<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-02899
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 10, 1996)
$250,000,000
SOUTHERN NATIONAL CORPORATION
7.05% SUBORDINATED NOTES DUE 2003
---------------
Interest on the Subordinated Notes offered hereby (the "Subordinated Notes")
is payable semi-annually on May 23 and November 23 of each year, beginning
November 23, 1996. The Subordinated Notes are not redeemable prior to maturity
and will mature on May 23, 2003.
The Subordinated Notes are unsecured and subordinated to all present and
future senior indebtedness of Southern National Corporation (the "Company").
Payment of principal of the Subordinated Notes may be accelerated only in the
case of the bankruptcy of the Company. There is no right of acceleration in
the case of a default in the payment of interest on the Subordinated Notes or
in the performance of any covenant or agreement of the Company with respect to
the Subordinated Notes. See "Subordinated Debt Securities--Limited Rights of
Acceleration" and "--Events of Default" in the accompanying Prospectus.
The Subordinated Notes will be issued only in fully registered form and will
be represented by one or more Global Securities registered in the name of a
nominee of The Depository Trust Company, as Depositary (the "Depositary").
Beneficial interests in the Subordinated Notes will be shown on, and transfers
thereof will be effected only through, the records maintained by the
Depositary's participants. Owners of beneficial interests in the Global
Securities will be entitled to physical delivery of Subordinated Notes in
certificated form equal in principal amount to their respective beneficial
interests only under limited circumstances. The Subordinated Notes will trade
in the Depositary's Same-Day Funds Settlement System until maturity, and
secondary market trading activity for the Subordinated Notes will therefore
settle in immediately available funds. All payments of principal and interest
will be made by the Company in immediately available funds. See "Description
of the Debt Securities--Global Securities," "Description of Subordinated
Notes--Global Securities" and "--Same-Day Settlement and Payment."
---------------
THE SUBORDINATED NOTES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Subordinated Note................. 99.75% .6% 99.15%
- -------------------------------------------------------------------------------
Total................................. $249,375,000 $1,500,000 $247,875,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from May 24, 1996.
(2) The Company has agreed to indemnify the several Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $675,000.
---------------
The Subordinated Notes are offered by the several Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected
that the Subordinated Notes will be ready for delivery in book-entry form only
through the facilities of The Depository Trust Company in New York, New York
on or about May 24, 1996, against payment therefor in immediately available
funds.
---------------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
---------------
The date of this Prospectus Supplement is May 21, 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SUBORDINATED
NOTES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following reports filed by the Company with the Securities and Exchange
Commission (File No. 1-10853) under Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, are hereby incorporated by reference in the
Prospectus as supplemented by this Prospectus Supplement:
(i) Annual Report on Form 10-K for the year ended December 31, 1995;
(ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1996;
(iii) Current Report on Form 8-K filed with the Commission on April 15,
1996; and
(iv) Current Report on Form 8-K filed with the Commission on May 3, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Subordinated Notes are hereby incorporated
by reference into the Prospectus as supplemented by this Prospectus Supplement
and shall be deemed a part hereof from the date of filing of such documents.
Any statement contained in the Prospectus, in this Prospectus Supplement or in
a document incorporated or deemed to be incorporated by reference therein or
herein shall be deemed to be modified or superseded for purposes of the
Registration Statement (as defined in the Prospectus) and the Prospectus as
supplemented by this Prospectus Supplement to the extent that a statement
contained in the Prospectus, in this Prospectus Supplement or in any
subsequently filed document which also is or is deemed to be incorporated by
reference in the Prospectus as supplemented by this Prospectus Supplement
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement, the Prospectus or this
Prospectus Supplement.
The Company will provide without charge to each person to whom a copy of
this Prospectus as supplemented by this Prospectus Supplement is delivered,
upon the written or oral request of such person, a copy of any or all of the
documents incorporated by reference in the Prospectus as supplemented by this
Prospectus Supplement, except for certain exhibits to such documents. Written
requests should be sent to Investor Relations, Southern National Corporation,
223 West Nash Street, Wilson, North Carolina 27893. Telephone requests may be
directed to (919) 246-4219.
S-2
<PAGE>
THE COMPANY
Southern National Corporation (the "Company") is a multi-bank holding
company headquartered in Winston-Salem, North Carolina. It conducts its
operations in North Carolina, South Carolina and Virginia primarily through
its commercial banking subsidiaries, which operate 437 banking offices, and,
to a lesser extent, through its other subsidiaries. Substantially all of the
Company's loans are to businesses and individuals in the Carolinas and
Virginia. The Company's principal subsidiaries are Branch Banking and Trust
Company ("BB&T-NC"); BB&T Financial Corporation of South Carolina, which in
turn owns all the outstanding shares of Branch Banking and Trust Company of
South Carolina ("BB&T-SC"); and BB&T Financial Corporation of Virginia, which
in turn owns all the outstanding shares of Commerce Bank ("Commerce"), located
in Virginia Beach, Virginia. At March 31, 1996, the Company had assets of
$20.1 billion, deposits of $15.2 billion, loans of $14.1 billion and
shareholders' equity of $1.6 billion and ranked thirty-fifth among bank
holding companies in the United States in terms of assets and thirty-fourth in
terms of deposits.
BB&T-NC, the Company's largest subsidiary, is the oldest bank in North
Carolina. At March 31, 1996, BB&T-NC had assets of $15.7 billion, deposits of
$12.1 billion, loans of $10.9 billion and shareholders' equity of $1.1 billion
and ranked fourth among banks in North Carolina in terms of assets and in
terms of deposits. BB&T-NC focuses on providing a wide range of banking
services in its local market for retail commercial customers, including small
and mid-size businesses, public agencies and local governments, trust
customers and individuals. BB&T-NC has numerous additional subsidiaries which
engage in leasing, investment, insurance and other activities.
BB&T-SC serves South Carolina through 103 banking offices and focuses on
providing a wide range of banking services in its local market for retail and
commercial customers, including small and mid-size businesses, public
agencies, local governments, trust customers and individuals. BB&T-SC's
subsidiaries include BB&T Investment Services of South Carolina, Inc., which
is licensed as a general broker/dealer of securities and is currently engaged
in retailing of mutual funds, U.S. Government securities, municipal
securities, fixed and variable insurance annuity products and unit investment
trusts. At March 31, 1996, BB&T-SC had assets of $3.8 billion, deposits of
$3.0 billion, loans of $2.7 billion and shareholders' equity of $351.5 million
and ranked second among banks in South Carolina in terms of assets and in
terms of deposits.
Commerce operates 21 banking offices in the Hampton Roads region of
southeastern Virginia. Commerce offers a full range of commercial and retail
banking services and provides the Company with a strong initial presence in a
Virginia market contiguous with the Company's North Carolina market. At March
31, 1996, Commerce had assets of $742.5 million, deposits of $671.3 million,
loans of $517.8 million and shareholders' equity of $60.9 million and ranked
ninth among banks in Virginia in terms of assets and in terms of deposits.
