996. Upon the maturity of this advance, it was reissued as an
increase to the outstanding $20,000,000 advance with the original maturity date
of February 13, 1998. All advances adjust quarterly.
Other borrowed funds consists primarily of repurchase agreements. At December
31, 1996, 1995, and 1994, repurchase agreements totaled $22,676,000, $8,745,000,
and $8,341,000 respectively. At December 31, 1996, the Bank had other short term
borrowings of $342,000 and $8,000,000 (a short term FHLB advance which repriced
and was repayable daily. At December 31, 1995 the Bank had federal funds
purchased of $1,155,000, and other short term borrowings of $391,000, and at
December 31, 1994 other short term borrowings were $400,000.
The FHLB advances and other borrowed funds are used to supplement or as
alternatives to other funding sources. The FHLB advances and wholesale
borrowings at December 31, 1996 and 1995 were used to fund the leveraged
investment program. These alternative funding sources averaged $62,815,000 in
1996, $26,239,000 in 1995 and $13,840,000 in 1994.
Liquidity and Interest Rate Sensitivity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities.
The objectives of the Bank's funds management policy are to provide adequate
liquidity to meet the needs of depositors and borrowers at all times and meet
the basic needs for on-going operations of the Bank, as well as comply with
regulatory requirements.
40
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Liquidity and Interest Rate Sensitivity-continued
Bank of Mecklenburg manages both assets and liabilities to achieve appropriate
levels of liquidity. Cash and short term investments are primary sources of
asset liquidity. These funds provide a cushion against fluctuations in cash
flows from both deposits and loans. Commercial and individual deposits are the
Bank's primary source of funds for credit activities. The Bank also maintains
Federal Funds borrowing lines with other depository banks to provide additional
sources of funding for short term liquidity needs. The Bank belongs to the
Federal Home Loan Bank and uses FHLB borrowings as an alternative to other
funding sources. Management believes the Bank's sources of liquidity are
adequate to meet operating needs and deposit withdrawal requirements.
Related to liquidity is interest rate sensitivity in that each is affected by
maturities of earning assets and funding sources. Interest rate sensitivity is a
function of the repricing characteristics of the Bank's portfolio of assets and
liabilities - the time frames within which rates on interest bearing assets and
liabilities are subject to change, either at replacement, repricing during the
life of the instrument or at maturity.
The Bank's results of operations are affected by changes in the interest rate
environment because interest earning assets and interest bearing liabilities
have various repricings and maturities.
The Bank strives to manage its asset/liability position to maximize net interest
income while maintaining a stable deposit base and managing interest rate risk
so as to minimize capital flucuations under various interest rate scenarios.
Management's principal goal in the management of interest rate sensitivity and
interest rate risk is to ensure that both assets and liabilities respond to
changes in interest rates within an acceptable timeframe, thereby minimizing the
effect of interest rate movements on net interest income and on the net present
value of the Bank's equity.
Traditional gap analysis is used to measure the volume of assets and liabilities
with repricing opportunities within certain time frames as discussed below.
However, Management's primary tool for quantifying and managing interest rate
risk and the performance of the Bank's assets and liabilities under various
interest rate scenarios is an automated interest rate simulation analysis model.
Short term interest rates fluctuated significantly during 1996, however, the
Bank's prime lending rate was unchanged during the year. The earnings on
variable rate investments and the cost of variable rate liabilities changed
materially with interest rate movements throughout the year. However, continued
volatility in interest rates is expected in 1997, which will pressure interest
margins and will necessitate continued active management of the Bank's assets
and liabilities.
A major portion of the loan portfolio is immediately rate sensitive -
approximately $61,221,000 or 53.77% of total loans at December 31, 1996,
$55,695,000 or 68.90% of total loans at December 31, 1995 and $46,025,000 or
77.79% of total loans at December 31, 1994.
Variable rate securities with repricing of three months or less totaled
$15,108,000 at December 31, 1996 and $23,601,000 at December 31, 1995.
Securities with a repricing of annually or more frequently (but less frequently
than quarterly) totaled $64,943,000 at December 31, 1996 and $16,337,000 at
December 31, 1995. Variable rate securities with a repricing of three months or
less at December 31, 1994 totaled $6,624,000. There were no securities with a
repricing frequency greater than quarterly at December 31, 1994.
41
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Liquidity and Interest Rate Sensitivity-continued
The Bank's funding sources included liabilities with a repricing frequency or
remaining maturity of three months or less of approximately $169,500,000 at
December 31, 1996, $127,549,000 at December 31, 1995 and $80,353,000 at December
31, 1994.
Available-for-sale securities are a part of the Bank's overall interest rate
risk management strategy and may be sold in response to changes in interest
rates, changes in prepayment risk, liquidity management and other factors. They
are accounted for at fair value with changes in fair value recorded, net of tax,
as a component of shareholders' equity. Securities purchased are classified at
the time of purchase, with the majority of securities purchased in 1996, 1995
and 1994 classified as available-for-sale.
The securities acquired in the Bank's leveraging program, which began in 1995,
are included as a portion of the Bank's available-for-sale portfolio. During
1996, the securities acquired in this program were funded by wholesale financing
vehicles including FHLB borrowings, repurchase agreements and dollar rolls.
Securities funded by these wholesale borrowings at December 31, 1996 totaled
approximately $62 million with interest rate risk managed through the use of
off-balance sheet interest rate risk products.
Leverage added to enhance the Bank's return on equity is measured by its primary
capital to assets ratio. The Bank's primary capital to assets ratio target was
established at seven percent for 1996. By the end of 1997 the Banks's current
business plan includes a moderate increase in leverage to a target between 6%
and 6.5%. It is anticipated that additional leverage will comprise a portion of
the growth, along with traditional deposits, to bring this capital ratio to the
established target level.
The Bank uses off-balance sheet derivative instruments to provide a
cost-effective way to manage interest rate sensitivity created primarily by the
repricing mismatch of the Bank's securities portfolio and its funding sources.
Interest rate risk is one of the most significant risks to which financial
institutions are exposed. As noted above, to identify, quantify and manage this
risk the Bank employs automated simulation modeling to measure and manage the
effect of flucuations in interest rates on the value of its assets and
liabilities. In addition to the traditional techniques of managing interest rate
risk of modifying the duration and mix of assets and liabilities, the Bank uses
interest rate risk protection products to reduce risk. Such products are
currently limited to interest rate swaps, interest rate caps and interest rate
floors. These financial instruments allow the Bank to acquire longer duration
assets and liabilities bearing otherwise favorable characteristics and adjust
their duration so as to limit the interest rate risk associated with them.
42
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Liquidity and Interest Rate Sensitivity-continued
Generally, these instruments consist of a contract between the Bank and a
counterparty, generally a money center or super regional bank to exchange
payments of fixed or floating amounts based on the market level of interest
rates. The Bank has established specific parameters for levels of interest rate
risk that management considers acceptable as well as specific policies for the
use, monitoring and management of off-balance sheet interest rate protection
products. Included in these policies are limits designed to minimize the Bank's
exposure to significant fluctuations in interest rates, specify the
qualifications required of interest rate contract counterparties and exposure to
individual counterparties and specify policies for the performance measurement
and oversight of all interest rate protection instruments.
The Bank's rate risk parameters include limits for both changes in net interest
income and market price under various interest rate shock simulations. While
interest rate shocks of up to four hundred basis points are regularly performed,
efforts are focused on managing potential adverse effects of interest rate
movements in the up and down one hundred and two hundred basis point range. For
shifts in interest rates of one hundred basis points, the Bank's policy
specifies acceptable levels of risk to be limited to a reduction in net interest
income of five percent and a reduction in the asset value of the Bank's
available for sale securities portfolio of one percent. Counterparty risk
limitations restrict the Bank from entering into any interest rate protection
instrument with a counterparty whose credit rating is less than "A", as rated by
Dun and Bradstreet or Moodys. Individual counterparty exposure is then limited
to a maximum of forty percent of the Bank's tangible equity. It is the Bank's
policy to request collateral as deemed necessary to limit counterparty risk.
At December 31, 1996, the Bank's off-balance sheet derivatives included $50
million in interest rate floors being utilized to protect its variable rate loan
portfolio against declining interest rates.
The aggregate notional value of off-balance sheet interest rate protection
products used to hedge the Bank's AFS securities portfolio at December 31, 1996
included interest rate swaps of $46 million, interest rate caps of $85 million
and interest rate floors of $75 million. All the interest rate protection
products utilized by the Bank require the exchange of fixed and floating rate
interest payments based on notional dollar amounts.
It should be noted that these notional amounts are not at risk, but are used as
a basis on which to calculate the interest payment amounts due between the Bank
and its counterparties to these contracts. The interest rate caps and floors
utilized are option contracts on which a premium is paid at the inception of the
contract. These premiums are amortized over the life of the contract. Any cash
flows received from these contracts are recognized in the accounting period in
which they are received as adjustments to the yield of the asset or liability.
The maximum direct cost of option contracts (interest rate floors and interest
rate caps) to the Bank is limited to the option premium. All cash flows from
interest rate swaps are accounted for in a like manner, as adjustments to asset
yields or liability costs. The Bank expects to continue the prudent application
and usage of interest rate risk protection products to manage its balance sheet
and interest rate risk.
43
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Capital Resources
Capital to support the Bank's asset base came exclusively from the sale of newly
issued shares of common stock in 1988 and interest earned on investments from
incorporation in 1988 to July 12, 1989 when the bank opened for commercial
operations. Growth in the Bank's capital base since opening has come from the
retention of earnings and the exercise of the outstanding options relative to
the Bank's non-qualified stock option plan during 1994 and exercise of options
under the Bank's qualified stock option plan in 1995.
The Board of Directors declared a stock split during 1993 and again in 1995. A 5
for 4 stock split was declared to shareholders of record on May 11, 1993 and
distributed on June 4, 1993. A second 5 for 4 stock split was declared to
shareholders of record on April 18, 1995, payable May 16, 1995 The Bank had
2,118,445 shares of its common stock outstanding at December 31, 1995.
During 1994, The Board of Directors declared the Bank's first cash dividends.
Cash dividends have been paid on a quarterly basis since that time.
In the banking industry, one measure of capital adequacy is total capital
divided by total assets. The Bank's equity to assets ratio stood at 7.01%
(excluding the effect of unrealized gains or losses on available-for-sale
securities) at December 31, 1996, 8.62% at December 31, 1995, and 11.98% at
December 31, 1994. Other important measures of capital are the capital adequacy
ratios for regulatory purposes. The capital of Bank of Mecklenburg continues to
exceed all current regulatory requirements. The Bank's risk-based capital ratio
(qualifying total capital/risk weighted assets) was 14.90% at December 31, 1996.
Its tier 1 (core capital/risk weighted assets) ratio was 13.98%.
The Bank is not aware of any events which would materially affect the Bank's
liquidity, capital resources or operations. In addition, management is not aware
of any recommendations by regulatory authorities which, if they were to be
implemented, would have a material impact on the Bank.
Effects of Inflation
The major portions of a bank's assets and liabilities are monetary in nature. As
a result of this distinctly different asset and liability structure, a bank's
performance may be more significantly influenced by changes in interest rates
than by inflation. Although inflation has a lesser influence on a bank's
performance, operating expenses may be affected in that personnel expenses,
supply costs, and outside services tend to increase during periods of inflation.
Also, inflation affects the level of interest rates prevailing at any one time.
44
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Accounting and Regulatory Matters
During 1996, the FDIC ordered a one-time assessment of domestic deposits insured
by SAIF(Savings Association Insurance Fund). This assessment had no affect on
the Bank as all deposits were either insured by the Bank Insurance Fund (BIF) or
were assumed from Essex Savings Bank in 1996. Responsibility for any assessment
on the assumed deposits remained with that institution.
Accounting by Creditors for Impairment of a Loan
Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosure
Effective January 1, 1995, the Bank adopted Statement of Financial Accounting
Standard ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan"
and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures". The adoption of these Standards causes the
allowance for credit losses related to loans identified as impaired to be based
on discounted cash flows of expected payments or the fair value of the
collateral for certain collateral dependent loans.
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of
Effective January 1, 1996, the Bank adopted Statement of Accounting Standard No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of,". Standard No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An estimate of the future
cash flows expected to result from the use of the asset and its eventual
disposition should be performed during a review for recoverability. An
impairment loss (based on the fair value of the asset) is recognized if the sum
of the expected future cash flows (undiscounted and without interest charge) is
less than the carrying amount of the asset. Additionally, Standard No. 121
requires that long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less cost
to sell, except for certain assets. These assets will continue to be reported at
the lower of carrying amount or net realizable value. The impact of adoption of
Standard No. 121 was not material.
45
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Accounting for Certain Mortgage Banking Activities
Effective January 1, 1996, the Bank adopted Statement of Accounting Standard No.
122, "Accounting for Mortgage Servicing Rights,". Standard No. 122 requires that
a mortgage banking enterprise recognize as separate assets the rights to service
mortgage loans for others, however those servicing rights are acquired.
Accounting for Certain Mortgage Banking Activities-continued
A mortgage banking enterprise that acquires mortgage servicing rights through
either the purchase or origination of mortgage loans and sells or securitizes
those loans with servicing rights retained should allocate the total cost of the
mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable to estimate
the fair values of the mortgage servicing rights and the mortgage loans (without
the mortgage servicing rights), the entire cost of purchasing or originating the
loans should be allocated only to the mortgage loans without the mortgage
servicing rights. Additionally, this Standard requires that a mortgage banking
enterprise periodically assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. Standard No. 122 applies to
transactions occurring in fiscal years beginning after December 31, 1995.
Because the Bank does not originate loans held for sale, the impact of adoption
of Standard No. 122 on the Bank's financial statements was not material.
Accounting for Stock-Based Compensation
Effective January 1, 1996, the Bank also adopted Standard No. 123, "Accounting
for Stock-Based Compensation,". Standard No. 123 requires that the fair value of
employee stock-based compensation plans be recorded as a component of
compensation expense in the statement of income as of the date of grant of
awards related to such plans or that the impact of such fair value on net income
and earnings per share be disclosed on a pro forma basis in a footnote to
financial statements for awards granted after December 15, 1994, if the
accounting for such awards continues to be in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). The bank will continue such accounting under the provisions of APB 25.
46
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Accounting for Transfers of Servicing of Financial Assets and Extinguishments of
Liabilities
SFAS No. 125, "Accounting for Transfers of Servicing of Financial Assets and
Extinguishments of Liabilities," as amended, (i) sets forth the criteria for (a)
determining when to recognize financial and servicing assets and liabilities;
and (b) accounting for transfers of financial assets as sales or borrowings; and
(ii) requires (a) liabilities and derivatives related to a transfer of financial
assets to be recorded at fair value; (b) servicing assets and retained interest
in transferred assets carrying amounts be determined by allocating carrying
amounts based on fair value; (c) amortization of servicing assets and
liabilities be in proportion to net servicing income; (d) impairments
measurement be based on fair value; and (e) pledged financial assets be
classified as collateral. This standard provides implementation guidance for
assessing isolation of securitizations, transfers of sale-type and direct
financing lease receivables, securities lending transactions, repurchase
agreements including dollar rolls, wash sales, loan syndications and
participations, risk participations in banker's acceptances, factoring
arrangements, transfers of receivables with recourse and Extinguishments of
liabilities.
This standard is effective for transfers and servicing of financial assets and
extinquishments of liabilities occurring after December 31, 1996, except that
the Standard will be effective for transfers of financial assets and
transactions related to repurchase agreements, dollar rolls, securities lending
and the like, occurring after December 31, 1997, and it is to be applied
prospectively. The effect on the Bank is not expected to be material.
47
<PAGE>
Independent Auditors' Report
The Board of Directors
Bank of Mecklenburg:
We have audited the accompanying consolidated balance sheets of Bank of
Mecklenburg and subsidiary (the Bank) as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1996, included
on pages 3 through 23 herein. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bank of
Mecklenburg and subsidiary at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in note 2(c) to the consolidated financial statements, the
Bank adopted the provisions of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," on
January 1, 1994.