USE OF PROCEEDS
The net proceeds from the sale of the Subordinated Notes will be
approximately $247.2 million, after deducting the underwriting discount and
estimated offering expenses. The Company currently intends to use the net
proceeds from the offering for general corporate purposes, including
investments in, or extensions of credit to, its banking and other subsidiaries
and stock repurchases. See "Recent Developments--Other Developments" for a
discussion of the Company's planned acquisition of Regional Acceptance
Corporation, which specializes in indirect financing of consumer purchases of
used automobiles, and the Company's possible use of a portion of the net
proceeds from this offering to fund such lending. Other general corporate
purposes for which net proceeds may be used include investments at the holding
company level, possible acquisitions and the reduction of other indebtedness
of the Company. Pending such use, the net proceeds may be temporarily invested
or used to reduce short-term indebtedness. The precise amounts and timing of
the application of proceeds will depend upon the funding requirements of the
Company and its subsidiaries and the availability of other funds.
Based upon the historical and anticipated future growth of the Company and
the financial needs of the Company and its subsidiaries, the Company may
engage in additional financings of a character and amount to be determined as
the need arises.
S-3
<PAGE>
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following are the Company's consolidated ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- ----------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings to fixed charges:
Excluding interest on deposits... 3.02x .72x 2.02x 3.46x 3.28x 4.12x 2.90x
Including interest on deposits... 1.54 .91 1.32 1.61 1.38 1.39 1.22
</TABLE>
For purposes of computing these ratios, earnings represent income from
continuing operations before extraordinary items and cumulative effects of
changes in accounting principles plus income taxes and fixed charges
(excluding capitalized interest). Fixed charges, excluding interest on
deposits, represent interest (other than on deposits, but including
capitalized interest), one-third (the proportion representative of the
interest factor) of rents and all amortization of debt issuance costs. Fixed
charges, including interest on deposits, represent all interest, one-third
(the proportion representative of the interest factor) of rents and all
amortization of debt issuance costs.
S-4
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain consolidated financial data of the
Company for the five years ended December 31, 1995, and the three months ended
March 31, 1996 and March 31, 1995. The information is qualified in its
entirety by the detailed information and consolidated financial statements
included in the documents incorporated herein by reference. See "Incorporation
of Certain Documents by Reference" in this Prospectus Supplement and the
accompanying Prospectus.
<TABLE>
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED
MARCH 31, AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income........ $ 384 $ 369 $ 1,548 $ 1,318 $ 1,200 $ 1,208 $ 1,243
Interest expense....... 190 186 807 581 506 590 743
--------- --------- -------- -------- -------- -------- --------
Net interest income.... 194 183 742 737 694 618 500
Provisions for loan and
lease losses.......... 11 7 31 18 53 63 76
--------- --------- -------- -------- -------- -------- --------
Net interest income
after provision for
loan and lease
losses................ 183 176 710 719 640 555 424
Noninterest income..... 68 37 226 226 220 186 178
Noninterest expense.... 147 229 672 583 663 510 435
--------- --------- -------- -------- -------- -------- --------
Income (loss) before
income taxes.......... 104 (17) 264 362 197 231 167
Provision for income
taxes................. 34 (4) 86 125 77 84 52
--------- --------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
changes in accounting
principles............ 70 (12) 178 237 120 147 116
Less: cumulative effect
of changes in
accounting principles,
net of income taxes... -- -- -- -- 34 -- --
--------- --------- -------- -------- -------- -------- --------
Net income (loss)...... $ 70 $ (12) $ 178 $ 237 $ 86 $ 147 $ 116
========= ========= ======== ======== ======== ======== ========
SELECTED PERIOD END
BALANCES:
Total assets........... $ 20,174 $ 19,893 $ 20,493 $ 19,855 $ 18,858 $ 15,967 $ 14,436
Earning assets......... 18,908 18,676 19,237 18,687 17,653 14,838 13,372
Securities............. 4,835 5,228 5,355 5,425 5,225 4,208 3,585
Loans and leases(1).... 13,884 13,199 13,640 12,936 12,064 10,384 9,657
Deposits............... 15,163 14,531 14,684 14,314 14,595 13,044 12,166
Long-term debt......... 1,603 902 1,384 911 837 423 417
Shareholders' equity... 1,563 1,495 1,674 1,496 1,399 1,267 1,025
SELECTED FINANCIAL
RATIOS:
PROFITABILITY RATIOS:
Return on average
assets................ 1.40% (.25)% .88% 1.25% .50% .96% .84%
Return on average
common shareholders'
equity................ 17.86 16.14 11.56 16.88 6.19 12.63 12.45
Net interest margin.... 4.28 4.14 4.05 4.29 4.50 4.49 4.12
Efficiency............. 54.27 58.79 55.76 58.72 63.62 60.74 62.87
CAPITAL RATIOS:
Equity to assets
(period end).......... 7.8% 7.5% 8.2% 7.5% 7.4% 7.9% 7.1%
Tier 1 capital......... 12.1 11.5 13.0 12.3 11.4 13.1 N/A
Total capital.......... 13.4 12.7 14.3 13.6 13.1 15.5 N/A
Leverage............... 7.6 7.3 7.8 7.8 7.2 8.2 N/A
LOAN QUALITY RATIOS:
Nonaccrual loans and
leases as a percentage
of total loans and
leases................ .46% .36% .45% .36% .50% .87% 1.27%
Nonperforming assets as
a percentage of:
Total assets.......... .36 .30 .33 .30 .45 .98 1.33
Loans and leases plus
foreclosed property.. .51 .45 .49 .45 .70 1.50 1.94
Net charge-offs as a
percentage of average
loans and leases...... .22 .14 .23 .13 .31 .46 .60
Allowance for loan and
lease losses as a
percentage of loans
and leases............ 1.25 1.30 1.25 1.31 1.38 1.30 1.20
Ratio of allowance for
loan and lease losses
to:
Net charge-offs....... 5.76x 9.45x 5.56x 10.36x 4.88x 2.87x 2.13x
Nonaccrual loans and
leases............... 2.70 3.60 2.80 3.65 2.74 1.49 .94
</TABLE>
- --------
(1) Loans and leases are net of unearned income and the allowance for losses.
Amounts include loans held for sale.
S-5
<PAGE>
Earnings for 1995 were reduced by $76.3 million in net nonrecurring charges.
Excluding nonrecurring items, the Company would have had net income of $254.5
million. This represents a $17.6 million or 7.4% increase over earnings from
the prior year. Recurring earnings for 1995 provided returns of 1.26% on
average assets and 16.65% on average common shareholders' equity. The Company
recorded charges for the cumulative effect of changes in accounting principles
in 1993. The amount of the charges, net of income taxes, was $34.3 million.
Net income after giving effect to the changes in accounting principles in 1993
was $85.8 million.
RECENT DEVELOPMENTS
FIRST QUARTER FINANCIAL RESULTS
The Company reported net income of $69.6 million for the quarter ended March
31, 1996 compared to a net loss of $12.3 million recorded in the first quarter
of 1995. The first quarter 1995 loss included $70.5 million in nonrecurring
charges on an after-tax basis resulting from the merger between the Company
and BB&T Financial Corporation, the former parent of BB&T-NC and BB&T-SC.
Excluding nonrecurring charges, net income in the first quarter of 1996
increased 19.6% over the prior year period. The increase in net income
excluding nonrecurring charges reflected a 5.9% increase in net interest
income and a 19.2% increase in noninterest income, while noninterest expenses
increased 0.7%. Returns on average assets and average common equity in the
first quarter of 1996 were 1.40% and 17.86%, respectively.
The Company's net interest income was $201.7 million for the first quarter
of 1996 compared to $190.3 million in the first quarter of 1995. The Company's
net interest income increased as a result of an increase of 1.2% in average
earning assets and a higher net interest margin. Total interest income was
$391.9 million for the first quarter of 1996, an increase of $15.8 million
from $376.1 million in the comparable 1995 period. Total interest expense was
$190.1 million in the first quarter of 1996 compared to $185.8 million in the
first quarter of 1995, an increase of $4.3 million. During the first quarter
of 1996, average earning assets were $18.9 billion compared to $18.6 billion
for the first quarter of 1995. Average interest-bearing liabilities during the
first quarter of 1996 were $16.3 billion compared to $16.4 billion during the
first quarter of 1995, a decrease of 0.2%. The net interest margin in the
first quarter of 1996 improved to 4.28% from 4.14% in the first quarter of
1995.
The Company's provision for loan and lease losses was $10.5 million in the
first quarter of 1996 compared to $7.0 million in the first quarter of 1995.
Net charge-offs in the first quarter of 1996 were 0.22% of average loans and
leases compared to 0.14% in the first quarter of 1995 and 0.35% in the fourth
quarter of 1995. The Company's allowance for loan and lease losses was 1.25%
of total loans and leases and 2.7 times nonaccrual loans and leases at the end
of the first quarter of 1996, compared to 1.30% and 3.6 times, respectively,
at the end of the first quarter of 1995. Nonperforming assets were $72.4
million, or 0.36% of total assets, at March 31, 1996 compared to $60.4
million, or 0.30% of total assets, at March 31, 1995.
On a recurring basis, total noninterest income increased 19.2% in the first
quarter of 1996 to $67.7 million from $56.8 million in the first quarter of
1995. Service charges on deposits, the primary component of noninterest
income, were $25.2 million for the first quarter of 1996, an increase of 18.5%
over the comparable 1995 period. Other nondeposit fees and commissions were
$16.9 million in the first quarter of 1996 compared to $15.8 million in the
first quarter of 1995, an increase of 7.1%. Income from mortgage banking
activities in the first quarter of 1996 was $9.3 million, an increase of 66.4%
over $5.6 million in the comparable 1995 period. On a recurring basis, total
noninterest expense increased 0.7% in the first quarter of 1996 to $146.9
million from $146.0 million in the first quarter of 1995.
OTHER DEVELOPMENTS
Agreement to Acquire Regional Acceptance Corporation. The Company has
entered into an Agreement and Plan of Reorganization with Regional Acceptance
Corporation ("Regional"), dated as of March 29, 1996 (the "Agreement"), which
provides for the Company to acquire Regional in a transaction in which the
shareholders of Regional will receive .3929 shares of the Company's common
stock for each share of Regional common stock. The exchange ratio is subject
to adjustment in the event the average per share price of the
S-6
<PAGE>
Company's common stock during a specified 10-day period prior to the closing
is less than $24 or greater than $32. The Company expects to issue
approximately 6,040,000 shares in the transaction, which is valued at
approximately $167 million based on the market price of the Company's common
stock on the day preceding the date of the Agreement. The transaction will be
accounted for as a pooling of interests. In connection with the Agreement,
Regional granted the Company an option to purchase a number of shares of
Regional common stock up to 19.9% of the currently outstanding shares at
$10.21 per share, exercisable only in certain events if the transaction is not
completed.
The transaction has been approved by the boards of directors of the Company
and Regional and is subject to the approval of regulators and the shareholders
of Regional and other customary closing conditions. The transaction is
expected to be completed during the third quarter of 1996.
Regional specializes in indirect financing for consumer purchases of mid-
model and late-model used automobiles. Founded in 1978, Regional has 27 branch
offices in North Carolina, South Carolina, Tennessee and Virginia. Upon
completion of the transaction, Regional will continue to operate under its
name as a wholly owned subsidiary of the Company. The Company intends to use a
portion of the net proceeds from this offering to fund Regional's lending
business. Pending consummation of the transaction, net proceeds intended for
this purpose will be advanced to other subsidiaries of the Company.
Preferred Stock Redemption and Common Stock Repurchases. On February 28,
1996, the Company called for redemption 733,869 shares of its 6 3/4%
Cumulative Convertible Preferred Stock, Series A (the "Preferred Stock"),
representing all of the outstanding shares of the Preferred Stock. All such
shares of the Preferred Stock were converted into 4,334,692 shares of the
Company's common stock prior to the redemption date, March 29, 1996, and no
whole shares of the Preferred Stock were redeemed by the Company.
In connection with the redemption of the Company's Preferred Stock, the
Company completed the repurchase of 4,334,817 shares of its common stock in
February 1996. These repurchases were in addition to the Company's plan,
announced in April 1995, to repurchase up to 5,000,000 shares of common stock
over the next two to three years. Approximately 2,300,000 shares have been
repurchased pursuant to this plan.
DESCRIPTION OF SUBORDINATED NOTES
The following description of the particular terms of the Subordinated Notes
offered hereby supplements, and to the extent inconsistent therewith replaces,
the description of the general terms and provisions of the Debt Securities and
the specific terms and conditions of the Subordinated Debt Securities set
forth in the accompanying Prospectus, to which description reference is hereby
made. Capitalized terms used and not defined herein have the meanings set
forth in the accompanying Prospectus.
The Subordinated Notes will be limited to $250,000,000 aggregate principal
amount, will be direct, unsecured, subordinated obligations of the Company and
will mature on May 23, 2003. Interest at the annual rate set forth on the
cover page of this Prospectus Supplement will accrue from May 24, 1996 or from
the most recent Interest Payment Date to which interest has been paid or
provided for, payable semiannually on May 23 and November 23 of each year
beginning November 23, 1996 to the persons in whose names the Subordinated
Notes are registered at the close of business on the May 8 or November 8, as
the case may be, next preceding such Interest Payment Date. The Subordinated
Notes are not redeemable at the option of the Company prior to maturity and do
not provide for any sinking fund. The Subordinated Notes constitute a single
series and are to be issued under the Subordinated Indenture described in the
accompanying Prospectus.
GLOBAL SECURITIES
The Subordinated Notes initially will be issued as book-entry notes. See
"Description of the Debt Securities--Global Securities." The Subordinated
Notes will be issued in denominations of $1,000 and integral multiples
thereof.
S-7
<PAGE>
Upon issuance, all Subordinated Notes will be represented by Global
Securities. Global Securities representing the Subordinated Notes will be
deposited with, or on behalf of, the Depositary, and registered in the name of
a nominee of the Depositary. Subordinated Notes will not be exchangeable for
certificated notes, provided that if the Depositary is at any time unwilling
or unable to continue as Depositary and a successor Depositary is not
appointed by the Company within 90 days, the Company will issue certificated
notes in exchange for the Global Securities. In addition, the Company at any
time and in its sole discretion may determine not to have book-entry notes
represented by Global Securities, and, in such event, will issue certificated
notes in exchange therefor.