February 12, 1997
F-2
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
------ ---- ----
Cash and due from banks $ 6,108,977 5,457,236
Federal funds sold 1,000,000 5,095,000
Available-for-sale securities (cost of $136,630,374
in 1996 and $84,299,274 in 1995) (note 4) 136,489,504 84,594,887
Investment securities (market value of $1,000,000
in 1996 and $13,215,749 in 1995) (note 5) 1,000,000 13,167,341
Loans (note 5) 113,855,519 80,822,982
Less allowance for loan losses (note 6) (1,174,940) (973,000)
------------ ------------
Loans, net 112,680,579 79,849,982
------------ ------------
Accrued interest receivable 1,597,291 1,330,689
Federal Home Loan Bank (FHLB) stock (note 8) 3,934,500 4,024,200
Premises and equipment, net (note 7) 6,245,541 5,599,988
Other assets 1,233,012 1,111,662
------------- ---------
$270,289,404 200,230,985
============ ===========
Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest bearing $ 14,110,079 11,854,855
Interest bearing 56,537,418 40,000,412
Savings 1,302,706 1,220,496
Time, $100,000 or more 43,285,840 30,500,602
Other time 62,751,830 46,711,589
------------ ----------
Total deposits 177,987,873 130,287,954
FHLB advances (note 8) 48,000,000 40,000,000
Other borrowed funds (note 8) 23,018,060 10,291,730
Accrued interest payable 1,991,166 1,665,487
Other liabilities 452,387 522,996
--------------- ------------
Total liabilities 251,449,486 182,768,167
--------------- -----------
Shareholders' equity (notes 10 and 12):
Common stock, $2 par value; authorized
10,000,000 shares in 1996 and 1995;
issued and outstanding
2,118,445 shares in 1996 and 1995 4,236,890 4,236,890
Additional paid-in capital 10,888,830 10,888,830
Retained earnings 3,807,172 2,141,993
Unrealized gain (loss) on
available-for-sale securities (92,974) 195,105
--------------- ------------
Total shareholders' equity 18,839,918 17,462,818
Commitments (notes 11 and 14)
--------------- ------------
$270,289,404 200,230,985
=============== ===========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Consolidated Statements of Income
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Interest and dividend income:
Interest and fees on loans $ 8,453,531 6,372,126 4,632,258
Interest on securities 8,151,853 4,749,266 2,748,263
Interest on federal funds sold 73,886 53,170 93,060
Other interest and dividend income 413,819 309,318 88,157
----------- ---------- ----------
Total interest and dividend income 17,093,089 11,483,880 7,561,738
----------- ---------- ----------
Interest expense:
Interest on deposits 8,239,310 5,623,360 3,178,347
Interest on FHLB advances and other
borrowed funds 3,472,648 1,505,890 573,812
----------- ---------- ----------
Total interest expense 11,711,958 7,129,250 3,752,159
----------- ---------- ----------
Net interest income 5,381,131 4,354,630 3,809,579
Provision for loan losses (note 5) 229,700 95,432 49,450
----------- ---------- ----------
Net interest income after provision
for loan losses 5,151,431 4,259,198 3,760,129
----------- ---------- ----------
Other operating income:
Service charges, fees, and other income 223,966 182,561 164,738
Gain (loss) on sale of securities, net 1,158,802 196,571 (66,630)
Gain on sale of loans 25,529 - -
----------- ---------- ---------
Total other operating income 1,408,297 379,132 98,108
----------- ---------- ----------
Other operating expenses:
Salaries and employee benefits (note 11) 1,539,990 1,303,338 1,125,507
Occupancy 313,916 276,385 260,279
Equipment 204,004 236,735 210,534
Advertising and business development 291,761 286,351 134,335
Professional services 330,487 224,476 142,332
Investment advisory fees 197,837 20,000 -
Deposit and other insurance 79,262 177,233 230,256
Other 594,578 357,335 300,469
----------- ----------- -----------
Total other operating expenses 3,551,835 2,881,853 2,403,712
----------- ----------- -----------
Income before income taxes 3,007,893 1,756,477 1,454,525
Income tax expense (note 9) 1,088,500 500,000 452,800
----------- ----------- -----------
Net income $1,919,393 1,256,477 1,001,725
=========== =========== ===========
Per share amounts $ .91 .59 .48
========== ========= =========
Weighted average shares outstanding 2,118,445 2,116,849 2,078,500
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Additional Gain (loss) on Total
Common Paid-in Retained Available-for- Shareholders'
Stock Capital Earnings Sale Securities Equity
<S> <C> <C> <C> <C> <C>
December 31, 1993 $ 4,126,178 10,587,236 342,291 - 15,055,705
Effect of change in
accounting principle - - - (23,746) (23,746)
Proceeds from stock
options exercised 103,530 281,099 - - 384,629
Net income - - 1,001,725 - 1,001,725
Cash dividends
($.096 per share) - - (200,664) - (200,664)
Change in unrealized
gain (loss) on securities
available -for-sale,
net of tax - - - (1,636,687) (1,636,687)
------------- -------------- ------------- -------------- --------------
December 31, 1994 4,229,708 10,868,335 1,143,352 (1,660,433) 14,580,962
Cash paid in lieu of
fractional shares - - (3,731) - (3,731)
Proceeds from stock
options exercised 7,182 20,495 - - 27,677
Net income - - 1,256,477 - 1,256,477
Cash dividends
($.12 per share) - - (254,105) - (254,105)
Change in unrealized
gain (loss) on securities
available-for-sale,
net of tax - - - 1,855,538 1,855,538
------------- -------------- ------------- -------------- --------------
December 31, 1995 4,236,890 10,888,830 2,141,993 195,105 17,462,818
Net income - - 1,919,393 - 1,919,393
Cash dividends
($.12 per share) - - (254,214) - (254,214)
Change in unrealized
gain (loss) on securities
available-for-sale,
net of tax - - - (288,079) (288,079)
------------- -------------- ------------- -------------- --------------
December 31, 1996 $ 4,236,890 10,888,830 3,807,172 (92,974) 18,839,918
============= ============== ============= ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended December 31,
1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,919,393 1,256,477 1,001,725
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 229,700 95,432 49,450
Premium amortization and discount accretion, net 419,968 94,953 256,465
(Gain) loss on sale of securities, net (1,158,802) (196,571) 66,630
Gain on sale loans 25,529 - -
Depreciation and amortization 361,371 240,462 228,144
Increase in accrued interest receivable (266,602) (430,014) (282,062)
Increase in other assets (65,446) (82,936) (40,914)
Increase in accrued interest payable 104,299 963,697 201,504
Increase in other liabilities 29,899 13,416 30,835
----------------- ----------------- ---------------
Net cash provided by operating activities 1,548,251 1,954,916 1,511,777
----------------- ----------------- ---------------
Cash flows from investing activities:
Purchases of available-for-sale securities (336,609,613) (115,374,997) (40,737,882)
Purchases of investment securities (2,547,515) (2,635,366) (6,525,042)
Maturities and issuer calls of available-for-sale
securities 18,226,987 21,651,988 10,995,712
Sales of available-for-sale securities 267,813,893 64,158,610 9,763,458
Sales of investment securities 14,644,960 - -
Purchases of FHLB stock (729,900) (3,018,100) (1,008,100)
Sales of FHLB stock 819,600 282,600 -
Increase in loans, net (36,023,307) (21,683,213) (3,971,963)
Sales of loans 3,052,439 - -
Purchase of branch and assumption of deposits, net
of acquired cash equivalents 26,324,972 - -
Capital expenditures for premises and equipment, net (235,161) (52,942) (171,701)
----------------- ----------------- ---------------
Net cash used in investing activities (45,202,645) (56,671,420) (31,655,518)
----------------- ----------------- ---------------
Cash flows from financing activities:
Net increase in deposits 19,799,019 29,175,224 10,381,516
Proceeds from FHLB advances, net 8,000,000 30,000,000 10,000,000
Net increase in other borrowed funds 12,726,330 1,551,007 4,636,818
Cash paid in lieu of fractional shares - (3,731) -
Proceeds from stock options exercised - 27,677 384,629
Cash dividends (254,214) (254,105) (200,664)
----------------- ----------------- ---------------
Net cash provided by financing activities 40,271,135 60,496,072 25,202,299
----------------- ----------------- ---------------
Net (decrease) increase in cash and cash equivalents (3,443,259) 5,779,568 (4,941,442)
Cash and cash equivalents at beginning of year 10,552,236 4,772,668 9,714,110
----------------- ----------------- ---------------
Cash and cash equivalents at end of year $ 7,108,977 10,552,236 4,772,668
================= ================= ===============
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 11,386,279 6,165,553 3,550,655
Income taxes 1,178,060 502,000 375,537
Supplemental schedule of non-cash investing activities:
Investment securities transferred to available-for-sale
securities $ - - 35,893,980
Effect of change in accounting principle (net of tax
effect of $12,233) - - 23,746
Effect on shareholders' equity of an unrealized
gain (loss) on securities available-for-sale
(net of tax effect of $148,404 in 1996,
$955,883 in 1995 and $843,142 in 1994) (288,079) 1,855,538 (1,636,687)
</TABLE>
F-6
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Organization and Operations
Bank of Mecklenburg was incorporated on September 8, 1988, and began
operations on July 12, 1989. Bank of Mecklenburg is engaged in general
commercial banking in Mecklenburg County, North Carolina and operates
under the banking laws of North Carolina and the Rules and Regulations of
the Federal Deposit Insurance Corporation.
Mecklenburg Financial Services, Inc., a wholly-owned subsidiary of Bank
of Mecklenburg, was incorporated on March 7, 1994 to provide investment
and trust services through agreements with outside parties.
(2) Summary of Significant Accounting Policies
The following is a description of the significant accounting and
reporting policies that Bank of Mecklenburg and subsidiary (the Bank)
follow in preparing and presenting their consolidated financial
statements.
(a) Principles of Consolidation and Reporting
The accompanying consolidated financial statements include the
accounts of Bank of Mecklenburg and its wholly owned subsidiary,
Mecklenburg Financial Services, Inc. All significant intercompany
balances have been eliminated.
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements, as well as
the amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications of certain amounts in the 1995 and 1994
consolidated financial statements have been made to conform with
the financial statement presentation for 1996. The
reclassifications have no effect on net income or shareholders'
equity as previously reported.
(b) Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks and
federal funds sold. Generally, cash and cash equivalents are
considered to have maturities of three months or less.
(c) Securities
In May 1993, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 addresses the accounting and reporting
for investments in equity securities that have readily
determinable fair values and all investments in debt securities.
These investments are classified into three categories as follows:
(1) debt securities that the entity has the positive intent and
the ability to hold to
F-7
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
(c) Securities (cont'd)
maturity are classified as held to maturity and reported at
amortized cost; (2) debt and equity securities that are bought and
held principally for the purpose of selling them in the near term
are classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings; and (3)
debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as
a separate component of shareholders' equity (net of tax effect).
The Bank adopted the provisions of SFAS No. 115 on January 1,
1994, with a substantial portion of the securities portfolio
classified as available-for-sale.
Gains and losses on securities are recognized at the time of sale
based on the specific identification method, and premiums and
discounts are amortized into interest income using the level yield
method.
(d) Loans and Allowance for Loan Losses
Loans are carried at their principal amount outstanding, net of
any unamortized purchase premium or discount on those loans which
were purchased. Interest income is recorded as earned on an
accrual basis.
The accrual of interest is generally discontinued on all loans
that become 90 days past due as to principal or interest unless
collection of both principal and interest is assured by way of
collateralization, guarantees, or other security, and the loan is
considered to be in the process of collection.
The Bank uses the allowance method in providing for possible loan
losses. The provision for loan losses is based upon management's
estimate of the amount needed to maintain the allowance for loan
losses at an adequate level to cover known and inherent risk of
loss in the loan portfolio. In determining the provision amount,
management gives consideration to economic conditions, the growth
and composition of the loan portfolio, and the relationship of the
allowance for loan losses to outstanding loans. While management
uses the best information available to make evaluations, future
adjustments may be necessary if economic and other conditions
differ substantially from the assumptions used.
F-8
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments
about information available to them at the time of their
examination.
In May 1993, the FASB issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." SFAS No. 114 prescribes the
recognition criterion for loan impairment and the measurement
methods for certain impaired loans and loans whose terms are
modified in troubled debt restructurings. When a loan is impaired,
a creditor must measure impairment based on (1) the present value
of the impaired loan's expected future cash flows discounted at
the loan's original effective interest rate, (2) the observable
market price of the impaired loan, or (3) the fair value of the
collateral for a collateral-dependent loan. Any measurement losses
are to be recognized through additions to the allowance for loan
losses. SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," amends SFAS No. 114 to
allow a creditor to use existing methods for recognizing interest
income on an impaired loan and requires additional disclosure
about how a creditor recognizes interest income related to
impaired loans.
Effective January 1, 1995, the Bank adopted SFAS No. 114 and 118.
The Bank previously measured loan impairment in a manner generally
comparable to the methods prescribed in SFAS No. 114. Accordingly,
the adoption of the Standards required no increase to the
allowance for loan losses and has had no impact on net income.
Management considers loans to be impaired when based on current
information and events, it is probable that a creditor will be
unable to collect all amounts due according to contractual terms
of the loan agreement. Factors that influence management's
judgments include, but are not limited to, loan payment pattern,
source of repayment, and value of collateral. A loan would not be
considered impaired if an insignificant delay in loan payment
occurs and management expects to collect all amounts due. The
major sources for identification of loans to be evaluated for
impairment include past due and nonaccrual reports, internally
generated lists of loans of certain risk grades, and regulatory
reports of examination. Impaired loans are measured using either
the discounted expected cash flow method or the value of
collateral method. When the ultimate collectibility of an impaired
loan principal is in doubt, wholly or partially, all cash receipts
are applied to principal.
(e) Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Expenditures for major renewals and betterments
which extend the useful lives of premises and equipment are
capitalized. Maintenance, repairs and minor improvements are
expensed as incurred. Depreciation of buildings is computed on the
straight-line method over 30 years. Depreciation of furniture and
equipment is computed on the straight-line method over periods
that approximate the estimated useful lives of the assets.
Accelerated depreciation methods are used for tax purposes.
F-9
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
(f) Income Taxes
The Bank computes its income taxes in accordance with the
provisions of SFAS 109. Under SFAS 109, deferred tax liabilities
are recognized on all taxable temporary differences (reversing
differences where tax deductions initially exceed financial
statement expense, or income is reported for financial statement
purposes prior to being reported for tax purposes). In addition,
deferred tax assets are recognized on all deductible temporary
differences (reversing differences where financial statement
expense initially exceeds tax deductions, or income is reported
for tax purposes prior to being reported for financial statement
purposes) and operating losses and tax credit carryforwards.
Valuation allowances are established to reduce deferred tax assets
if it is determined to be "more likely than not" that all or some
portion of the potential deferred tax assets will not be realized.
Under SFAS 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
(g) Reduction in Stock Par Value, Stock Split and Income per Share
During 1995, the Bank reduced the stated par value of the Bank's
common stock from $5 per share to $2 per share, declared and
distributed a five-for-four stock split and increased the Bank's
authorized shares from 3,000,000 shares to 10,000,000 shares. All
previously reported common stock and per share data have been
restated to reflect the reduction in par value and stock split.
Net income per share is computed by dividing consolidated net
income by the weighted average number of shares of common stock
outstanding during the year. The effect of common stock equivalent
shares applicable to stock option plans has not been included in
the calculation of net income per share because such effect is not
materially dilutive.
(h) Interest Rate Swaps, Floors and Caps
The Bank uses interest rate swaps, floors and caps for interest
rate risk management. These instruments are designated as hedges
of specific assets and liabilities when purchased. The net
interest payable or receivable on swaps, caps, and floors is
accrued and recognized as an adjustment to interest income or
interest expense of the related asset or liability. Premiums paid
for purchased caps and floors are amortized over the term of the
floors and caps as a yield adjustment of the related asset or
liability. Upon the early termination of swaps, floors and caps,
the net proceeds received or paid, including premiums, are
deferred and included in other assets or liabilities and amortized
over the shorter of the remaining contract life or the maturity of
the related asset or liability. Upon disposition or settlement of
the asset or liability being hedged, deferral accounting is
discontinued and any related premium or change in fair value of
the hedge instrument is recognized in earnings. If the hedge
instrument is retained subsequent to the disposition or settlement
of the underlying asset or liability, it will be redesignated to
specific assets or liabilities and any change in fair value of the
instrument recognized in earnings in connection with the previous
disposition of the underlying asset or liability will be recorded
as a purchase premium and amortized into interest income over the
contract term as a yield adjustment of the related asset or
liability.
F-10
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
(i) Other Accounting Changes
Effective January 1, 1996, the Bank adopted SFAS No. 122,
"Accounting for Mortgage Servicing Rights," which requires that a
mortgage banking enterprise recognize as separate assets the
rights to service mortgage loans for others, however those
servicing rights are acquired. A mortgage banking enterprise that
acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes those loans
with servicing rights retained should allocate the total cost of
the mortgage loans to the mortgage servicing rights and the loans,
(without the mortgage servicing rights) based on their relative
fair values if it is practicable to estimate those fair values. If
it is not practicable to estimate the fair values of the mortgage
servicing rights and the mortgage loans (without the mortgage
servicing rights), the entire cost of purchasing or originating
the loans should be allocated only to the mortgage loans without
the mortgage servicing rights. Additionally, this Standard
requires that a mortgage banking enterprise periodically assess
its capitalized mortgage servicing rights for impairment based on
the fair value of those rights. The impact of adoption of SFAS No.
122 on the financial statements was not material.
(j) Stock Options
Effective January 1, 1996, the Bank adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which requires that the
fair value of employee stock-based compensation plans be recorded
as a component of compensation expense in the statement of income
or the impact of such fair value on net income and earnings per
share be disclosed on a pro forma basis in a footnote to financial
statements in accordance with APB 25. The Bank will continue such
accounting under the provisions of APB 25.
(3) Branch Acquisition
On December 8, 1995, the Bank signed a definitive agreement to purchase
certain assets and assume deposit liabilities of a branch office from
Essex Savings Bank. The agreement became effective March 15, 1996 at
which time the Bank assumed approximately $28,100,000 in deposits
including accrued interest thereon, acquired approximately $800,000 in
assets consisting of cash on hand, installment loans and premises and
equipment, and received approximately $26,200,000 in cash. Deposit base
premium was approximately $1,100,000 and is being amortized straight-line
over seven years.
(4) Available-for-Sale Securities
Available-for-sale securities held at December 31, 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Total
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C>
December 31, 1996:
U.S. Government $ 1,028,547 - 19,177 1,009,370
U.S. Government agency 7,463,589 47,402 2,216 7,508,775
Mortgage-backed securities 123,781,733 490,590 215,212 124,057,111
Equity securities 63,648 - - 63,648
End-user derivatives 4,292,857 473,348 915,605 3,850,600
----------- ------------- ------------- ---------------
$136,630,374 1,011,340 1,152,210 136,489,504
============ ============= ============= ===============
</TABLE>
F-11
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
Gross Gross Total
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1995:
U.S. Government $ 3,038,082 - 33,077 3,005,005
U.S. Government agency 1,844,421 - 2,721 1,841,700
Mortgage-backed securities 79,416,771 438,973 107,562 79,748,182
----------- --------- --------- -----------
$ 84,299,274 438,973 143,360 84,594,887
=========== ========= ========= ===========
The following is a summary of the contractual maturities of available for
sale securities at December 31, 1996:
Amortized Cost Fair Value
Due in one year or less $ 422,205 420,024
Due after one year through five years 3,097,759 3,206,524
Due after five years through ten years 2,711,460 2,147,100
Due after ten years 130,335,302 130,652,208
Equity securities 63,648 63,648
--------------- ------------
$ 136,630,374 136,489,504
=============== ============
Proceeds from sales of available-for-sale securities during 1996 and 1995
were $267,813,893 and $64,158,610, respectively. Gross gains of
$3,452,885 and $539,204 and gross losses of $2,224,067 and $342,633 were
realized on sales of available-for-sale securities during 1996 and 1995,
respectively. In addition in 1996, gross gains of $1,188,801 and gross
losses of $682,049 were realized on terminations or marks to market of
end-user derivatives in available-for-sale securities.
Available-for-sale securities with an aggregate par value of $94,521,200
at December 31, 1996, were pledged to secure public deposits, FHLB
advances and other borrowed funds.
At December 31, 1996, shareholders' equity includes an after-tax amount
of ($92,974) based on depreciation in available-for-sale securities of
$140,870. At December 31, 1995, shareholders' equity includes an
after-tax amount of $195,105 based on appreciation in available-for-sale
securities of $295,613.
(5) Investment Securities
At December 31, 1996 the Bank held as investment securities a North
Carolina Education Authority bond maturing in December, 2005, and which
had an amortized cost and estimated fair value of $1,000,000.
At December 31, 1995, investment securities were comprised of municipal
bonds with an amortized cost of $13,167,341 and an estimated fair value
of $13,215,749. Gross unrealized gains and losses related to these
securities were $164,548 and $116,140, respectively.
F-12
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
Investment securities with a carrying value of $14,714,976 were sold
during March and April 1996, resulting in proceeds of $14,644,960. Gross
gains of $155,888 and gross losses of $225,904 were realized on these
sales of investment securities. In addition, gross gains of $700,250 were
realized on terminations or marks to market of end-user derivatives
designated to these assets. Management determined that the prevailing
market conditions did not justify maintaining a held-to-maturity
securities portfolio and, as a result, liquidated this entire portfolio.
There were no sales of investment securities during 1995 or 1994.
No investment securities were pledged to secure public deposits and other
borrowed funds at December 31, 1996.
(6) Loans and Allowance for Loan Losses
Loans at December 31, 1996 and 1995 are summarized as follows:
1996 1995
---- ----
Commercial $ 39,167,187 26,544,972
Real estate 62,576,460 39,144,219
Consumer 11,567,890 14,541,221
Other 543,980 592,570
-------------- ---------------
$ 113,855,517 80,822,982
================ ===============
Included in real estate loans were 1-4 family residential loans of
approximately $9,370,000 at December 31, 1996.
There were no nonaccrual loans or any loans considered impaired under
SFAS No. 114 at December 31, 1996 and 1995.
The following is a summary of the changes in the allowance for loan
losses for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
---- ---- ----
Beginning balance $ 973,000 900,000 857,000
Provision for loan losses 229,700 95,432 49,450
Charge-offs (28,852) (36,884) (7,197)
Recoveries 1,093 14,452 747
----------- ---------- ---------
Net charge-offs (27,759) (22,432) (6,450)
----------- ---------- ---------
Ending balance $ 1,174,941 973,000 900,000
=========== ========== =========
The following is a reconciliation of loans outstanding to executive
officers, directors, and their affiliates for the year ended December 31,
1996:
Balance at December 31, 1995 $ 6,715,914
New loans 1,872,741
Principal repayments (2,421,060)
-------------
Balance at December 31, 1996 $ 6,167,595
=============
F-13
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
At December 31, 1996, the Bank had preapproved but unused lines of credit
totaling $2,694,502 to executive officers, directors, and their
affiliates.
Such loans and lines of credit are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time
for comparable transactions with other borrowers. Such loans do not
involve more than the normal risks of collectibility.
(7) Premises and Equipment
Premises and equipment are summarized as follows:
Accumulated Net
Cost Depreciation Book Value
December 31, 1996:
Land $2,618,196 - 2,618,196
Building 3,720,782 666,285 3,054,497
Furniture and equipment 1,325,651 752,802 572,849
--------- --------- -----------
$7,664,629 1,419,087 6,245,542
========= ========= ===========
December 31, 1995:
Land $2,390,196 - 2,390,196
Building 3,204,565 552,813 2,651,752
Furniture and equipment 1,220,835 662,795 558,040
--------- --------- -----------
$6,815,596 1,215,608 5,599,988
========= ========= ===========
(8) Liabilities
Time deposits maturing in each of the five years subsequent to December
31, 1996 are as follows: 1997, $82,196,391; 1998, $20,257,568; 1999,
$1,525,075; 2000, $1,962,671; and 2001, $95,965.
FHLB adjustable rate advances and interest rates at December 31, 1996
consist of the following:
Maturity Date Interest Rate December 31, 1996
Demand 6.95% (based on daily Fed Funds rate) $8,000,000
February 13, 1998 5.42% (based on 3 month LIBOR) 30,000,000
March 23, 1998 5.53% (based on 3 month LIBOR) 10,000,000
----------
$48,000,000
The Bank is required to purchase and hold certain amounts of FHLB stock
in order to obtain FHLB advances. No ready market exists for the FHLB
stock and it has no quoted market value. This stock has a carrying value
based on cost and is redeemable at $100 per share subject to certain
limitations set by the FHLB.
F-14
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
At December 31, 1996, all stock in the FHLB and certain
available-for-sale securities were pledged as collateral to secure these
advances.
Other borrowed funds at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
Weighted Average Maximum
Balance as of Interest Rate as Average Average Outstanding at
December 31 of December 31 Balance Interest Rate Any Month-End
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996:
Repurchase
agreements $22,676,297 5.05% $19,748,158 5.54% $28,230,808
Federal funds
purchased - - 2,028,921 5.54% 9,745,000
1995:
Repurchase
agreements $ 8,745,472 4.69% $7,584,029 5.01% $9,951,561
Federal funds
purchased 1,155,000 5.75 1,073,096 5.97% $6,125,000
</TABLE>
Other borrowed funds also included treasury tax and loan note option
accounts of $341,761 and $391,258 at December 31, 1996 and 1995,
respectively.
(9) Income Taxes
Income tax expense consists of the following:
1996 1995 1994
---- ---- ----
Current
Federal $ 985,500 499,000 325,000
State 182,000 22,000 76,800
Deferred (79,000) (21,000) 51,000
------- -------- ---------
Total $1,088,500 500,000 452,800
========== ========== ===========
Total income tax expense differed from the amounts computed by applying
the applicable U.S. federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ----------------------- -----------------------
Amount Percentage Amount Percentage Amount Percentage
<S> <C> <C> <C> <C> <C> <C>
Tax at federal income tax rate $ 1,022,684 34.0% 597,202 34.0% 494,539 34.0%
State taxes, net of federal
benefit 120,120 4.0 14,520 0.8 50,688 3.5
Tax-exempt interest income (68,716) (2.3) (185,689) (10.6) (129,168) (8.9)
Non-deductible interest
expense 13,085 0.4 34,478 2.0 17,150 1.2
Other, net 1,327 0.1 39,489 2.3 19,591 1.3
-------------- --- ----------- ---- ----------- ----
$ 1,088,500 36.2% 500,000 28.5% 452,800 31.1%
============== ==== =========== ==== =========== ====
</TABLE>
F-15
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
The source and tax effects of temporary differences that give rise to
significant portions of the deferred tax assets (liabilities) at December
31, 1996 and 1995 are presented below:
1996 1995
---- ----
Deferred tax assets:
Loan loss reserves $ 416,678 328,596
Unrealized loss on available-for-sale
securities 47,895 -
Other 25,327 2,438
Total gross deferred tax assets 489,900 331,034
Less valuation allowance - -
Net deferred tax assets 489,900 331,034
-------- -----------
Deferred tax liabilities:
Depreciable basis of fixed assets (368,460) (337,731)
Unrealized gain on available-for-sale
securities - (100,508)
Other (5,545) (4,303)
Total gross deferred tax liabilities (374,005) (442,542)
-------- -----------
Net deferred tax asset (liability) $ 115,895 (111,508)
======== ===========
A portion of the change in the net deferred tax asset/liability relates
to unrealized gains and losses on available-for-sale securities. The
related current period deferred tax benefit of $148,403 has been recorded
directly to shareholders' equity. The balance of the change in the net
deferred tax asset/liability results from the current period deferred tax
benefit of $79,000.
The valuation allowance as of January 1, 1995 was $122,309. The net
change in the valuation allowance during 1995 was a decrease of $122,309
and was recorded directly to shareholders' equity as an adjustment to
unrealized gains and losses on available-for-sale securities. There was
no valuation allowance at January 1, 1996 and no net change in the
valuation allowance during 1996. It is management's opinion that
realization of the deferred tax asset is more likely than not, based upon
the Bank's history of taxable income and estimates of future taxable
income
The Bank's income tax return for 1993 and subsequent years are subject to
review by the taxing authorities.
(10) Common Stock
On September 13, 1988, the Bank adopted a Non-Qualified Stock Option Plan
(the "Plan") under which only directors are eligible to receive grants of
options. During 1994, all outstanding options were exercised or forfeited
with no options available for future grants.
F-16
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
In April 1996, the Bank's shareholders approved the 1996 Director Stock
Option Plan (the "1996 Plan") under which only directors are eligible to
receive grants of options. In June 1996, each of twelve directors was
granted options to purchase 15,000 shares of the Bank's common stock
resulting in a total of 180,000 options granted. These options have an
exercise price of $11.50 per share and are subject to a vesting schedule
under which the options will become exercisable over a five-year period,
with 20% of such options to become exercisable on each anniversary of the
date of grant, beginning in June 1997. The options will expire if not
exercised within ten years of the date of grant.
The Bank has an Incentive Stock Option Plan (the "ISO Plan") under which
options are periodically granted to executive officers and other
employees at a price not less than 100% of the fair market value of the
shares at the date of the grant. The ISO Plan provides that, unless
otherwise modified by the Compensation Committee of the Board of
Directors (the Committee), each option granted under the Plan shall
become fully exercisable by the optionee five years from the date the
option is granted. Pursuant to the terms of the ISO Plan, the Committee
increased the exercise period to six years for all options granted
subsequent to March 7, 1989. Shares subject to option vest at the rate of
20% for each year of continuous service for options granted prior to
March 7, 1989, and 20% for each year of continuous service after the
first full year of employment for options granted subsequent to March 7,
1989. If a recipient of options under the ISO Plan ceases to perform
services for the Bank during the five-year vesting period, then that
person may exercise the option only with respect to the vested portion of
the shares subject to the option. All options expire ten years from the
date of the grant.
The following table reflects the status of the ISO Plan at December 31,
1996:
Shares
Available Subject to
for Future Outstanding Option
Grants Options Price
Balance at December 31, 1993 $ 32,667 115,770 $7.04 - 8.96
Options granted (10,625) 10,625 8.40
Options exercised - - -
Options forfeited 6,719 (6,719) 7.40 - 8.96
------- ---------- -----------
Balance at December 31, 1994 28,761 119,676 $ 7.04-8.96
Options granted (9,000) 9,000 10.75
Options exercised - (3,591) 7.04-8.96
Options forfeited 9,530 (9,530) 7.40-8.40
------- ----------- -----------
Balance at December 31, 1995 29,291 115,555 $ 7.04-10.75
Options granted (12,500) 12,500 11.00-13.00
Options exercised - - -
Options forfeited 2,500 (12,030) 7.40-10.75
------- ---------- ------------
Balance at December 31, 1996 $ 19,291 116,025 $ 7.04-13.00
======= ========== ============
At December 31, 1996, 67,404 options under the ISO Plan were exercisable.
F-17
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Bank has elected to follow APB No. 25 and related interpretations in
accounting for its employee stock options as permitted under SFAS No.
123. In accordance with APB No. 25, no compensation expense is recognized
by the Bank when stock options are granted because the exercise price of
the Bank's stock option equals the market price of the underlying stock
on the date of grant. Had compensation cost for the Bank's stock option
plans been determined consistent with SFAS No. 123, the dilutive effect
on the Bank's net income would have been approximately $545,000 in 1996.
The effect on net income in 1995 would not have been material.
The average fair value of options granted in 1996 approximated $4.75. The
fair value of the 1996 option grants is estimated on the date of the
grants using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0.92%, expected
volatility of 19.00%, risk-free interest rate of 6.20% and an expected
average life of six years.
(11) Employee Benefit Plan
The Bank sponsors a 401(k) profit sharing plan available to substantially
all employees. The provisions of the plan provide that participating
employees may contribute up to 9% of their compensation. The Bank will
match at 100% the employee's annual contribution up to 6% of their
salary. The Bank's expense for its matching contributions in 1996, 1995
and 1994 amounted to approximately $49,905, $41,700 and $29,400,
respectively.
(12) Regulation and Regulatory Restrictions
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possible
additional discretionary--actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings and others factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 1996, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation 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 Teir I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the institution's category.