A further description of the Depositary's procedures with respect to Global
Securities representing book-entry notes is set forth in the accompanying
Prospectus under "Description of the Debt Securities--Global Securities." The
Depositary has confirmed to the Company, the Underwriters and the Subordinated
Trustee that it intends to follow such procedures.
SUBORDINATION
As described in the accompanying Prospectus, the Subordinated Notes are
subordinate and subject in right of payment to the prior payment in full of
all existing and future Senior Indebtedness of the Company. See "Subordinated
Debt Securities--Subordination" in the accompanying Prospectus. The
Subordinated Indenture does not limit or prohibit the incurrence of additional
Senior Indebtedness.
As described in the accompanying Prospectus, payment of the principal of the
Subordinated Notes may be accelerated in the case of certain events involving
the bankruptcy, insolvency or reorganization of the Company. There is no right
of acceleration in the case of a default by the Company in the performance of
any covenant or agreement in the Subordinated Notes or the Subordinated
Indenture, including the failure to pay principal of or interest on the
Subordinated Notes when due. See "Subordinated Debt Securities--Limited Rights
of Acceleration" and "--Events of Default" in the accompanying Prospectus.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Subordinated Notes will be made by the Underwriters in
immediately available funds. As long as the Subordinated Notes are represented
by Global Securities, all payments of principal and interest will be made by
the Company in immediately available funds, provided the Depositary makes its
Same-Day Funds Settlement System available to the Company.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, as long as
the Subordinated Notes are represented by Global Securities registered in the
name of the Depositary or its nominee, the Subordinated Notes will trade in
the Depositary's Same-Day Funds Settlement System, and secondary market
trading activity in the Subordinated Notes will therefore be required by the
Depositary to settle in immediately available funds. No assurance can be given
as to the effect, if any, of settlement in immediately available funds on
trading activity in the Subordinated Notes.
Any certificate for the Subordinated Notes will bear the following legend:
"This Subordinated Note is not a savings or deposit account or other
obligation of a bank and is not insured by the Federal Deposit Insurance
Corporation or any other governmental agency."
BB&T-NC will serve as the Paying Agent with respect to the Subordinated
Notes.
TRUSTEE
State Street Bank and Trust Company, a Massachusetts trust corporation, will
serve as the Trustee with respect to the Subordinated Notes.
S-8
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Company and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Alex. Brown & Sons Incorporated and Dean Witter
Reynolds Inc. (the "Underwriters"), the Company has agreed to sell to each of
the Underwriters, and the Underwriters have severally agreed to purchase, the
respective principal amounts of the Subordinated Notes set forth opposite
their names below. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Subordinated Notes if
any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................. $ 83,400,000
Alex. Brown & Sons Incorporated................................ 83,300,000
Dean Witter Reynolds Inc....................................... 83,300,000
------------
Total..................................................... $250,000,000
============
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Subordinated Notes to the public at the public offering price set
forth on the cover page of this Prospectus Supplement, and to certain dealers
at such price less a concession not in excess of .35% of the principal amount.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of .25% of the principal amount of the Subordinated Notes to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended, or contribute to payments the
Underwriters may be required to make with respect thereto.
The Subordinated Notes will not be listed on any securities exchange. The
Company has been advised by the several Underwriters that the several
Underwriters currently intend to make a market in the Subordinated Notes, as
permitted by applicable laws and regulations. The several Underwriters are not
obligated, however, to make a market in the Subordinated Notes and any such
market-making may be discontinued at any time at the sole discretion of the
several Underwriters. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Subordinated Notes.
The Underwriters and their respective affiliates may be customers of, engage
in transactions with and perform services for the Company and its subsidiaries
in the ordinary course of business.
VALIDITY OF SUBORDINATED NOTES
The validity of the Subordinated Notes will be passed upon for the Company
by Womble Carlyle Sandridge & Rice, PLLC, Charlotte, North Carolina, and for
the Underwriters by Gibson, Dunn & Crutcher LLP, New York, New York. Gibson,
Dunn & Crutcher LLP will rely on the opinion of Womble Carlyle Sandridge &
Rice, PLLC, as to matters of North Carolina law, and Womble Carlyle Sandridge
& Rice, PLLC will rely on the opinion of Gibson, Dunn & Crutcher LLP as to
matters of New York law.
EXPERTS
The consolidated financial statements and schedule included in the Company's
1995 Annual Report on Form 10-K incorporated by reference in the Prospectus as
supplemented by this Prospectus Supplement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are incorporated by reference herein upon the
authority of said firm as experts in giving said reports.
S-9
<PAGE>
PROSPECTUS
$1,000,000,000
SOUTHERN NATIONAL CORPORATION
DEBT SECURITIES
Southern National Corporation (the "Company" or "SNC") may offer from time
to time pursuant hereto up to $1,000,000,000 aggregate principal amount (or,
at the option of the Company if so specified in the applicable prospectus
supplement or prospectus supplements to this Prospectus (each, a "Prospectus
Supplement"), the equivalent thereof in any other currency or currency unit
such as the European Currency Unit), of its unsecured debt securities (the
"Debt Securities") consisting of unsecured senior debt securities (the "Senior
Debt Securities") and/or unsecured subordinated debt securities (the
"Subordinated Debt Securities"). The Debt Securities may be offered as
separate series in amounts, at maturities, at prices and on terms to be
determined at the time of sale as set forth in a Prospectus Supplement or
Prospectus Supplements. Although the aggregate initial offering price of the
Debt Securities is limited as set forth above, the respective indentures
pursuant to which the Senior Debt Securities and the Subordinated Debt
Securities are to be issued do not contain any limitation on the aggregate
principal amount of the debt securities covered thereby. The Senior Debt
Securities when issued will rank on a parity with all other unsecured and
unsubordinated indebtedness of the Company, and the Subordinated Debt
Securities when issued will be subordinated as described herein under
"Subordinated Debt Securities--Subordination".
When a particular series of Debt Securities is offered, a Prospectus
Supplement or Prospectus Supplements will be delivered setting forth the terms
of such Debt Securities, including the specific designation, aggregate
principal amount, the currency or currency unit in which payments are to be
made, denominations, maturity, premium, if any, rate (which may be fixed or
variable) and time of payment of interest, if any, terms for redemption at the
option of the Company or the holder, if any, terms for sinking fund payments,
if any, subordination terms, if any, and any other terms of such Debt
Securities or otherwise in connection with the offering and sale of the Debt
Securities in respect of which the Prospectus Supplement or Prospectus
Supplements are being delivered. In addition, the Prospectus Supplement or
Prospectus Supplements will set forth the initial public offering price, the
names of any underwriters or agents, the principal amounts, if any, to be
purchased by underwriters, the compensation of such underwriters and agents,
if any, and the net proceeds to the Company. The Debt Securities may be issued
in definitive or permanent global form.
The Company may sell Debt Securities to or through underwriters acting as
principals for their own account or as agents, and also may sell Debt
Securities directly to other purchasers or through agents designated from time
to time. If the Company, directly or through agents, solicits offers to
purchase the Debt Securities, the Company reserves the sole right to accept
and, together with its agents, to reject in whole or in part any proposed
purchase of Debt Securities. See "Plan of Distribution". Any underwriters,
dealers or agents participating in the offering may be deemed "underwriters"
within the meaning of the Securities Act of 1933 (as amended, the "Securities
Act"). See "Plan of Distribution" for possible indemnification arrangements
for underwriters, agents and their controlling persons.
This Prospectus may not be used to consummate the sale of Debt Securities
unless accompanied by a Prospectus Supplement.
THE DEBT SECURITIES WILL BE UNSECURED OBLIGATIONS OF THE COMPANY AND WILL
NOT BE OBLIGATIONS OF A BANK INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 10, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (as amended, the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
Regional Offices in New York (Seven World Trade Center, 13th Floor, New York,
New York 10048) and Chicago (Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661), and copies of such materials can be obtained
from the Public Reference Section of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's
Common Stock, $5 par value per share, is listed and traded on the New York
Stock Exchange, Inc. (the "NYSE"). Reports, proxy statements and other
information of the Company can also be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005. This Prospectus does not contain
all of the information set forth in the Registration Statement on Form S-3 of
which this Prospectus is a part (together with all amendments and exhibits
thereto, the "Registration Statement"), which the Company has filed with the
Commission under the Securities Act, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission, and to which
reference is hereby made for further information. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission. Copies of the
Registration Statement and the exhibits thereto are on file at the offices of
the Commission and may be obtained upon payment of the fee prescribed by the
Commission, or may be examined without charge at the public reference
facilities of the Commission described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following reports filed by the Company with the Commission (File No. 1-
10853) under Section 13(a) or 15(d) of the Exchange Act are hereby
incorporated by reference in this Prospectus:
(i)Annual Report on Form 10-K for the year ended December 31, 1995; and
(ii) Current Reports on Form 8-K filed with the Commission on April 15,
1996 and May 3, 1996, respectively.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of any Debt Securities are hereby incorporated by
reference into this Prospectus and shall be deemed a part hereof from the date
of filing of such documents. Any statement contained herein, in any Prospectus
Supplement or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
the Registration Statement and this Prospectus to the extent that a statement
contained herein, in any Prospectus Supplement or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement, this Prospectus or any
Prospectus Supplement.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF
THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON,
A COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, EXCEPT
FOR CERTAIN EXHIBITS TO SUCH DOCUMENTS. WRITTEN REQUESTS SHOULD BE SENT TO
INVESTOR RELATIONS, SOUTHERN NATIONAL CORPORATION, 223 WEST NASH STREET,
WILSON, NORTH CAROLINA 27893. TELEPHONE REQUESTS MAY BE DIRECTED TO (919) 246-
4219.
2
<PAGE>
THE COMPANY
The Company is a multi-bank holding company headquartered in Winston-Salem,
North Carolina. It conducts its operations in North Carolina, South Carolina
and Virginia primarily through its commercial banking subsidiaries and, to a
lesser extent, through its other subsidiaries. Substantially all of the
Company's loans are to businesses and individuals in the Carolinas and
Virginia. The Company has no material amount of foreign loans and no loans
that can be defined as highly-leveraged transactions. The principal assets of
the Company are all of the outstanding shares of common and preferred stock of
Branch Banking and Trust Company ("BB&T-NC"); BB&T Financial Corporation of
South Carolina ("BB&T Financial-SC"), which in turn owns all the outstanding
shares of Branch Banking and Trust Company of South Carolina ("BB&T-SC"); and
BB&T Financial Corporation of Virginia, which in turn owns all the outstanding
shares of Commerce Bank ("Commerce"), located in Virginia Beach, Virginia. At
December 31, 1995, the Company had assets of $20.5 billion, deposits of $14.7
billion, loans of $13.8 billion and shareholders' equity of $1.7 billion. At
December 31, 1995, the Company ranked thirty-fifth among bank holding
companies in the United States in terms of assets and thirty-fourth in terms
of deposits.
The Company and BB&T Financial Corporation (the former parent of BB&T-NC and
BB&T-SC) consummated a merger-of-equals transaction on February 28, 1995, and
the combined bank holding company operates 317 banking offices throughout
North Carolina, South Carolina and Virginia. BB&T-NC, the Company's largest
subsidiary, is the oldest bank in North Carolina. At December 31, 1995, BB&T-
NC had assets of $16.0 billion, deposits of $11.5 billion, loans of $10.6
billion and shareholders' equity of $1.1 billion. At December 31, 1995, BB&T-
NC ranked fourth among banks in North Carolina in terms of assets and in terms
of deposits. BB&T-NC focuses on providing a wide range of banking services in
its local market for retail and commercial customers, including small and mid-
size businesses, public agencies and local governments, trust customers and
individuals. BB&T Leasing Corp., a wholly owned subsidiary of BB&T-NC, offers
lease financing to commercial businesses and municipal governments. BB&T
Investment Services, Inc., a wholly owned subsidiary of BB&T-NC, offers
customers investment alternatives, including discount brokerage services,
fixed-rate and variable-rate annuities, mutual funds and municipal and other
government bonds. BB&T-NC has numerous additional subsidiaries, including BB&T
Insurance Services, Inc., which offers credit life, credit accident and
health, life, and property and casualty insurance on an agency basis; Goddard
Technology Corporation, which engages in the design and production of imaging
and security devices and programs; and Prime Rate Premium Finance Corporation,
Inc., which provides insurance premium financing and services to customers in
Virginia and the Carolinas.
BB&T-SC serves South Carolina through 103 banking offices. BB&T-SC focuses
on providing a wide range of banking services in its local market for retail
and commercial customers, including small and mid-size businesses, public
agencies, local governments, trust customers and individuals. BB&T-SC's
subsidiaries include BB&T Investment Services of South Carolina, Inc., which
is licensed as a general broker/dealer of securities and is currently engaged
in retailing of mutual funds, U.S. Government securities, municipal
securities, fixed and variable insurance annuity products and unit investment
trusts. At December 31, 1995, BB&T-SC had assets of $3.8 billion, deposits of
$2.9 billion, loans of $2.7 billion and shareholders' equity of $360.3
million. At December 31, 1995, BB&T-SC ranked second among banks in South
Carolina in terms of assets and in terms of deposits.
Commerce was acquired by the Company on January 10, 1995 and operates 21
banking offices in the Hampton Roads region of southeastern Virginia. Commerce
offers a full range of commercial and retail banking services and provides the
Company with a strong initial presence in a Virginia market contiguous with
the Company's North Carolina market. At December 31, 1995, Commerce had assets
of $737.5 million, deposits of $669.0 million, loans of $505.8 million and
shareholders' equity of $60.7 million. At December 31, 1995, Commerce ranked
ninth among banks in Virginia in terms of assets and in terms of deposits.
3
<PAGE>
USE OF PROCEEDS
The Company currently intends to use the net proceeds from the sale of any
Debt Securities for general corporate purposes, which may include the
reduction of other indebtedness of the Company, investments at the holding
company level, investments in, or extensions of credit to, its banking and
other subsidiaries, possible acquisitions, stock repurchases and such other
purposes as may be stated in any Prospectus Supplement. Pending such use, the
net proceeds may be temporarily invested or used to reduce short-term
indebtedness. The precise amounts and timing of the application of proceeds
will depend upon the funding requirements of the Company and its subsidiaries
and the availability of other funds. Except as may be described in any
Prospectus Supplement, specific allocations of the proceeds to such purposes
will not have been made at the date of such Prospectus Supplement. If the
Company elects at the time of issuance of Debt Securities to make a different
use of the proceeds other than as set forth herein, such use will be described
in the applicable Prospectus Supplement.