F-18
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
Minimum required Minimum required
for Regulatory Capital by Regulators to
Actual Adequacy Purposes be Well Capitalized
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk
Weighted Assets) $ 19,155,000 15.0% 10,210,000 >8.0% 12,763,000 >10.0%
- -
Tier I Capital (to Risk
Weighted Assets) 17,980,000 14.1 5,105,000 >4.0 7,658,000 >6.0
- -
Tier I Capital (to Average
Assets) 17,980,000 7.2 9,963,000 >4.0 12,453,000 >5.0
- -
As of December 31, 1995:
Total Capital (to Risk
Weighted Assets) 18,241,000 16.8% 8,712,000 >8.0% 10,890,000 >10.0%
- -
Tier I Capital (to Risk
Weighted Assets) 17,268,000 15.9 4,356,000 >4.0 6,534,000 >6.0
- -
Tier I Capital (to Average
Assets) 17,268,000 10.9 6,323,000 >4.0 7,903,000 >5.0
- -
</TABLE>
(13) Fair Value of Financial Instruments
In December 1991, the FASB issued SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments." SFAS No. 107 requires disclosures in
financial statements of the fair value of all financial instruments,
including assets and liabilities both on- and off-balance sheet, for
which it is practicable to estimate such fair value. Fair value
estimates, methods, and assumptions as of December 31, 1996 for the Bank
are set forth below and are subject to the following limitations.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's entire
holdings of a particular financial instrument. Because no market exists
for a portion of the Bank's financial instruments, fair value estimates
are based on judgments regarding future expected loss and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on-balance sheet financial
instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. Significant assets and liabilities that
are not considered financial assets or liabilities include deferred tax
liabilities, and premises and equipment. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on the fair value estimates and have
not been considered. For fair value estimates of off-balance sheet
financial instruments, see Note 13.
The Bank's fair value methods and assumptions are as follows:
(bullet) Cash and due from banks, federal funds sold, accrued interest
receivable and payable, and FHLB stock - the carrying value is
a reasonable estimate of fair value.
F-19
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
(bullet) Available-for-sale securities and investment securities - fair
value is based on available quoted market prices or quoted
market prices for similar securities if a quoted market price
is not available.
(bullet) Loans - fair value for fixed and adjustable rate loans is
estimated based upon discounted future cash flows using
discounted rates comparable to rates currently offered for such
loans.
(bullet) Deposits - fair value of time deposits is estimated using rates
currently offered for deposits of similar maturities. The fair
value of all other deposit account types is the amount payable
on demand at year-end.
(bullet) FHLB advances and other borrowed funds - the carrying value is
a reasonable estimate of fair value based on the borrowings
being adjustable rate or having short maturities.
Based on the limitations, methods, and assumptions noted above, the
estimated fair values of the Bank's financial instruments at December 31,
1996 are as follows:
Carrying Fair
Amount Value
Financial assets:
Cash and due from banks $ 6,108,977 6,108,977
Federal funds sold 1,000,000 1,000,000
Available -for-sale securities 136,489,504 136,489,504
Investment securities 1,000,000 1,000,000
Loans 112,680,579 113,309,000
Accrued interest receivable 1,597,291 1,597,291
Federal Home Loan Bank Stock 3,934,500 3,934,500
Financial liabilities:
Deposit accounts 177,987,873 176,545,000
FHLB advances 48,000,000 48,000,000
Other borrowed funds 23,018,060 23,018,060
Accrued interest payable 1,991,166 1,991,166
(14) Off-Balance Sheet Risk, Commitments and Contingent Liabilities
In the normal course of business, the Bank is a party to off-balance
sheet financial commitments originated in the course of its lending
activities. Such commitments include commitments to extend credit and
standby letters of credit. Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Generally,
commitments for extension of credit expire in one year or less. At
December 31, 1996, all of the Bank's $806,000 of standby letters of
credit had expiration dates of one year or less. All of the Bank's
$1,384,000 of outstanding loan commitments had expiration dates of one
year or less at December 31, 1996 while the Bank's $25,030,000 of
pre-approved but unused lines of credit had expiration dates over one
year. Since many of these commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank's exposure to credit loss in
the event of nonperformance by the other party to the financial
instrument for commitments to extend credit and standby letters of credit
is represented by the contract amount of those instruments. The Bank uses
the same credit and collateral policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
F-20
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Bank uses off-balance sheet financial contracts to assist in managing
interest rate risk. Instruments used for this purpose include interest
rate swaps, interest rate caps and interest rate floors. Interest rate
swap transactions generally involve the exchange of fixed and floating
rate interest payment obligations without the exchange of the underlying
principal or notional amounts. Entering into interest rate swap
agreements involves both the risk of dealing with counterparties and
their ability to meet the terms of the contracts and also interest rate
risk. Interest rate caps and floors are option contracts for which an
initial premium is paid and for which no ongoing interest rate risk is
present. The ability of counterparties to meet their obligation under the
terms of these contracts is the primary risk involved with purchased
interest rate caps and floors. The Bank manages the counterparty credit
risk associated with these instruments through credit approvals, limits
and monitoring procedures.
For interest rate swaps, interest rate caps and interest rate floors,
notional principal amounts often are used to express the volume of
transactions, however, the amounts potentially subject to credit risk are
much smaller. As of December 31, 1996, the aggregate notional amount of
all outstanding financial instrument contracts used for interest rate
management totaled approximately $256 million. At December 31, 1996, the
carrying amount of financial instruments used for interest rate risk
management was approximately $4,320,000 while the market value for these
instruments was approximately $4,070,000.
All these instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the
consolidated financial statements. At December 31, 1996, off-balance
sheet financial instruments and their related fair value methods and
assumptions, and fair values are as follows:
Commitments to extend credit and standby letters of credit - the large
majority of the Bank's credit commitments are at variable rates and,
therefore, are subject to minimal interest rate exposure.
Interest rate swaps, floors and caps - carrying values for off-balance
sheet investment products represent deferred amounts arising from these
financial instruments. Where possible, the fair values are based upon
quoted market prices. Where such prices do not exist, these values are
based on dealer quotes and generally represent an estimate of the amount
that the Bank would receive or pay to terminate the agreement at the
reporting date, taking into account current interest rates and the
current creditworthiness of the counterparties.
Contract or
Carrying Estimated Notional
(In thousands) Amount Fair Value Amount
Financial Instruments Associated
With Lending Activities
Commitments to extend credit $ - $ - $ 1,384,000
Standby letters of credit - - 806,000
Unused lines of credit - - 25,030,000
F-21
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
Contract or
Carrying Estimated Notional
(In thousands) Amount Fair Value Amount
Financial Instruments Used for Interest
Rate Risk Management, the Designated
Asset or Liability and Terms
Interest rate swap agreements:
Available-for-sale-securities
(Receive 3 month LIBOR,
pay fixed 6.25%, November 1995 -
November 2002) 212 108 10,000
(Receive 3 month LIBOR,
pay fixed 5.53%, February 1996 -
February 2001) - 282 10,000
(Receive 3 month LIBOR,
pay fixed 6.54%, March 1996 -
March 2003 449 (40) 20,000
(Receive 3 month LIBOR,
pay fixed 5.93%, January 1996 -
January 2006) 350 293 6,000
----- ------ ------
$1,011 643 46,000
======= ====== ======
Purchased interest rate caps:
Available-for-sale-securities
(Strike price 7%, 3 month LIBOR
index, December 1995 - December
2002) $ 400 434 15,000
(Strike price 4%, 3 month LIBOR
index, October 1995 - October 2000) 291 380 5,000
(Strike price 6%, 3 month LIBOR
index, March 1996 - March 2001) 632 581 20,000
(Strike price 7%, 3 month LIBOR
index, March 1996 - March 2001) 307 323 20,000
(Strike price 7%, 3 month LIBOR
index, April 1996 - April 2003) 769 782 25,000
-------- ------
2,399 2,500 85,000
======== ====== ======
F-22
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Notes to Consolidated Financial Statements
Contract or
Carrying Estimated Notional
(In thousands) Amount Fair Value Amount
Purchased interest rate floors:
Variable rate loans
(Strike price 6.5%, 1 month LIBOR
index, January 1996 - January 1997) - - 25,000
(Strike price 6.38%, 1 month LIBOR
index, January 1997 - January 1998) 26 197 25,000
Available-for-sale-securities
(Strike price 5%, 3 month LIBOR
index, March 1996 - March 2000) 352 137 40,000
(Strike price 5%, 3 month LIBOR
index, April 1996 - April 2006) 531 570 35,000
----- ------- -------
$ 909 904 125,000
===== ======= =======
The Bank grants primarily commercial, real estate, and consumer loans to
customers in its primary market area, which is Mecklenburg County. The
real estate loan portfolio can be affected by the condition of the local
real estate market. The commercial and consumer loan portfolios can be
affected by local economic conditions.
The Bank is a defendant in various litigation arising in the normal
course of business. In the opinion of management, resolution of these
matters will not result in a material adverse effect on the Bank's
financial position.
Average daily Federal Reserve balance requirements for the year ended
December 31, 1996, amounted to $2,032,000.
F-23
<PAGE>
EXHIBIT 7(II)
<PAGE>
BANK OF MECKLENBURG
2000 RANDOLPH ROAD
CHARLOTTE, NORTH CAROLINA 28207
TELEPHONE: (704) 375-2265
----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of Bank
of Mecklenburg (the "Bank") will be held at 10:00 a.m., local time, on Tuesday,
April 22, 1997, at the Bank's offices, 2000 Randolph Road, Charlotte,
Mecklenburg County, North Carolina, for the following purposes:
1. To elect five directors to serve until the 2000 Annual Meeting of
Shareholders, or until their successors have been elected and qualified.
2. To consider the authorization of an additional seat on the Board of
Directors, which may be filled by the Board of Directors, in its discretion,
during the interval between shareholder meetings.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on March 11, 1997, are
entitled to notice of, and to vote at, the meeting and any adjournment thereof.
The Bank's stock transfer books will not be closed.
Shareholders are urged to fill in, date, sign, and return promptly the
enclosed proxy in the enclosed prepaid envelope. It is desirable that as many
shareholders as possible be represented at the meeting. Consequently, whether or
not you now expect to be present, please execute and return the enclosed proxy.
If you return the enclosed proxy, you may nevertheless attend the meeting and
vote in person, in which case your returned proxy will be disregarded.
BY ORDER OF THE BOARD OF DIRECTORS
John H. Ketner, Jr.
President
Dated: March 24, 1997
<PAGE>
BANK OF MECKLENBURG
2000 RANDOLPH ROAD
CHARLOTTE, NORTH CAROLINA 28207
TELEPHONE: (704) 375-2265
-----------------
PROXY STATEMENT
-----------------
The Board of Directors (the "Board") of Bank of Mecklenburg (the
"Bank"), the principal executive offices of which are located at 2000 Randolph
Road, Charlotte, Mecklenburg County, North Carolina 28207, hereby solicits your
proxy, in the form enclosed with this statement, for use at the Annual Meeting
of Shareholders to be held at 10:00 a.m., local time, on Tuesday, April 22,
1997, at the Bank's offices at 2000 Randolph Road, Charlotte, Mecklenburg
County, North Carolina, or at any adjournment thereof, for the purposes stated
in the accompanying Notice of Annual Meeting of Shareholders.
Shares can be voted at the meeting only if the shareholder is
represented by proxy or present in person. The persons named as proxies in the
enclosed form of proxy, who are referred to herein as the Proxy Committee, are
John T. Roper and Paul J. Simon, whom the Board has designated as management
proxies. When proxies in the enclosed form are returned, properly executed and
in time for the meeting, the shares represented thereby will be voted at the
meeting. A shareholder giving a proxy in the accompanying form may revoke the
proxy at any time prior to the actual voting of that proxy by notifying the
Bank's Secretary in writing, or by executing another proxy bearing a later date
and filing it with the Secretary (Jean R. Galloway, Bank of Mecklenburg, Post
Office Box 220927, Charlotte, North Carolina 28222). In addition, if a
shareholder attends the meeting in person, he may vote his shares without
returning the enclosed proxy, and if he has returned the proxy, he may
nevertheless attend the meeting and, after notifying the Secretary of his
preference, vote in person, in which case his returned proxy will be
disregarded.
In addition to solicitation by mail, the Bank's directors, officers and
regular employees may solicit proxies in person or by telephone. Brokerage
houses, nominees, custodians, and fiduciaries are requested to forward these
proxy soliciting materials to the beneficial owners of the Bank's stock held of
record by such persons, and the Bank will reimburse their reasonable expenses in
this regard. The Bank anticipates mailing this Proxy Statement on or about March
24, 1997, to shareholders of record at the close of business on March 11, 1997,
who are the only shareholders entitled to vote at the Annual Meeting.
Each proxy returned to the Bank will be voted in accordance with the
instructions indicated thereon.
<PAGE>
OUTSTANDING STOCK
At the close of business on March 11, 1997, there were 2,118,945 shares
of the Bank's common stock issued and outstanding, and, except as noted below,
entitled to vote at the Annual Meeting. Each share is entitled to one vote on
all matters to be considered at the Annual Meeting.
The Bank's Bylaws provide that the holders of a majority of the Bank's
outstanding shares, represented in person or by proxy, shall constitute a quorum
at the Annual Meeting, and that if there is no quorum present at the opening of
the Meeting, the Annual Meeting may be adjourned from time to time by the vote
of a majority of the shares voting on the motion to adjourn. At any such
adjourned meeting at which a quorum is present or represented, any business may
be transacted that might have been transacted at the meeting as originally
notified. A shareholder abstaining from the vote on a particular proposal will
be counted as present for determining whether a quorum is present, but will be
counted as not having voted on the proposal in question.
PRINCIPAL SHAREHOLDER
To the Bank's knowledge, as of March 11, 1997, only one shareholder
owned more than five percent of the Bank's common stock:
<TABLE>
<CAPTION>
SHAREHOLDER'S SHARES CURRENTLY PERCENT OF
NAME AND ADDRESS OWNED COMMON STOCK OWNED
<S> <C> <C> <C>
Cy N. Bahakel 530,329 25.03%(2)
Bahakel Communications, Ltd.
Post Office Box 32488
Charlotte, NC 28232
</TABLE>
- ---------------
(1) As to all such shares, Mr. Bahakel exercises sole voting and investment
power.
(2) Based on the total of 2,118,945 shares outstanding.
-2-
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND PRINCIPAL OFFICERS
The following table shows, as of March 11, 1997, the number of shares
of the Bank's common stock owned by each director and by all directors and
principal officers of the Bank as a group:
<TABLE>
<CAPTION>
SHARES PERCENT OF
NAME OF CURRENTLY COMMON STOCK
BENEFICIAL OWNER(1) OWNED(2) OWNED
<S> <C> <C>
Helen C. Adams 16,842 0.79%
H. Perrin Anderson 22,792 1.07%
Cy N. Bahakel 530,329 25.03%
Carl G. Belk 10,307 0.49%
W.E. Bryant, Jr. 20,040 0.95%
Claude T. Davis, Sr. 10,503 0.50%
Aubrey J. Elam 35,329 1.67%
Dee-Dee W. Harris 34,354 1.62%
John H. Ketner, Jr. 86,011(3) 4.06%
Beverly B. Poston 1,778 0.08%
John T. Roper, M.D. 20,635 0.97%
Paul J. Simon 15,743 0.74%
Allan W. Singer 12,898 0.60%
All Directors and Principal 906,716(4) 42.79%
Officers as a Group
(16 Persons)
</TABLE>
- ---------------
(1) All directors are residents of Mecklenburg County, North Carolina.
(2) Amounts in this column include shares owned by certain related parties
but as to which the officer or director in question has indicated that
he or she maintains voting and investment control.
(3) Includes 59,373 shares that Mr. Ketner has the right to acquire within
sixty days through the exercise of stock options.
(4) Includes 86,120 shares that principal officers have the right to
acquire within sixty days through the exercise of stock options. In
addition, principal officers have options that are not vested (and thus
the underlying shares may not be acquired within sixty days) for 26,125
shares, and those shares are not included in the totals reflected in
the table.
-3-
<PAGE>
ACTION TO BE TAKEN UNDER THE PROXY
The shares represented by the enclosed form of proxy, if properly
dated, executed and returned, will be voted at the Annual Meeting or any
adjournment thereof in accordance with the instructions thereon. Any proxy upon
which no instructions have been indicated with respect to a specified matter
will be voted as follows: (a) "FOR" the election of the five persons named in
this Proxy Statement as nominees for election as Class II Directors; (b) "FOR"
approval of the additional unfilled seat on the Board of Directors and (c) In
the discretion of the proxy holders in the transaction of such other business as
may properly come before the Annual Meeting or any adjournment thereof. The
Board of Directors knows of no matters, other than those stated above, to be
presented for consideration at the Annual Meeting. If, however, other matters
properly come before the Annual Meeting or any adjournment thereof, it is the
intention of the persons named in the accompanying proxy to vote such proxy in
accordance with their best judgment on any such matters. The persons named in
the accompanying proxy may also, if it is deemed advisable, vote such proxy to
adjourn the Annual Meeting from time to time.
PROPOSAL NUMBER 1:
ELECTION OF DIRECTORS
Under the Bank's Charter and Bylaws, the number of directors shall be
such number as the Board determines from time to time prior to each Annual
Meeting of Shareholders at which directors are to be elected, such number to be
not less than nine nor more than thirty. The Board, by resolution, has fixed the
number of directors at thirteen, plus one additional director if approved by the
shareholders, with five directors to be elected at this Annual Meeting to serve
until the 2000 Annual Meeting of Shareholders or until their successors are
elected and qualified.
The Bank's Charter and Bylaws provide that the Board shall be divided
into three classes, each containing as nearly equal a number of directors as
possible, with the term of office for the first class (the "Class I Directors")
to expire at the first Annual Meeting of Shareholders after their election, the
term of office for the second class (the "Class II Directors") to expire at the
second Annual Meeting of Shareholders after their election, and the term of
office for the third class (the "Class III Directors") to expire at the third
Annual Meeting of Shareholders after their election. At each Annual Meeting of
Shareholders following such initial classification and election, directors
elected to succeed those directors whose terms expire as specified above shall
be elected for a term of office of three years.
At the 1993 Annual Meeting of Shareholders, the Bank's shareholders
authorized the creation of an additional seat on the Board (to be vacant upon
creation), and authorized the Board to elect a director to occupy this seat. In
1996, Beverly B. Poston was elected by the Board to fill this seat. The Bank's
Bylaws provide that the term of a director elected to fill the unfilled seat
will expire at the Annual Meeting following the director's election. For this
reason, and because the Charter and Bylaws require that each class of directors
contain as nearly equal a number of directors as possible, Mrs. Poston has been
added to the Class II directors who will stand for re-election at the 1997
Annual Meeting. The terms of the other Class II Directors, who
-4-
<PAGE>
were elected at the 1994 Annual Meeting, are scheduled to expire at the upcoming
Annual Meeting.
Directors will be elected by a plurality of the votes cast at the
Annual Meeting. In the absence of any contrary specification (and except as
noted below), the Proxy Committee will vote for the election of the five
nominees listed in the table below as Class II Directors. If, at or before the
meeting time, any of the nominees listed below has become unavailable for any
reason, the Proxy Committee has the discretion to vote for a substitute nominee
or nominees. Management currently has no reason to anticipate that any nominee
listed below will become unavailable.
NOMINEES FOR CLASS II DIRECTORS. Listed below are the names of the
nominees for election as Class II Directors, together with their ages and their
principal occupations during the past five years. Each of the nominees currently
is a director, having served as such since the Bank's incorporation on September
8, 1988, except for Mrs. Poston, who was elected to the Board in 1996.
LISTED BELOW ARE THE FIVE PERSONS NOMINATED FOR ELECTION
AS CLASS II DIRECTORS FOR
THREE-YEAR TERMS EXPIRING IN 2000
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND AGE FOR PAST FIVE YEARS
<S> <C>
H. Perrin Anderson, 62 President, Anderson & Anderson, Inc.
(investments)
W.E. Bryant, Jr., 50 President, Bryant & Clark Communications, Inc.
(advertising agency)
Aubrey J. Elam, 66 Managing General Partner, Airport Park 160
(real estate development)
Dee-Dee W. Harris, 54 President, Harris Land Company
(real estate development)
Beverly B. Poston, 45 Executive Vice President, Bahakel Communications
(telecommunications)
</TABLE>
-5-
<PAGE>
REMAINING DIRECTORS AND ADDITIONAL BOARD INFORMATION
The following table shows the names, ages and principal occupations
during the past five years of the Bank's Class I and Class III Directors. Each
such person has served as a director of the Bank since the Bank's incorporation
on September 8, 1988, except for Carl G. Belk, who first became a director in
1992. Mr. Bahakel is Chairman of the Board of the Bank and Mr. Anderson is Vice
Chairman of the Board.
LISTED BELOW ARE THE FOUR PERSONS SERVING
AS CLASS I DIRECTORS FOR TERMS EXPIRING IN 1999
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND AGE FOR PAST FIVE YEARS
<S> <C>
Helen C. Adams, 68 President, HCA, Inc./Helen Adams Realty
(real estate brokerage)
Claude T. Davis, Sr., 76 Retired; formerly, President, Pinnacle Furniture Co.
(furniture manufacturing)
John H. Ketner, Jr., 55 President and CEO, Bank of Mecklenburg
Allan W. Singer, 52 Attorney, Mitchell, Rallings, Singer, McGirt &
Tissue, PLLC, and predecessors (private law firm)
LISTED BELOW ARE THE FOUR PERSONS SERVING
AS CLASS III DIRECTORS FOR TERMS EXPIRING IN 1998
PRINCIPAL OCCUPATION
NAME AND AGE FOR PAST FIVE YEARS
Cy N. Bahakel, 69 Chairman of Board, President and Treasurer,
Bahakel Communications, Ltd.
(telecommunications)
Carl G. Belk, 36 President, Monroe Hardware
(hardware wholesale distributors)
John T. Roper, M.D., 66 Orthopaedic Surgeon; retired
Paul J. Simon, 51 President, Paul Simon Company
(retail clothing)
</TABLE>
-6-
<PAGE>
No director or principal officer of the Bank is related to another
director or principal officer, except that Mr. Bryant is Mr. Davis' nephew and
Mrs. Poston is Mr. Bahakel's daughter.
No director or nominee is a director of any company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Act"), subject to the requirements of Section 15(d) of
the Act, or registered as an investment company under the Investment Company Act
of 1940.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has established the committees described below.
EXECUTIVE ASSET-LIABILITY COMMITTEE. The Executive Asset-Liability
Committee, between Board meetings and subject to such limitations as may be
required by law or imposed by Board resolution, may exercise all of the Board's
authority. The Executive Asset-Liability Committee also performs the functions
of a nominating committee and an investment committee. The Executive
Asset-Liability Committee's nominating committee functions include, among other
things, to recommend annually to the Board the names of persons to be considered
for nomination and election to the Board by the Bank's shareholders and, as
necessary, recommending to the Board the names of persons to be elected to the
Board to fill vacancies as they occur between annual meetings. In identifying
prospects for the Board, the Committee will consider individuals recommended by
shareholders. Names and resumes of nominees should be forwarded to the Corporate
Secretary who will submit them to the Committee for consideration. In its
function as an investment committee, the Executive Asset-Liability Committee
reviews and approves Bank investments to insure that such investments are in
accordance with Bank policy as set by the Board. The Executive Asset-Liability
Committee held fourteen meetings during 1996. Members of the Executive
Asset-Liability Committee are Mr. Anderson, Mr. Bahakel (Chairman), Mr. Elam,
Mr. Ketner, Dr. Roper and Mr. Singer.
AUDIT COMMITTEE. The Audit Committee is responsible for insuring that
the Board receives objective information regarding Bank policies, procedures and
activities with respect to auditing, accounting, internal accounting controls,
financial reporting, and such other Bank activities as the Board may direct.
Subject to the Board's approval, the Audit Committee engages a qualified firm of
certified public accountants to conduct such audit work as is necessary for this
purpose. The Audit Committee held four meetings during 1996. Members of the
Audit Committee are Ms. Adams, Mr. Belk (Chairman), Mr. Davis and Mrs. Poston.
COMPENSATION COMMITTEE. The Compensation Committee reviews and
recommends to the Board the annual compensation, including salary, stock
options, incentive compensation, and other benefits, for senior management and
other Bank employees (other than Mr. Ketner, whose compensation is reviewed by
the Executive Asset-Liability Committee and recommended to the Board). The
Compensation Committee held four meetings during 1996. Members of the
Compensation Committee are Mr. Bryant, Mrs. Harris, Mr. Ketner (ex officio), and
Dr. Roper (Chairman).
-7-
<PAGE>
GENERAL LOAN COMMITTEE. The General Loan Committee reviews and approves
loans made by the Bank to insure that such loans are in accordance with Bank
policy set by the Board. The General Loan Committee held nineteen meetings
during 1996. Members of the General Loan Committee are Mr. Anderson, Mr. Ketner,
Dr. Roper, Mr. Simon and Mr. Singer (Chairman).
ATTENDANCE AND DIRECTOR COMPENSATION
The Bank's Board of Directors held eight meetings in 1996. In 1996, all
of the directors attended at least 75% of the aggregate of the meetings of the
Board and of all committees on which they served (during the period they were
directors and members of such committees).
Directors are paid a fee of $200 per meeting for Board meetings they
attend, and a fee of $150 for each committee meeting attended. The Directors
were paid fees for their services totalling $28,450.00 in 1996. In addition,
during 1996 each director was granted options to purchase 15,000 shares of the
Bank's common stock, pursuant to the 1996 Director Stock Option Plan approved by
the Bank's shareholders at the 1996 Annual Meeting of Shareholders. These
options are subject to a vesting schedule under which the options will become
exercisable over a five-year period beginning on June 5, 1997, the date one year
from the date of grant, with 20% of such options to become exercisable on each
anniversary of the date of grant. The options will expire if not exercised on or
before June 5, 2006. The purchase price under such options is $11.50 per share.
BANK'S TRANSACTIONS WITH DIRECTORS
The Bank has had, and expects to have in the future, banking
transactions with directors and their associates. The Bank has adopted a policy
of not engaging in transactions with its officers and employees. During 1996,
the largest aggregate outstanding amount of indebtedness from all directors (and
their associates) as a group at any one time was $6,908,704.
During 1992, Director Harris obtained a secured loan from the Bank in
an amount which exceeded 10% of the Bank's equity capital accounts at that time.
The largest aggregate amount of such indebtedness outstanding from Director
Harris and her associates during 1996 was $2,120,080 (11.4% of the Bank's equity
capital accounts at that time), and the amount outstanding as of February 5,
1997, was $2,077,005.
All transactions with directors or their associates are made in the
ordinary course of the Bank's business, on substantially the same terms,
including (in the case of loans) interest rates, collateral, and repayment
terms, as those prevailing at the same time for comparable transactions with
other persons, and have not involved more than the normal risk of collectibility
or presented other unfavorable features.
-8-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth information
concerning the compensation for the years ended December 31, 1994, 1995 and 1996
for those persons who were, at December 31, 1996, (i) the President of the Bank
and (ii) the Bank's next most highly compensated executive officer (together,
the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
POSITION YEAR ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
John H. Ketner, Jr. 1996 114,583 39,600 - 15,000 $12,219(1)
President 1995 110,000 37,400 - - 7,173
1994 109,375 36,000 - - 6,843
Frank W. Ix 1996 87,346 20,000 - 500 6,972(1)
Senior Vice President 1995 86,833 22,000 - 500 5,172
1994 86,518 18,250 - - 4,911
======================== ======== ============ ============ =============== =============== ===============
</TABLE>
- --------------
(1) Includes contributions by the Bank to the Bank's defined contribution
plan under Section 401(k) of the Internal Revenue Code in the amounts
of $9,000 for the account of Mr. Ketner and $6,540 for the account of
Mr. Ix. Also includes term life insurance premium paid by the Bank for
the benefit of the named officers in the amount of $3,219 for Mr.
Ketner and $432 for Mr. Ix.
-9-
<PAGE>
OPTION GRANTS TABLE. The following table sets forth certain information
concerning grants of stock options to the Named Officers during the year ended
December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES OR BASE EXPIRATION
NAME GRANTED IN FISCAL PRICE DATE
(#) YEAR(1) ($/SH)
<S> <C> <C> <C> <C> <C>
John H. Ketner, Jr. 15,000 54.5 11.50 6/05/06
Frank W. Ix 500 1.8 13.00 11/21/06
======================= ================= =============== ============ ===============
</TABLE>
- --------------
(1) Based on 27,500 total shares on which options were granted to employees
in 1996.
DISCLOSURE OF EMPLOYMENT AGREEMENT
The Bank is a party to an employment agreement with John H. Ketner,
Jr., President and Chief Executive Officer. Mr. Ketner's contract currently
extends through January 28, 1999, and is automatically renewed for two-year
periods at the expiration of each year of employment, unless sooner terminated
pursuant to the contract or if at least 120 days' notice is given by either
party.
The contract calls for Mr. Ketner to receive an annual cash salary plus
bonus, with annual adjustments as determined by the Board. Under the contract,
Mr. Ketner is entitled to all fringe benefits which are generally provided by
the Bank for its employees. Mr. Ketner is also entitled to an automobile
allowance, club dues, and certain disability insurance benefits pursuant to his
contract. The contract also provides for implementation of a supplemental
retirement compensation program to provide retirement income to Mr. Ketner,
including 401(k) plan and social security benefits, of approximately 50% of Mr.
Ketner's base salary at the time of his retirement.
Mr. Ketner's employment contract contains provisions that provide
certain benefits to Mr. Ketner if Mr. Ketner's employment is terminated for any
reason, other than termination for cause, following a "change in control" of the
Bank, as defined in the agreement. The benefits to be paid upon such a
termination include a severance payment equal to Ketner's base salary for the
two years preceding the change in control, medical and dental insurance benefits
for the two years following the change in control, and immediate vesting of any
non-vested options to purchase the Bank's stock and any deferred compensation
benefits.
-10-
<PAGE>
SECTION 16 REPORTS
Section 16(a) of the Securities Exchange Act of 1934 requires the
Bank's directors and executive officers, and persons who beneficially own more
than ten percent of the Bank's common stock, to file with the Federal Deposit
Insurance Corporation initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the Bank. Executive
officers, directors and greater than ten-percent beneficial owners are required
by FDIC regulations to furnish the Bank with copies of all Section 16(a) reports
that they file. To the Bank's knowledge, based solely on review of the copies of
such reports furnished by the Bank and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its executive officers and
directors and greater than ten-percent beneficial owners were complied with.
PROPOSAL NUMBER 2:
APPROVAL OF ADDITIONAL SEAT ON BOARD OF DIRECTORS
TO BE FILLED BY THE BOARD IN ITS DISCRETION
The Articles of Incorporation and Bylaws of the Bank contain provisions
(as allowed under Section 53-67 of the North Carolina General Statutes) that
allow for the creation of not more than two additional seats on the Bank's Board
of Directors, to be left unfilled by the shareholders and to be filled in the
discretion of the Board of Directors during the interval between meetings of the
shareholders. At the Annual Meeting, the shareholders will be asked to authorize
the creation of one additional seat on the Board of Directors (which seat will
be vacant upon its creation), and to authorize the Board, at its discretion, to
elect a director to occupy this seat. Any director elected by the Board to
occupy the additional seat will serve only until the next Annual Meeting of
Shareholders following such election.
The purpose of the requested authorization is to allow the Board
flexibility to add a member to the Board should it be able to identify a
candidate with exceptional qualifications or who would address a perceived need.
The affirmative vote of a majority of the shares represented at the
Annual meeting in person or by proxy is necessary to grant the requested
authorization to the Board. The authorization would become effective immediately
upon such approval.
A vote "for" the requested authorization authorizes both the creation
of the additional seat on the Board of Directors and the Board's having
discretion to elect a director. The Proxy Committee will vote proxies under its
control for the requested authorization.