Based upon the historical and anticipated future growth of the Company and
the financial needs of the Company and its subsidiaries, the Company may
engage in additional financings of a character and amount to be determined as
the need arises.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following are the Company's consolidated ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings to fixed charges:
Excluding interest on deposits.................. 2.02x 3.46x 3.28x 4.12x 2.90x
Including interest on deposits.................. 1.32 1.61 1.38 1.39 1.22
</TABLE>
For purposes of computing these ratios, earnings represent income from
continuing operations before extraordinary items and cumulative effects of
changes in accounting principles plus income taxes and fixed charges
(excluding capitalized interest). Fixed charges, excluding interest on
deposits, represent interest (other than on deposits, but including
capitalized interest), one-third (the proportion representative of the
interest factor) of rents and all amortization of debt issuance costs. Fixed
charges, including interest on deposits, represent all interest, one-third
(the proportion representative of the interest factor) of rents and all
amortization of debt issuance costs.
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As a bank holding company, the Company is subject to regulation under the
Bank Holding Company Act of 1956 (as amended, the "BHCA") and its examination
and reporting requirements. Under the BHCA, bank holding companies may not
directly or indirectly acquire the ownership or control of more than five
percent of the voting shares or substantially all of the assets of any
company, including a bank, without the prior approval of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). In
addition, subject to certain exceptions, bank holding companies are generally
prohibited under the BHCA from engaging in nonbanking activities, unless such
activities are so closely related to banking or managing and controlling banks
as to be a proper incident thereto.
In addition, BB&T-NC, BB&T-SC and Commerce (collectively, the "Banks") are
extensively regulated under state and federal law. As state-chartered
commercial banks, the Banks are subject to regulation, supervision and
examination by state banking authorities in their respective home states,
including the North Carolina Commissioner, in the case of BB&T-NC, the South
Carolina Commissioner, in the case of BB&T-SC, and the Virginia State
Corporation Commission, Bureau of Financial Institutions, in the case of
Commerce. As federally-insured, nonmember banks, each of the Banks is also
subject to regulation, supervision and examination by the Federal Deposit
Insurance Corporation (the "FDIC").
4
<PAGE>
The earnings of the Company's subsidiaries, and therefore the earnings of
the Company, are affected by general economic conditions, management policies
and the legislative and governmental actions of various regulatory
authorities, including those referred to above. In addition, there are
numerous governmental requirements and regulations which affect the activities
of the Company and its subsidiaries.
The following description summarizes some of the state and federal laws to
which the Company and the Banks are subject. To the extent statutory or
regulatory provisions or proposals are described, the description is qualified
in its entirety by reference to the particular statutory or regulatory
provisions or proposals.
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from its banking and
other subsidiaries. A major portion of the revenues of the Company result from
amounts paid as dividends to the Company by its bank subsidiaries. The
Company's banking subsidiaries are subject to state laws and regulations that
limit the amount of dividends they can pay. The Company does not expect that
these laws and regulations will materially impact the ability of its banking
subsidiaries to pay dividends. During the year ended December 31, 1995, the
Banks paid $88.0 million in cash dividends to the Company. During the first
quarter of 1996, the Banks paid $161.0 million in cash dividends to the
Company, including $125.0 million paid as a special dividend to the Company in
order to finance repurchases of the Company's Common Stock.
In addition, both the Company and the Banks are subject to various general
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory minimums.
The appropriate federal or state regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of a
bank or bank holding company that the payment of dividends would be an unsafe
or unsound practice and to prohibit payment thereof. The Federal Reserve
Board, which regulates the activities of the Company and BB&T Financial-SC,
has indicated that dividends should generally be paid only out of current
operating earnings.
CAPITAL
The Company. The minimum requirement for a bank holding company's ratio of
capital to risk-weighted assets (including certain off-balance-sheet
activities, such as standby letters of credit) is eight percent. At least half
of the total capital is to be composed of common equity, retained earnings and
qualifying perpetual preferred stock, less certain intangibles ("Tier 1
capital"). The remainder may consist of subordinated debt, qualifying
preferred stock and a limited amount of the loan loss allowance ("Tier 2
capital" and, together with Tier 1 capital, "total capital"). At December 31,
1995, the Company's Tier 1 and total capital ratios were 13.0 percent and 14.3
percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio requirements for bank holding companies. These requirements provide for
a minimum leverage ratio of Tier 1 capital to adjusted average quarterly
assets ("leverage ratio") equal to 3 percent for bank holding companies that
meet certain specified criteria, including that they have the highest
regulatory rating. All other bank holding companies will generally be required
to maintain a leverage ratio of at least 4 to 5 percent. The Company's
leverage ratio at December 31, 1995, was 7.8 percent. The requirements also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant
reliance on intangible assets. Furthermore, the requirements indicate that the
Federal Reserve Board will continue to consider a "tangible Tier 1 leverage
ratio" (deducting all intangibles) in evaluating proposals for expansion or
new activity.
The Banks. The FDIC has adopted minimum risk-based and leverage ratio
guidelines to which the Banks are subject. Under the risk-based capital
requirements of the FDIC, each of the Banks is required to maintain a minimum
ratio of total capital (Tier 1 plus Tier 2 capital) to total risk-adjusted
assets (which include the credit risk equivalents of certain off-balance sheet
items) of 8 percent, of which half (4 percent) must be Tier 1 capital.
5
<PAGE>
In addition, the FDIC requires a minimum leverage ratio (Tier 1 capital to
average total consolidated assets) of 3 percent. These risk-based capital and
leverage ratios are minimum supervisory ratios generally applicable to banks
that meet certain specified criteria, including that they have one of the two
highest regulatory ratings. Banking institutions not meeting these criteria
are expected to operate with capital positions well above the minimum ratios.
In addition, the FDIC may set capital requirements for a particular bank that
are higher than the minimum ratios when circumstances warrant.
The FDIC's risk-based capital standards explicitly identify concentrations
of credit risk and the risk arising from non-traditional activities, as well
as an institution's ability to manage these risks, as important factors to be
taken into account by the agency in assessing an institution's overall capital
adequacy. The capital regulations also provide that an institution's exposure
to a decline in the economic value of its capital due to changes in interest
rates be considered by the agency as a factor in evaluating a bank's capital
adequacy. The banking agencies issued for comment a proposed joint policy
statement that describes the process the banking agencies will use to measure
and assess the exposure of a bank's net economic value to changes in interest
rates. The agencies may, ultimately, establish an explicit capital charge for
interest rate risk.
Under federal banking laws, failure to meet the minimum regulatory capital
requirements could subject a banking institution to a variety of enforcement
remedies available to federal regulatory authorities, including, in the most
severe cases, the termination of deposit insurance by the FDIC and placing the
institution into conservatorship or receivership.
The capital ratios of each of the Banks exceeded all minimum regulatory
capital requirements as of December 31, 1995. As of December 31, 1995, the
ratio of total capital to total risk-adjusted assets for BB&T-NC, BB&T-SC and
Commerce were 11.6%, 15.3% and 12.5%, respectively, and the Banks' leverage
ratios (Tier 1 capital to average total consolidated assets) were 6.4%, 9.0%
and 8.2%, respectively.