-11-
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Bank's independent certified public accountant for the year ended
December 31, 1996, was KPMG Peat Marwick, LLP, which has also been retained as
the Bank's independent certified public accountant for the year ending December
31, 1997. The Board selects the independent certified public accountant, upon
recommendation by the Audit Committee. Representatives of KPMG Peat Marwick,
LLP, which has served as the Bank's independent certified public accountant
since the Bank's incorporation in 1988, will be present at the Annual Meeting
with the opportunity to make a statement if they desire, and will be available
to respond to appropriate questions.
ANNUAL REPORT
A copy of the Bank's Annual Report for the year ended December 31, 1996
(which also serves as the Bank's annual disclosure statement to shareholders
required by federal regulation), accompanies this Proxy Statement. No part of
such Annual Report should be regarded as proxy-soliciting materials or as a
communication by means of which any solicitation is being or is to be made.
DATE FOR RECEIPT OF PROPOSALS
For shareholder proposals to be included in the proxy materials for the
Bank's next Annual Meeting, any such proposals must be received at the Bank's
then principal office (currently 2000 Randolph Road, Charlotte, North Carolina
28207) not later than December 22, 1997. The Board will review any shareholder
proposal received by this date and will determine whether any such proposal
should be included in its proxy solicitation materials. Proposals so presented
may be excluded from the proxy solicitation materials if they fail to meet
certain criteria established under the Securities Exchange Act of 1934 or
related FDIC regulations. Shareholders are urged to submit any proposal by
certified mail, return receipt requested.
OTHER MATTERS
Management knows of no other matters which will be brought before this
meeting, but if any such matter is properly presented at the meeting or any
adjournment thereof, the persons named in the enclosed form of proxy will vote
in accordance with their best judgment.
By order of the Board of Directors.
John H. Ketner, Jr.
President
-12-
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
FORM F-4
QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1997
FDIC CERTIFICATE NUMBER 27553-1
BANK OF MECKLENBURG
A NORTH CAROLINA CORPORATION
IRS EMPLOYER IDENTIFICATION NUMBER 56-1588228
2000 RANDOLPH ROAD
CHARLOTTE NC 28207
TELEPHONE 704-375-2265
Indicate by checkmark whether the Bank (1) has filed all reports required to be
filed by Section 13 of the Securities Act of 1934 during the preceding twelve
months (or for such shorter period that the Bank was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. YES X NO
--- ---
Indicate by checkmark if the Bank, as a "small business issuer" as defined under
17 CFR 240-12b-2, is providing alternative disclosure as permitted for small
business issuers in this form F-4. YES X NO
--- ---
Indicate the number of shares outstanding of each of the Bank's classes of
common stock as of the latest practicable date.
COMMON STOCK, $2.00 PAR VALUE
2,118,945 SHARES OUTSTANDING ON MARCH 31, 1997
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
FORM F-4
INDEX
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
o Consolidated Balance Sheets 3
o Consolidated Statements of Income 4
o Consolidated Statements of Changes in Shareholders' Equity 5
o Consolidated Statements of Cash Flows 6
o Notes to Consolidated Financial Statements 7-10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11-17
SIGNATURES 18
</TABLE>
2
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Unaudited Audited
Assets March 31, December 31,
1997 1996
--------- ------------
Cash due from banks $ 5,595 $ 6,109
Federal Funds sold -- 1,000
Available-for-sale securities, cost-1997
$80,172, 1996 $140,565 80,325 140,424
Held-to-maturity securities-market value-
1997-$1,000; 1996-$1,000 1,000 1,000
Trading assets 54,447 --
Loans 124,268 113,856
Less allowance for loan losses (1,249) (1,175)
--------- ---------
Net loans 123,019 112,681
--------- ---------
Premises and equipment 6,415 6,245
Other assets 2,711 2,830
--------- ---------
Total assets 273,512 270,289
========= =========
Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterst bearing 11,030 14,110
Interest bearing 66,015 56,537
Savings 1,403 1,303
Time, $100,00 or more 45,573 43,286
Other time 72,139 62,752
--------- ---------
Total deposits 196,160 177,988
--------- ---------
FHLB advances 46,500 48,000
Other borrowed funds 8,183 23,018
Other liabilities 3,097 2,443
--------- ---------
Total liabilities 253,940 251,449
--------- ---------
Shareholders' equity
Common stock, $2 par value; authorized
10,000,000 shares; issued and outstanding
2,118,945 in 1997, 2,118,445 in 1996 4,238 4,237
Additional paid-in capital 10,892 10,889
Retained earnings 4,341 3,807
Unrealized gain(loss) on available-
for-sale securities 101 (93)
--------- ---------
Total shareholders' equity 19,572 18,840
--------- ---------
Total liabilities and shareholders' equity $ 273,512 $ 270,289
========= =========
See accompanying notes to financial statements
3
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands)
For the periods ended Unaudited Unaudited
March 31, March 31,
1997 1996
--------- ----------
Interest income:
Loans, including fees $ 2,573 $ 1,962
Securities 1,789 1,687
Federal funds sold and interest bearing balances 44 31
---------- ----------
Total interest income 4,406 3,680
---------- ----------
Interest expense:
Time deposits, $100,000 and over 610 463
Other deposits 1,677 1,251
FHLB advances and other borrowed funds 706 721
---------- ----------
Total interest expense 2,993 2,435
---------- ----------
Net interest income 1,413 1,245
Provision for loan losses (44) (95)
---------- ----------
Net interest income after provision
for loan losses 1,369 1,150
---------- ----------
Other income
Service charges on deposit accounts 32 35
Other service charges and fees 7 13
Other noninterest income 3 -
Securities gains 78 366
Gain on trading securities 310 -
---------- ----------
Total other income 430 414
---------- ----------
Other expenses:
Salaries and benefits 429 383
Premises and equipment 118 104
Other expenses 341 380
---------- ----------
Total other expenses 888 867
---------- ----------
Income before income taxes 911 697
Income tax expense 377 230
---------- ----------
Net income $ 534 $ 467
=========== ==========
Average shares outstanding 2,118,945 2,118,445
Net income per share $0.25 $0.22
See accompanying notes to financial statements
4
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Consolidated statement of changes in stockholders equity:
<TABLE>
<CAPTION>
For the three months ended March 31, 1997, 1996 (unaudited)
(Dollars in thousands) Unrealized
Additional gain(loss) Total
Number of Common paid in Retained AFS Shareholders'
Shares Stock Capital Earnings securities Equity
Balance
<S> <C> <C> <C> <C> <C> <C>
January 1, 1996 2,118,445 $ 4,237 $ 10,889 $ 2,142 $ 195 $ 17,463
Net income for period -- -- -- 467 -- 467
Change in unrealized gain (loss)
on available-for-sale
securities -- -- -- -- (426) (426)
Proceeds from stock
options exercised -- -- -- -- -- --
Balance _________ _________ _________ _________ _________ _________
March 31, 1996 2,118,445 $ 4,237 $ 10,889 $ 2,609 $ (231) $ 17,504
========= ========= ========= ========= ========= =========
Unrealized
Additional gain(loss) Total
Number of Common paid in Retained AFS Shareholders'
Shares Stock Capital Earnings securities Equity
Balance
January 1, 1997 2,118,445 $ 4,237 $ 10,889 $ 3,807 $ (93) $ 18,840
Net income for period -- -- -- 534 -- 534
Change in unrealized gain (loss)
on available-for-sale
securities -- -- -- -- 194 194
Proceeds from stock
options exercised 500 1 3 -- -- 4
Balance _________ _________ _________ _________ _________ _________
March 31, 1997 2,118,945 $ 4,238 $ 10,892 $ 4,341 $ 101 $ 19,572
========= ========= ========= ========= ========= =========
See accompanying notes to financial statements
</TABLE>
5
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Three months ended:
Unaudited Unaudited
--------- ---------
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 534 $ 467
Adjustments to reconcile net income to
net cash provided by oerations:
Provision for loan losses 44 95
Premium amortization and discount accretion, net 162 104
Gain on sale of securities, net (78) (112)
Gain on sale of trading assets (310) --
Depreciation and amortization 106 62
Increase in accrued interest receivable (75) (220)
(Increase) decrease in other assets 108 (970)
Increase in accrued interest payable 251 170
Increase (decrease) in other liabilities 42 (47)
--------- ---------
Net cash provided (used) by operating activities 784 (451)
--------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities (16,896) (75,412)
Purchases of investment securities -- (1,548)
Purchases of trading securities (282,562) --
Maturities and issuer calls of:
Available-for-sale securities 2,279 5,080
Trading securities 570 --
Sales of available-for-sale securities 32,741 35,664
Sales of trading securities 270,454 --
Purchases of FHLB Stock (1,367) --
Sales of FHLB stock 1,262
Increase in loans, net (10,382) (9,272)
Purchase of branch and assumption of deposits,
net of acquired cash equivalents -- 26,325
Capital expenditures premises and equipment, net (238) (4)
--------- ---------
Net cash used in investing activities (4,139) (19,167)
--------- ---------
Cash flows from financing activities:
Net increase in deposits 18,172 6,842
Proceeds from FHLB advances, net (1,500) --
Net increase in other borrowed funds (14,835) 8,326
Proceeds from stock options exercised 4 --
--------- ---------
Net cash provided by financing activities 1,841 15,168
--------- ---------
Net (decrease) increase in cash and cash equivalents (1,514) (4,450)
Cash and cash equivalents at beginning of year 7,109 10,552
--------- ---------
Cash and cash equivalents at end of year $5,595 $6,102
========= =========
Supplemental disclosures of cash flow information
- -----------------------------------------------
Cash paid during the period for:
Interest $ 2,709 $ 2,265
Income tax 118 216
Supplemental disclosures of non-cash transactions
- -------------------------------------------------
Unrealized gain (loss) in value of available-for-sale
securities net of tax effect on $100 and ($214),
respectively 194 (426)
Available-for-sale securities transferred to
Trading securities $42,291 $ --
</TABLE>
For the purpose of reporting cash flows, (1) cash and cash equivalents include
cash, due from banks and federal funds sold and (2) have maturities of three
months or less.
6
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
In the opinion of Management the accompanying unaudited financial statement of
Bank of Mecklenburg reflect all adjustments which are necessary for a fair
presentation of the results of the periods presented.
(1) ORGANIZATION AND OPERATIONS
Bank of Mecklenburg (the Bank) was incorporated on September 8, 1988. Before
opening for operations on July 12, 1989, the Bank issued 2,063,510 shares of
common stock at a subscription price of $7.04 (adjusted for 5 for 4 splits
during 1993 and 1995). The Bank is engaged in general commercial operations in
Mecklenburg County, North Carolina, and operates under the banking laws of
North Carolina and the Rules and Regulations of the Federal Deposit Insurance
Corporation.
The Bank opened its first branch office in September, 1991 at 6816 Morrison
Boulevard, Charlotte and purchased its East Boulevard branch office and related
deposits from Essex Savings Bank in March, 1996. The Bank conducts all of its
business from these three offices.
During the second quarter of 1994, the Bank formed Mecklenburg Financial
Services, a wholly owned subsidiary, to provide brokerage services through a
third party. Bankers Financial Partners, Inc. and Legg Mason Financial Services
offer securities and insurance products to Bank customers and the general
public through this subsidiary.
The Consolidated Financial Statements include the accounts of the Bank and its
wholly-owned subsidiary. All significant intercompany items were eliminated in
consolidation.
(2) SECURITIES
SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities"
addresses the accounting and reporting for investments in equity securities
that have a readily determinable fair value and all investments in debt
securities. All investments are classified into one of three classes as
follows: (1) debt securities that the Bank has the positive intent and ability
to hold to maturity are classified as held to maturity and reported at
amortized cost; (2) securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and reported at fair value, with unrealized gains and losses included in
income; and (3) debt and equity securities not classified as either held to
maturity or trading are classified as available-for-sale and reported at fair
value, with unrealized gains and losses excluded from income and reported as a
separate component of shareholders' equity. At March 31, 1997, the Bank had
available-for-sale securities with an unrealized gain of $153,000. The Bank
intends to hold these securities for an indefinite period of time but may sell
them prior to maturity.
Gains and losses on securities are recognized at the time of sale based on the
specific identification method. Premiums and discounts are amortized into
interest income using the level yield method.
7
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
(3) FINANCIAL INSTRUMENTS USED FOR INTEREST RATE RISK MANAGEMENT
The Bank uses interest rate swaps, floors and caps for interest rate risk
management. These instruments are designated as hedges of specific assets and
liabilities when purchased. The net interest payable or receivable on swaps,
caps and floors is accrued and recognized as an adjustment to interest income
or interest expense of the related asset or liability. Premiums paid for
purchased caps and floors are amortized over the term of the floors or caps as
a yield adjustment of the related asset or liability. Upon the early
termination of swaps, caps and floors, the net proceeds received or paid,
including premiums, are deferred, included in other assets or liabilities, and
amortized over the shorter of the remaining contract life or the maturity of
the related asset or liability.
Upon disposition or settlement of the asset or liability being hedged, deferral
accounting is discontinued and any related premium or change in fair value of
the hedged instrument is recognized in earnings. If the hedged instrument is
retained subsequent to the disposition or settlement of the underlying asset or
liability, it will be redesignated to specific assets for liabilities and any
change in fair value of the instrument recognized in earnings in connection
with the previous disposition of the underlying asset or liability will be
recorded as a purchase premium and amortized into interest income over the
contract term as a yield adjustment of the related asset or liability.
The net market value of purchased interest rate floors, caps and swaps used to
manage interest rate risk associated with the Bank's available-for-sale
investment portfolio is reflected in the market value adjustment of both the
Bank's available-for-sale portfolio and in equity, in accordance with Financial
Accounting Standards No. 115. At March 31, 1997, the market value of these
instruments exceeded their book value by approximately $501,000, while the book
value of securities held in the Bank's available-for-sale portfolio exceeded
their market value by approximately $348,000. The net aggregate market
appreciation, totaling approximately $153,000, is reflected by means of an
increase in the Bank's available-for-sale investment portfolio at March 31,
1997. This market adjustment (net of tax effects) resulted in an increase in
shareholders' equity of approximately $101,000 at the same time.
Instruments used to manage interest rate risk in balance sheet components
(other than the available-for-sale portfolio are also reflected in Note 3,
along with the asset or liability associated with the instruments. At March 31,
1997, the net market value of these instruments exceeded their book value by
approximately $47,000. The net market appreciation of these instruments is not
reflected in the financial statements of the Bank.
Interest rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal or notional amounts. Entering into interest rate swap
agreements involves both the risk of the counterparty's ability to meet the
terms of the contract and interest rate risk. Interest rate caps and floors are
option contracts for which an initial premium is paid and for which no ongoing
interest rate risk exists. The primary risk with interest rate caps and floors
is counterparty risk. The Bank controls the credit risk (counterparty risk)
with credit approval requirements, requests for collateral, counterparty limits
and monitoring procedures.
For interest rate swaps, caps and floors the notional principal amounts are
often used to express the volume of transactions, however, the amounts
potentially subject to credit risk are much smaller.
8
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Financial Instruments used for interest rate risk management, the designated
asset or liability and terms:
(dollars in thousands)
Carrying Estimated Contract or
Amount Fair value notional amount
Available-for-sale securities
Interest rate swap agreement:
(Receive 3 month LIBOR, pay fixed
5.53%, February 1996-February 2001 $ - $ 439 10,000
------ ----- ------
Purchased interest rate caps:
(Strike price 7%, 3 month LIBOR index,
December 1995-December 2002) 384 504 15,000
(Strike price 4%, 3 month LIBOR index,
October 1995-October 2000) 271 432 5,000
(Strike price 6%, 3 month LIBOR index,
March 1996-March 2001) 595 706 20,000
(Strike price 7%, 3 month LIBOR index,
March 1996-March 2001) 288 367 20,000
-------- ----- ------
Purchased interest rate floor:
(Strike price 5%, 3 month LIBOR index,
March 1996-March 2000) 449 39 40,000
------- ----- ------
$ 1,987 $ 2,487 110,000
======= ======= =======
Variable rate loans
Purchased interest rate floor:
(Strike price 6.38%, 1 month LIBOR index
January 1997-January 1998) $ 20 $ 104 25,000
------- ------- ------
$ 20 $ 104 25,000
======= ======= ======
Time deposits less than $100,000
Interest rate swap agreements:
(Pay 3 month LIBOR, receive 5.97% fixed and
Pay 3 month LIBOR, receive 6.00% fixed $ - $ (19) 8,000
March 1997-March 1998) - (18) 8,000
------- ------- ------
$ - $ (37) 16,000
======= ======== ======
Financial instruments designated as trading portfolio assets
Interest rate swap agreements:
(Receive 3 month LIBOR, pay fixed
6.54%, March 1996-March 2003) $ 448 $ 448 20,000
(Receive 3 month LIBOR, pay fixed
5.93%, January 1996-January 2006) 476 476 6,000
------ ------- ------
Purchased interest rate cap:
(Strike price 7%, 3 month LIBOR index,
April 1996-April 2003) 907 907 25,000
------- ------- ------
Purchased interest rate floor:
(Strike price 5%, 3 month LIBOR index,
April 1996-April 2006) 330 330 35,000
------- ------- ------
$2,161 $ 2,161 86,000
======= ======= ======
9
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
(4) MERGER AGREEMENT
On March 27, 1997, Triangle Bancorp, Raleigh, North Carolina, executied a
letter of intent to acquire the capital stock of the Bank. Under the terms of
the agreement, Bank of Mecklenburg will operate as a subsidiary of Triangle
Bancorp. The proposed transaction will be a tax-free stock for stock exchange
of one share of Triangle Bancorp common stock for one share of Bank of
Mecklenburg common stock. A definitive agreement was executed on May 5, 1996.
Subject to shareholder approval, it is anticipated that the transaction will
take place during the fourth quarter of 1997.
10
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes included in this report.
GENERAL
The Bank had net income of $534,000 or $.25 per share for the first quarter of
1997, compared to $467,000 or $.22 per share for the same period in 1996. This
earnings improvement resulted primarily from an increase in net interest income
of $168,000 and an increase of $16,000 in non-interest income. The increase in
net interest income was primarily attributable to increased average earning
assets.
This earnings improvement was partially offset by increased non-interest
expenses of $21,000 although the most significant increase in expenses was the
increase of $147,000 in income tax expense. This increase is mainly
attributable to changes in the mix of earning assets (primarily the change
from more favorably tax advantaged investments, including municipal securities,
to other types of securities).
NET INTEREST INCOME
Net interest income is the amount of interest earned on earning assets (loans,
investments and other invested funds-federal funds sold and interest bearing
balances), less the interest expense of interest bearing liabilities (interest
bearing deposit accounts, FHLB advances and other borrowed funds), and is the
principal source of the Bank's earnings. Changes that affect net interest
income are changes in the average rate earned on interest earning assets,
changes in the average rate paid on interest bearing liabilities, and changes
in the volume and mix of interest earning assets and interest bearing
liabilities.
Net interest income for the first quarter of 1997 totaled $1,413,000, compared
to $1,245,000 for the first quarter of 1996.
Average interest bearing liabilities for the first quarter of 1997 totaled
$225,039,000, while average interest earning assets totaled $240,687,000
(compared to $183,599,000 and $199,208,000, respectively for the same period in
1996).
Average interest rate spread for the first quarter of 1997 was 2.03%, compared
to 2.01% for the first quarter of 1996.
The Bank will continue its efforts to maximize net interest income by
management of both interest earning asset and interest bearing liability rates,
to include as previously discussed, the use of derivative financial products.
It is management's ongoing objective to maximize net interest income while
maintaining asset quality. The change in interest rate spreads from 1996 is
primarily due to changes in the mix of earning assts.
11
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
PROVISION FOR LOAN LOSSES
Earnings are also affected by the amount provided to the allowance for loan
losses. A $44,000 provision for loan losses was recognized during the first
quarter of 1997, compared to $95,000 during the first quarter of 1996.
At March 31, 1997 the allowance for loan losses stood at 1.01% of total loans,
compared to 1.17% at March 31, 1996. This change in the allowance as a
percentage of total loans is attributable to changes in the mix of loans. At
March 31, 1997 total loans included $16,965,000 of SBA loans which were 100%
guaranteed and $1,429,000 of SBA loans with partial guarantees (these
guarantees average 80%). Also included in total loans at March 31, 1997 were
$7,718,000 of purchased variable rate mortgage loans. In comparison, at
March 31, 1996 the Bank had $4,738,000 of SBA loans with 100% guarantees and
$2,379,000 with partial guarantees. Total loans, less the guaranteed SBA loans
were $105,874,000 at March 31, 1997 and the allowance for loan losses totaled
1.18% of that amount. In comparison, total loans, less guaranteed SBA loans,
equaled $85,293,000 and the allowance for loan losses totaled 1.25% of that
amount at March 31, 1996.
The provision for loan losses represents the charge to earnings needed to
maintain the allowance for loan losses at a level deemed adequate. The
provision for loan losses is determined by factors such as growth in the loan
portfolio, management's evaluation of current economic conditions and their
effect on the loan portfolio, and a continuing evaluation of the loan portfolio
itself.
On an ongoing basis, management evaluates the relative quality of each loan and
assigns a loan grade. This loan grading system assists management in
determining the overall risk in the loan portfolio and factors into the
estimation of the appropriate level of the allowance for loan losses.
Management's analysis of the adequacy of the Bank's allowance for loan losses
(as well as the Bank's loan portfolio) are regularly reviewed by the Bank's
Loan Committee and Board of Directors. The Bank also uses the services of an
independent, outside reviewer to review the loan portfolio on a regular basis.
Management feels that its portfolio is of sound quality and that the allowance
for loan losses is sufficient to absorb any inherent losses that relate to
loans outstanding at March 31, 1997. Management will continue to monitor
economic conditions and will continue to maintain conservative underwriting
standards and a diversified portfolio. Management realizes that economic
conditions affect loan losses and no assurances can be made that further
evaluation of the loan portfolio based on conditions then prevailing may not
require additions to the allowance. In the event that conditions change,
management will assess the impact on the allowance and provision for loan
losses and will make appropriate adjustments if necessary.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance
based on their judgments about information available to them at the time of
their examination.
ASSET QUALITY
The Bank had no charge offs and recovered $30,000 during the first three months
of 1997. During the first quarter of 1996 there were no charge offs or
recoveries. At March 31, 1997 and 1996 the Bank had no nonperforming assets.
12
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
OTHER OPERATING INCOME
Non-interest income from service charges, fees and other miscellaneous income
totaled $42,000 for the first quarter of 1997 compared to $48,000 for the first
quarter of 1996.
The Bank also realized net losses on the sale of AFS securities of $47,000 and
net gains of $125,000 from the sale or mark-to-market of derivatives hedging
AFS securities during the first three months of 1997. The Bank also recognized
gains of $588,000 from sales of trading securities; gains of $51,000 from the
sale of derivatives carried as trading assets; losses of $356,000 from the
mark-to-market of securities carried as trading assets and gains of $27,000
from the mark-to-market of related derivatives. In comparison, the Bank
recognized net gains of $112,000 on the sale of AFS securities and net gains of
$254,000 from the sale or mark-to-market of hedges upon the disposition of the
related asset or liability during the first three months of 1996. The Bank
segregated a group of assets into a trading portfolio as of January 1, 1997.
Assets within the trading account are accounted for at market value and changes
in market value are included in the Bank's income statements. The Bank had no
assets designated as trading assets in 1996.
OTHER OPERATING EXPENSE
Non-interest expenses for the quarter ended March 31, 1997 totaled $888,000
compared to $867,000 for the quarter ended March 31, 1996. The increase in
non-interest expense is primarily attributable to increases in personnel
expense and premises and equipment expense (the result of the acquisition of
the Bank's third office on March 15, 1996). Reductions in other miscellaneous
non-interest expenses helped to offset the additional expenses in these
categories. The Bank also experienced an increase of $147,000 for the first
quarter of 1997 compared to the first quarter of 1996 in its income tax expense.
This increase is primarily due to changes in the mix of earning assets.
Beginning in the second quarter of 1996 the Bank's investment portfolio mix was
changed to include fewer tax advantaged securities (mainly municipal bonds).
These investments typically had lower rates but, at the same time, required a
lower tax provision.
LOANS
Average loans for the first quarter of 1997 totaled $117,161,000, while average
loans for the first quarter of 1996 were $83,036,000. The loan portfolio is
weighted toward real estate loans and various commercial loans.
INVESTMENTS
Investments at March 31, 1997 totaled $135,772,000 while interest bearing
deposits totaled $49,000 compared to $136,444,000 and $1,481,000, respectively
at March 31, 1996. The Bank had no federal funds sold at March 31, 1997, March
31,1996 or December 31, 1996.
Average investments for the first quarter of 1997 totaled $141,685,000,
compared to average investments of $109,715,000 for the same period in 1996.
Average AFS investments for the first quarter of 1997 were $76,601,000, average
HTM investments were $1,000,000 and securities held for trading purposes
averaged $42,102,000. As previously mentioned, the Bank segregated a group of
assets into a trading portfolio as of January 1, 1997. Assets within the
trading account and their corresponding hedges are accounted for at market
value and changes in market value are included in the Bank's income statement.
13
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
At March 31, 1997, excluding the effect of off balance sheet derivatives
(hedges), the market value of AFS securities was $348,000 below amortized cost.
As a result, a $230,000 after tax unrealized loss was recorded as a decrease to
stockholders' equity. At the same time, derivatives hedging AFS securities had
a market value of $501,000 above amortized cost. As a result, a $331,000 after
tax unrealized gain was recorded as an increase to shareholders equity.
Included in investments at March 31, 1997 was $4,039,000 FHLB capital stock.
Membership in the FHLB provides an additional liquidity source to the Bank. The
Bank also had $64,000 in equity stock of The Bankers Bank, Atlanta, Georgia. At
March 31, 1997. Both of these equity stocks pay cash dividends quarterly.
DEPOSITS
At March 31, 1997 total deposits equaled $196,160,000 compared to $165,147,000
at March 31, 1996.
Average deposits for the first quarter of 1997 totaled $183,449,000, compared
to $138,700,000 for the first quarter of 1996 and were comprised of the
following:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Non interest bearing deposits $ 11,497 $ 7,947
Time deposits of $100,000 or more 43,783 32,140
Time deposits less than $100,000 65,811 52,750
Savings deposits 1,366 1,532
Money market (MMDA) deposits 4,983 5,089
56,009 39,242
------ ------
Total deposits $183,449 $138,700
-------- --------
</TABLE>
OTHER BORROWED FUNDS
Other borrowed funds are comprised primarily of securities sold under agreement
to repurchase and Federal Home Loan Bank advances and are used as a supplement
or as an alternative to other funding sources. Average other borrowed funds for
the first quarter of 1997 totaled $53,086,000 compared to $50,292,000 for the
first quarter of 1996.
At March 31, 1997, the Bank had $46,500,000 in FHLB advances. These advances
are secured by FHLB stock and investment securities as required by the Federal
Home Loan Bank. Two advances (totaling $40,000,000) are variable and mature
during the first quarter of 1998. The $6,500,000 advance is also variable and
repayable daily. This advance was used as an alternative to federal funds
purchased and repaid on April 24, 1997.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The primary objective of the Bank's asset/liability management process is to
maintain adequate liquidity while minimizing interest rate risk. Liquidity is
the ability to meet current and future obligations through liquidation or
maturity of existing assets or the acquisition of additional liabilities.
14
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
Bank of Mecklenburg manages both assets and liabilities to achieve appropriate
levels of liquidity. Cash and short term investments are the Bank's primary
sources of asset liquidity. These funds provide a cushion against short-term
fluctuations in cash flows from both deposits and loans. Commercial and
individual deposits are the Bank's primary sources of funds for credit purposes.
The Bank maintains federal funds purchase lines from other depository
institutions for additional liquidity sources, in addition to its Federal Home
Loan Bank membership and borrowing ability with that institution.
Management believes that the Bank's liquidity sources are adequate to meet its
liquidity needs.
Related to liquidity is interest rate sensitivity in that each is affected by
maturities of earning assets and funding sources. Interest rate sensitivity is
a function of the repricing characteristics of the Bank's portfolio of assets
and liabilities-the period of time in which, either at replacement upon
maturity or during the life of the instrument, interest bearing assets and
liabilities are subject to changes in interest rates.
The Bank's results of operations are affected by changes in the interest rate
environment. Since interest earning assets and interest bearing liabilities
have various repricings and maturities, changes in interest rates or yield
curves may result in an increase or decrease in net income.
The Bank strives to manage its asset/liability position to maximize net
interest income while managing interest rate risk and maintaining a stable
deposit base. Management's principal goal in the management of interest rate
sensitivity and interest rate risk is to limit the impact of changes in
interest rates upon the Bank's earnings.
Major portions of the Bank's loan portfolio and securities portfolios are
immediately rate sensitive. Variable rate loans totaled approximately
$67,471,000 or 54.29% of total loans at March 31, 1997 compared to $56,404,000
or .62.65% at March 31, 1996. Variable rate securities with repricing of three
months or less totaled $11,341,000 at March 31, 1997; securities with a
repricing of annually or more frequently (but less frequently than quarterly)
totaled $47,864,000 In comparison, variable rate securities totaled $14,109,000
and $46,304,000 at March 31, 1996.
The Bank's funding sources included liabilities with a repricing frequency or
remaining maturity of three months or less of approximately $113,231,000 at
March 31, 1997 and $104,474,000 at March 31, 1996.
The Bank has determined that the use of off-balance sheet derivative
instruments provides a cost effective way to manage interest rate sensitivity
by modifying the repricing or maturity characteristics of on-balance sheet
assets or liabilities. Interest rate risk is one of the most significant risks
to which financial institutions are exposed. To identify, quantify and manage
this risk, the Bank employs automated simulation (computer) modeling to measure
and manage the effect of fluctuations in interest rates on the value of assets
and liabilities. In addition to the traditional techniques to measure interest
rate risk of modifying the duration and mix of assets and liabilities, the Bank
utilizes interest rate risk protection products to reduce risk. Such products
include interest rate caps, floors and swaps.
15
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
These financial instruments allow the Bank to acquire longer duration assets
and liabilities bearing otherwise favorable characteristics and adjust their
duration so as to limit the interest rate risk associated with them. Generally,
these instruments consist of a contract between the Bank and a counterparty to
exchange payments of fixed or floating amounts based on the market level of
interest rates. The Bank has established specific parameters for levels of
interest rate risk that management considers acceptable as well as specific
policies for the use, management and monitoring of interest rate products.
Included in these policies are limits directed toward minimizing the Bank's
exposure to fluctuations in interest rates, criteria for the qualifications for
interest rate contract counterparties, limitations on exposures to
counterparties and specific policies for the performance measurement and
oversight of all interest rate instruments.
The Bank's rate risk parameters include limits for both changes in net interest
income and market price under various interest rate shock simulations. While
interest rate shocks of up to four hundred basis points are regularly
performed, efforts are focused on managing potential adverse effects of
interest rate movements up and down of one hundred basis points. The Bank's
policy specifies acceptable levels of risk to be limited to a reduction in net
interest income of five percent and a reduction in net asset value of the
Bank's available-for-sale portfolio of one percent. Counterparty risk
limitations restrict the Bank from entering into any interest rate protection
instrument with a counterparty whose credit rating is less than "A", as rated
by "Dun and Bradstreet" or "Moodys". Individual counterparty exposure is then
limited to a maximum of 40% of the Bank's tangible equity. It is the Bank's
policy to request collateral as deemed necessary to limit counterparty risk.
At March 31, 1997, the Banks off-balance sheet interest rate products included
$25 million notional amount in interest rate floors utilized to protect its
variable rate loan portfolio and $16 million in interest rate swaps on a group
of the Bank's certificates of deposit (time deposits). The Bank also had $40
million in interest rate floors, $60 million in interest rate caps and $10
million in interest rate swaps hedging its AFS portfolio. Included in trading
assets at March 31, 1997 were $26 million in interest rate swaps, $25 million
in interest rate caps and $35 million in interest rate floors.