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), among other things, imposes liability on an institution the
deposits of which are insured by the FDIC, such as the Banks, for certain
potential obligations to the FDIC incurred in connection with other FDIC-
insured institutions under common control with such institution.
Under Federal Reserve Board policy, the Company is expected to act as a
source of financial strength to each of the Banks and to commit resources to
support each of such subsidiaries. This support may be required at times when,
absent such Federal Reserve Board policy, the Company may not find itself able
to provide it.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a subsidiary bank will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
PROMPT CORRECTIVE ACTION UNDER FDICIA
The prompt corrective action provisions of the Federal Deposit Insurance
Company Improvement Act of 1991 ("FDICIA") significantly expanded the
regulatory and enforcement powers of federal banking regulators, including the
FDIC. Among other things, FDICIA establishes additional capital standards for
insured depository institutions and requires specific enforcement actions by
the appropriate federal regulatory agencies against institutions that fail to
meet these standards. The extent of these powers depends upon whether the
institutions in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized."
6
<PAGE>
The FDIC's regulations establish specific actions that are permitted or, in
certain cases, required to be taken by regulators with respect to institutions
falling within one of the three undercapitalized categories. Depending on the
level of an institution's capital, the agency's corrective powers can include:
requiring a capital restoration plan; placing limits on asset growth and
restrictions on activities; requiring the institution to issue additional
stock (including voting stock) or to be acquired; placing restrictions on
transactions with affiliates; restricting the interest rate the institution
may pay on deposits; ordering a new election for the institution's board of
directors; requiring that certain senior executive officers or directors be
dismissed; prohibiting the institution from accepting deposits from
correspondent banks; requiring the institution to divest certain subsidiaries;
prohibiting the payment of principal or interest on subordinated debt;
prohibiting the holding company from making capital distributions without
prior regulatory approval; and, in the most severe cases, appointing a
receiver for the institution. A bank that is undercapitalized is required to
submit a capital restoration plan, and such a plan will not be accepted
unless, among other things, the bank holding company guarantees the capital
plan, up to a certain specified amount. Under certain circumstances, a "well
capitalized," "adequately capitalized" or "undercapitalized" institution may
be required to comply with restrictions applicable to the next lowest capital
category.
As of December 31, 1995, the Company and each of the Banks were classified
as "well capitalized."
CONSERVATORSHIP AND RECEIVERSHIP POWERS OF THE FEDERAL AND STATE BANKING
AGENCIES
The federal banking agencies have broad enforcement powers over depository
institutions, including the power to terminate deposit insurance, impose
substantial fines and other civil penalties and to appoint a conservator or
receiver. Certain federal statutes to which the Company and its subsidiaries
are subject also contain criminal penalties. In addition to the grounds
discussed under "Prompt Corrective Action Under FDICIA," the FDIC may appoint
itself as conservator or receiver for each of the Banks if any one or more of
a number of circumstances exist, including, without limitation, the fact that
the bank is undercapitalized and has no reasonable prospect of becoming
adequately capitalized; fails to become adequately capitalized when required
to do so; fails to submit a timely and acceptable capital restoration plan; or
materially fails to implement an accepted capital restoration plan.
State regulatory authorities have broad enforcement powers over state
banking institutions chartered in each of their states including powers to
impose fines and other civil penalties and to appoint a conservator (with the
approval of the Governor in the case of North Carolina) in order to conserve
the assets of any such institution for the benefit of depositors and other
creditors thereof. The state statutes to which the Company and its
subsidiaries are subject also contain criminal penalties. In addition, the
North Carolina Commissioner has the authority to take possession of a state
bank in certain circumstances, including, among other things, when it appears
that such bank has violated its charter or any applicable laws or is
conducting its business in an unauthorized or unsafe manner, or is in an
unsafe or unsound condition to transact its business or has an impairment of
its capital stock. A conservator has the authority, under the direction of the
applicable state authority to take possession of the books, records and assets
of a bank and to exercise all powers of such state authority in order to
preserve the assets of such bank.
The FDIC may provide federal assistance to a "troubled institution" without
placing the institution into conservatorship or receivership. In such a case,
preexisting debtholders and shareholders may be required to make substantial
concessions and, insofar as practical, the FDIC will succeed to their
interests in proportion to the amount of federal assistance provided.
INSOLVENCY, LIQUIDATION OR OTHER DEFAULT BY THE BANKS
In the event of the liquidation or other resolution of any federally-insured
depository institution, such as each of the Banks, the claims of depositors of
such an institution (including claims by the FDIC as subrogee of insured
depositors) and administrative expenses of the receiver are entitled to
priority in payment over the claims of any other senior or general creditors
of the institution, other than secured creditors. A substantial majority of
the liabilities of each of the Banks are deposits or secured liabilities.
7
<PAGE>
A depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with (i) the default of a commonly-controlled depository institution or (ii)
any assistance provided by the FDIC to a commonly-controlled depository
institution in danger of default. However, such liability to the FDIC would be
subordinated in right of payment to deposit liabilities and to most secured,
senior, general or subordinated obligations, other than obligations owed to
any affiliate of the depository institution (with certain exceptions) and any
obligations to shareholders of such depository institution in their capacity
as such.
As conservator or receiver for an insured depository institution, and in
order to promote the orderly administration of the institution's affairs, the
FDIC may disaffirm or repudiate any contract or lease to which such
institution is a party. The FDIC as conservator or receiver is also permitted
to enforce most types of contracts pursuant to their terms notwithstanding any
acceleration provisions therein, and may transfer to a new obligor any of the
institution's assets and liabilities, without approval or consent of the
institution's creditors. Pursuant to FDICIA, the FDIC is also authorized to
settle all uninsured and unsecured claims in the insolvency of an insured bank
by making a final settlement payment at a percentage rate reflecting an
average of the FDIC's receivership recovery experience and constituting full
payment and disposition of the FDIC's obligations to such uninsured and
unsecured claimants.
Should a state regulatory authority elect to take possession of any bank for
the purpose of liquidation, administrative claims and claims of depositors are
entitled to priority in payment over the claims of creditors. Each of the
state authorities may appoint the FDIC as its agent for the purpose of
liquidation of a bank, provided that the liabilities of such bank to its
depositors are insured by the FDIC.
If the FDIC or state regulatory agency were appointed receiver of a bank,
the amount paid on claims in respect of the bank's obligations to its
creditors would depend upon, among other factors, the amount of assets in the
receivership and the relative priority of the claim.
DEPOSIT INSURANCE ASSESSMENTS
The deposits of each of the Banks are insured by the FDIC, up to applicable
limits. Most of the deposits of the Banks are subject to deposit premium
assessments of the Bank Insurance Fund ("BIF") of the FDIC. In addition,
approximately 40 percent of the Banks' deposits (which are related to the
acquisition of thrift deposits) is subject to assessments by the Savings
Association Insurance Fund ("SAIF") of the FDIC. Under the FDIC's risk-based
insurance system, BIF-assessed deposits are currently subject to premiums of
between $.00 and $.27 per $100 of deposits, depending upon the institution's
capital position and other supervisory factors. The current premiums reflect a
reduction, effective January 1, 1996, from a range of $.04 to $.31 per $100 of
deposits. The rate applicable to the BIF-assessed deposits of each of the
Banks is currently $.00 per $100 of eligible deposits, with a minimum
semiannual assessment of $1,000. The range of premiums applicable to SAIF-
assessed deposits is between $.23 and $.31 per $100 of deposits, and the
assessment rate for each of the Banks' SAIF-assessed deposits is $.23 per $100
of eligible deposits.