All the interest rate protection products utilized by the Bank require the
exchange or payment of fixed and/or floating rate interest payments based on
notional amounts. It should be noted that these notional amounts are not at
risk, but are used as a basis on which to calculate the interest rate payments
due between the Bank and its counterparties to these contracts. The interest
rate caps and floors utilized are option contracts on which a premium is paid
at the inception of the contract. These premiums are amortized over the life of
the contract. Any cash flows received from these contracts are recognized in
the accounting period in which they are received as adjustments to the yield of
the asset or liability. As interest rate option contracts bear no performance
risk, the maximum direct cost to the Bank is limited to the option premium. All
cash flows from the interest rate swaps are accounted for in a like manner, as
adjustments to asset yields or liability costs.
The Bank expects to continue the prudent use of interest rate protection
products to actively manage its balance sheet and interest rate risk.
16
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
CAPITAL RESOURCES
Capital to support the Bank's asset base came exclusively from the sale of
newly issued shares of common stock in 1988 and interest earned on investments
from incorporation in 1988 until the Bank opened for commercial operations on
July 12, 1989. Growth in the Bank's capital base since opening has come from
the retention of earnings and the exercise of the outstanding options relative
to the Bank's non-qualified stock option plan during 1994 and exercises of
options under the Bank's qualified stock option plan beginning in 1995.
The Board of Directors declared a stock split in 1993 and again in 1995. A five
for four split was declared to shareholders of record on May 11, 1993 and
distributed on June 4, 1993. A second five for four split was declared to
shareholders of record on April 18, 1995 and distributed on May 16, 1995.
The Bank had 2,118,945 shares issued and outstanding as of March 31, 1997.
During 1994, the Bank declared its first cash dividend. Dividends have been
paid on a quarterly basis since that time.
In the banking industry, one measure of capital adequacy is total capital
divided by total assets. The Bank's equity to assets ratio at March 31, 1997
stood at 7.12% (excluding the effect of unrealized gains and losses on
available-for-sale securities).
Other important measures of capital adequacy are the capital adequacy
guidelines for regulatory purposes. The capital of the Bank continues to exceed
all current regulatory guidelines. The Bank's regulatory capital ratios at
quarter end were:
o Total Capital to risk weighted assets 16.85%
Minimum required for Regulatory capital purposes-8.00%
Minimum required by Regulators to be well capitalized-10.00%
o Tier one capital to risk weighted assets 15.79%
Minimum required for Regulatory capital purposes-4.00%
Minimum required by Regulators to be well capitalized-6.00%
o Tier one capital to average assets 7.21%
Minimum required for Regulatory capital purposes-4.00%
Minimum required by Regulators to be well capitalized-5.00%
Management is not aware of any recommendations by regulatory authorities which,
if they were to be implemented, would have a material impact on the Bank.
EFFECTS OF INFLATION
The major portion of the Bank's assets and liabilities are monetary in nature.
As a result of this distinctly different asset and liability structure, the
Bank's performance may be more significantly influenced by changes in interest
rates than by inflation. Although inflation has a lesser impact on a bank's
performance, operating expenses may be affected in that personnel costs, supply
costs and the expenses of outside service providers increase during periods of
inflation. Also, inflation will affect the level of interest rates prevailing at
any one time.
17
<PAGE>
BANK OF MECKLENBURG AND SUBSIDIARY
SIGNATURES
Under the requirements of the Securities and Exchange Act of 1934, the Bank has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized:
BANK OF MECKLENBURG
By:_____________________________________ Date:________________
John H. Ketner, Jr.
President & CEO
By:_____________________________________ Date:________________
Jean R. Galloway
Vice President & CFO
18
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D. C.
FORM F-3
CURRENT REPORT
UNDER SECTION 13 OF THE SECURITIES EXCHANGE
ACT OF 1934
Dated April 1, 1997
BANK OF MECKLENBURG
(Exact name of bank as specified in charter)
2000 Randolph Road
Charlotte, North Carolina 28207
(Address of principal office)
<PAGE>
ITEM 12 - OTHER MATERIALLY IMPORTANT EVENTS
Bank of Mecklenburg (the "Registrant") announced on March 27, 1997 that it had
executed a letter of intent between the Registrant and Triangle Bancorp, Inc.
pursuant to which Triangle Bancorp, Inc. proposes to acquire all of the capital
stock of the Registrant. See press release attached hereto as Exhibit A.
SIGNATURES
Under the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BANK OF MECKLENBURG
By: /s/ John H. Ketner, Jr.
John H. Ketner, Jr., President
Date: April 1, 1997
-2-
<PAGE>
[BANK OF MECKLENBURG LETTERHEAD]
EXHIBIT A
NEWS RELEASE For more information:
John H. Ketner, Jr. President and CEO
March 27, 1997
FOR IMMEDIATE RELEASE:
BANK OF MECKLENBURG ANNOUNCES MERGER WITH
TRIANGLE BANCORP, INC.
Charlotte...Cy N. Bahakel, chairman of Bank of Mecklenburg, announced
that Bank of Mecklenburg has executed a letter of intent with Triangle Bancorp,
Inc. (Triangle) for Triangle to acquire all of the capital stock of Bank of
Mecklenburg. Under the terms of the agreement, Bank of Mecklenburg will be a
subsidiary of Triangle and continue to operate as Bank of Mecklenburg with John
Ketner as president and CEO.
The transaction will be a tax free stock-for-stock exchange with Bank
of Mecklenburg shareholders receiving one share of Triangle Bancorp common stock
for each share of Bank of Mecklenburg common stock. Based on Triangle's last
week's closing price of $19.50, the transaction value will be $47.3 million. As
of December 31, 1996, Triangle, headquartered in Raleigh, reported total assets
of $971 million, while Bank of Mecklenburg reported total assets of $270
million. At the completion of the merger, Triangle will have assets in excess of
$1.2 billion.
<PAGE>
NEWS RELEASE
March 27, 1997
In remarks on the proposed transaction, John Ketner, said, "Everyone
at Bank of Mecklenburg is pleased to have a merger partner who is committed to
serving our customers and communities with an expanded product line through our
current offices in Charlotte. Triangle's strength and proven track record make
this a positive step for all."
Regarding the merger, Michael S. Patterson, chairman and CEO of
Triangle said, "We are excited about the opportunities this merger creates for
our shareholders. Mecklenburg County is one of the premier growth areas in the
nation and Bank of Mecklenburg's directors, management and staff have created a
strong community banking organization. Together, we will build on that success."
Bank of Mecklenburg, organized in 1989, operates three offices in
Charlotte.
Triangle Bancorp is the holding company of Triangle Bank, which operates
45 offices in the Triangle area and eastern North Carolina. Triangle Bancorp
stock trades on the NASDAQ National over-the-counter market under the
quotation symbol "TRBC".
The merger is subject to satisfaction of a number of conditions,
including negotiation of a definitive merger agreement, due diligence review,
approval by shareholders of Bank of Mecklenburg, and action by applicable
regulatory agencies. It is anticipated that the merger process will be completed
during the 4th quarter of 1997.
###
<PAGE>
Coopers Coopers & Lybrand L.L.P.
& Lybrand a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Triangle Bancorp, Inc. on Form S-4 (File No. ) of our report dated January 20,
1997, on our audits of the consolidated financial statements of Triangle
Bancorp, Inc. as of December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, which report has been included in
Triangle Bancorp, Inc.'s 1996 Annual Report on Form 10-K. We also consent to the
reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Raleigh, North Carolina
June 16, 1997
Peat Marwick LLP
Suite 2800
Two First Union Center
Charlotte, NC 28282-8290
The Board of Directors
Bank of Mecklenburg:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus. Our report
refers to Bank of Mecklenburg's adoption of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" on January 1, 1994.
KPMG Peat Marwick LLP
Charlotte, North Carolina
June 18, 1997
CONSENT OF FINANCIAL ADVISOR
We consent to the use in this registration statement on Form S-4 of our letter
to the Board of Directors of Bank of Mecklenburg, in which we discuss the
fairness of the merger to Bank of Mecklenburg's shareholders from a financial
viewpoint. We also consent to any references to such letter and to our firm
in the Proxy Statement-Prospectus. 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 Exchange Commission thereunder.
(Sig of Equity Research Services, Inc.)
Equity Research Services, Inc.
June 18, 1997
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the use in this Registration Statement on Form S-4 of
our letter to the Board of Directors of Triangle Bancorp, Inc., included as
Appendix III to the Joint Proxy Statement/Prospectus contained in this
Registration Statement, and to the references to such letter and to our firm in
such Registration 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.
WHEAT, FIRST SECURITIES, INC.
Richmond, Virginia
Date: June 19, 1997
<PAGE>
REVOCABLE PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
BANK OF MECKLENBURG FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
SEPTEMBER __, 1997
The undersigned shareholder of Bank of Mecklenburg ("Mecklenburg") hereby
constitutes and appoints H. Perrin Anderson, John T. Roper and Allan W. Singer,
or any of them, as attorneys-in-fact and proxies, with full power of
substitution to represent and vote as directed below, all shares of the common
stock of Mecklenburg held of record by the undersigned on ____________, 1997, at
the Special Meeting of Shareholders of Mecklenburg to be held on September __,
1997 at _____ p.m., local time, at _________________, _______________
Road,Charlotte, North Carolina, and at any adjournments thereof (the "Special
Meeting").
1. PROPOSAL TO APPROVE MERGER. Proposal to approve the Agreement and Plan or
Reorganization and Merger, dated as of April 25, 1997, and the related Plan of
Merger (collectively, the "Agreement"), by and between Mecklenburg and Triangle
Bancorp, Inc. ("Triangle"), and to approve the transactions contemplated
therein, pursuant to which, among other matters, (i) at the effective time,
Mecklenburg will merge with a subsidiary of Triangle (the "Merger") and become
the wholly-owned subsidiary of Triangle, and (ii) each share of common stock of
Mecklenburg outstanding immediately prior to the Merger will be converted into
1.0 share of the common stock, no par value, of Triangle.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. OTHER BUSINESS. To vote the shares of Mecklenburg common stock
represented by this appointment of proxy upon such other matters as may
properly come before the Special Meeting and any adjournments thereof in
accordance with their best judgment.
PLEASE VOTE, SIGN AND DATE THIS APPOINTMENT OF PROXY ON THE REVERSE SIDE AND
PROMPTLY RETURN IT USING THE ENCLOSED ENVELOPE.
<PAGE>
(continued from other side)
THE SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY WILL BE VOTED AS
DIRECTED ABOVE. IN THE ABSENCE OF ANY DIRECTION, THE PROXIES WILL VOTE THE
SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY FOR PROPOSAL 1. SHOULD OTHER
MATTERS PROPERLY COME BEFORE THE SPECIAL MEETING, THE PROXIES WILL BE AUTHORIZED
TO VOTE THE SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY IN ACCORDANCE WITH
THEIR BEST JUDGMENT. THIS APPOINTMENT OF PROXY MAY BE REVOKED BY THE HOLDER OF
THE SHARES TO WHICH IT RELATES AT ANY TIME BEFORE IT IS EXERCISED BY FILING WITH
THE SECRETARY OF MECKLENBURG A WRITTEN INSTRUMENT REVOKING IT OR A DULY EXECUTED
APPOINTMENT OF PROXY BEARING A LATER DATE OR BY ATTENDING THE SPECIAL MEETING
AND ANNOUNCING HIS OR HER INTENTION TO VOTE IN PERSON.
By signing this proxy, the
undersigned hereby acknowledges
receipt of the Notice of Special
Meeting, dated _______, 1997, and
the accompanying Joint Proxy
Statement/Prospectus of Mecklenburg
and Triangle.
Dated: _______________________________, 1997
---------------------------------------------
Signature of Owner of Shares
---------------------------------------------
Signature of Joint Owner of Shares (if any)
Instruction: Please sign
above exactly as your name appears
on this appointment of proxy. Joint
owners of shares should both sign.
Fiduciaries or other persons signing
in a representative capacity should
indicate the authorized capacity in
which they are signing.
IMPORTANT: TO INSURE THAT A QUORUM IS PRESENT AT THE SPECIAL MEETING, PLEASE
SEND IN YOUR APPOINTMENT OF PROXY WHETHER OR NOT YOU PLAN TO ATTEND. EVEN IF YOU
SEND IN YOUR APPOINTMENT OF PROXY, YOU WILL BE ABLE TO VOTE IN PERSON AT THE
SPECIAL MEETING IF YOU SO DESIRE.
-2-
REVOCABLE PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TRIANGLE
BANCORP, INC. FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
SEPTEMBER __, 1997
The undersigned shareholder of Triangle Bancorp, Inc. ("Triangle") hereby
constitutes and appoints ______________, _________________ and _______________,
or any of them, as attorneys-in-fact and proxies, with full power of
substitution to represent and vote as directed below, all shares of the common
stock of Triangle held of record by the undersigned on ____________, 1997, at
the Special Meeting of Shareholders of Triangle to be held on September __, 1997
at _____ p.m., local time, at _________________, _______________,Raleigh, North
Carolina, and at any adjournments thereof (the "Special Meeting").
1. PROPOSAL TO APPROVE MERGER. Proposal to approve the Agreement and Plan or
Reorganization and Merger, dated as of April 25, 1997, and the related Plan of
Merger (collectively, the "Agreement"), by and between Triangle and Bank of
Mecklenburg ("Mecklenburg"), and to approve the transactions contemplated
therein, pursuant to which, among other matters, (i) at the effective time,
Mecklenburg will merge with a subsidiary of Triangle (the "Merger") and become
the wholly-owned subsidiary of Triangle, and (ii) each share of common stock of
Mecklenburg outstanding immediately prior to the Merger will be converted into
1.0 share of the common stock, no par value, of Triangle.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL TO APPROVE AMENDMENT TO THE BYLAWS. To consider and vote on
a proposal to amend Article III, Section 2 of Triangle's Bylaws to increase
the maximum number of directors from 26 to 28.
3. OTHER BUSINESS. To vote the shares of Mecklenburg common stock
represented by this appointment of proxy upon such other matters as may properly
come before the Special Meeting and any adjournments thereof in accordance
with their best judgment.
PLEASE VOTE, SIGN AND DATE THIS APPOINTMENT OF PROXY ON THE REVERSE SIDE AND
PROMPTLY RETURN IT USING THE ENCLOSED ENVELOPE.
<PAGE>
(continued from other side)
THE SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY WILL BE VOTED AS
DIRECTED ABOVE. IN THE ABSENCE OF ANY DIRECTION, THE PROXIES WILL VOTE THE
SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY FOR PROPOSALS 1 AND 2. SHOULD
OTHER MATTERS PROPERLY COME BEFORE THE SPECIAL MEETING, THE PROXIES WILL BE
AUTHORIZED TO VOTE THE SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY IN
ACCORDANCE WITH THEIR BEST JUDGMENT. THIS APPOINTMENT OF PROXY MAY BE REVOKED BY
THE HOLDER OF THE SHARES TO WHICH IT RELATES AT ANY TIME BEFORE IT IS EXERCISED
BY FILING WITH THE SECRETARY OF TRIANGLE A WRITTEN INSTRUMENT REVOKING IT OR A
DULY EXECUTED APPOINTMENT OF PROXY BEARING A LATER DATE OR BY ATTENDING THE
SPECIAL MEETING AND ANNOUNCING HIS OR HER INTENTION TO VOTE IN PERSON.
By signing this proxy, the
undersigned hereby acknowledges
receipt of the Notice of Special
Meeting, dated _______, 1997, and
the accompanying Joint Proxy
Statement/Prospectus of Mecklenburg
and Triangle.
Dated: _______________________________, 1997
---------------------------------------------
Signature of Owner of Shares
---------------------------------------------
Signature of Joint Owner of Shares (if any)
Instruction: Please sign
above exactly as your name appears
on this appointment of proxy. Joint
owners of shares should both sign.
Fiduciaries or other persons signing
in a representative capacity should
indicate the authorized capacity in
which they are signing.
IMPORTANT: TO INSURE THAT A QUORUM IS PRESENT AT THE SPECIAL MEETING, PLEASE
SEND IN YOUR APPOINTMENT OF PROXY WHETHER OR NOT YOU PLAN TO ATTEND. EVEN IF YOU
SEND IN YOUR APPOINTMENT OF PROXY, YOU WILL BE ABLE TO VOTE IN PERSON AT THE
SPECIAL MEETING IF YOU SO DESIRE.
-2-