Proposed budget reconciliation legislation that contains provisions to
recapitalize the SAIF was passed by both houses of Congress and reconciled in
conference committee. However, the President vetoed the proposed budget
reconciliation legislation on December 6, 1995, for reasons unrelated to the
SAIF recapitalization issue. The vetoed legislation included provisions for a
one-time special assessment, as determined by the FDIC, on SAIF-assessable
deposits of insured depository institutions in an amount adequate to cause the
SAIF to achieve its specific designated reserve ratio of 1.25 percent (which
would have called for a special assessment in the range of $.80 per $100 of
SAIF-assessable deposits).
Under the vetoed legislation, the special assessment would have been applied
to the amount of SAIF-assessable deposits held as of March 31, 1995. (The
actual cut-off date in any final legislation cannot be determined with
certainty at this time.) The SAIF-assessable deposits of BB&T-NC and BB&T-SC
as of
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March 31, 1995 totaled approximately $4.3 billion and $1.5 billion,
respectively. Under the vetoed legislation, BB&T-NC would have received a 20
percent discount on the assessment, because the bank's SAIF-assessable
deposits were less than 50 percent of its total assessable deposits as of June
30, 1995. The pre-tax impact on the Company of a one-time assessment of the
type included in the vetoed legislation would not be expected to exceed $41
million. The Company expects to record this expense following the enactment of
any such legislation. In the event that the SAIF is recapitalized pursuant to
any such legislation, it is expected that future assessment rates applicable
to SAIF-assessable deposits would be reduced.
The vetoed legislation contains additional provisions that, among other
things, would require BIF-member institutions to share pro rata in the
obligations of SAIF members for certain government bonds.
Although the SAIF-recapitalization provisions discussed in the preceding
paragraphs were included in legislation that was vetoed and therefore have not
been enacted into law, similar provisions are still being discussed and may be
included in other proposed legislation. The final form of the proposed
legislation, including whether the legislation will contain some or all of the
provisions discussed above, cannot be determined with certainty at this time.
Similarly, the date of passage of the final form of any such legislation, or
whether this or any such legislation will be passed during this session of
Congress, cannot be determined with certainty at this time.
Under the federal banking laws, a federally-insured institution is
prohibited from paying interest on its capital notes or debentures (if such
interest is required to be paid only out of net profits) or distributing any
of its capital assets while it remains in default in the payment of any
assessment due to the FDIC.
SAFETY AND SOUNDNESS STANDARDS
Effective August 9, 1995, the federal banking agencies published final
agency guidelines that establish safety and soundness standards addressing
operational and managerial, including compensation matters for certain insured
financial institutions, as required by FDICIA. Banks failing to meet these
standards are required to submit compliance plans to their appropriate federal
regulators. On this same date, the agencies issued for comment proposed
guidelines regarding asset quality and earnings standards for insured
institutions.
INTERSTATE BANKING AND BRANCHING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("IBBEA") authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation. In addition, beginning June 1, 1997,
IBBEA authorizes a bank to merge with a bank in another state as long as
neither of the states has opted out of interstate branching between the date
of enactment of IBBEA and May 31, 1997. IBBEA further provides that states may
enact laws permitting interstate bank merger transactions prior to June 1,
1997. A bank may establish and operate a de novo branch in a state in which
the bank does not maintain a branch if that state expressly permits de novo
branching. Once a bank has established branches in a state through an
interstate merger transaction, the bank may establish and acquire additional
branches at any location in the state where any bank involved in the
interstate merger transaction could have established or acquired branches
under applicable federal or state law. A bank that has established a branch in
a state through de novo branching may establish and acquire additional
branches in such state in the same manner and to the same extent as a bank
having a branch in such state as a result of an interstate merger. If a state
opts out of interstate branching within the specified time period, no bank in
any other state may establish a branch in the opting out state, whether
through an acquisition or de novo.
The North Carolina law permits de novo branching on a reciprocal basis until
June 1, 1997, and unrestricted de novo branching thereafter. Virginia has
enacted an early opt-in law permitting interstate bank merger transactions
effective July 1, 1995. The Virginia law permits de novo branching on a
reciprocal basis. At this time, South Carolina has not enacted an early opt-in
law.
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DESCRIPTION OF THE DEBT SECURITIES
The Debt Securities will constitute either Senior Debt Securities or
Subordinated Debt Securities. The Senior Debt Securities will be issued under
a senior indenture (the "Senior Indenture"), between the Company and State
Street Bank and Trust Company, as senior trustee (the "Senior Trustee"). The
Subordinated Debt Securities will be issued under a subordinated indenture
(the "Subordinated Indenture"), between the Company and State Street Bank and
Trust Company, as subordinated trustee (the "Subordinated Trustee"). The
Senior Indenture and the Subordinated Indenture collectively are referred to
as the "Indentures" and the Senior Trustee and the Subordinated Trustee
collectively are referred to as the "Trustee."
In the event of the resignation or removal of the Trustee prior to the
issuance of a particular series of Debt Securities, the trustee for such
series of Debt Securities will be identified in the Prospectus Supplement for
such series, and all references to "Trustee" shall be deemed to mean the
trustee so identified. No Trustee shall be responsible for the acts,
obligations, liabilities or responsibilities of any other trustee. The
following summaries of certain provisions of the Indentures do not purport to
be complete and are subject to, and are qualified in their entirety by
reference to, all the provisions of the Indentures, including the definitions
therein of certain terms. Wherever particular sections or defined terms of the
Indentures are referred to, it is intended that such sections or definitions
shall be incorporated herein by reference. The following sets forth certain
terms and provisions of the Debt Securities to which any Prospectus Supplement
may relate. The particular terms of the Debt Securities offered by any
Prospectus Supplement (the "Offered Securities") and the extent, if any, to
which such general provisions may apply to the Debt Securities so offered,
will be described in the Prospectus Supplement relating to such Offered
Securities.
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provide that Debt Securities may
be issued from time to time in one or more series. The Debt Securities will be
direct, unsecured obligations of the Company and will not be obligations of a
bank insured by the FDIC or any other government agency. Neither the
Indentures nor the Debt Securities will limit or otherwise restrict the amount
of other indebtedness that may be incurred or other securities that may be
issued by the Company or any of its subsidiaries.
Reference is made to the Prospectus Supplement relating to the particular
series of Offered Securities for the following terms of such Offered
Securities: (1) the title; (2) any limit on the aggregate principal amount;
(3) whether such Offered Securities are Senior Debt Securities or Subordinated
Debt Securities; (4) the price or prices (expressed as a percentage of the
aggregate principal amount thereof) at which such Offered Securities will be
issued; (5) the date or dates on which such Offered Securities will mature;
(6) the rate or rates (which may be fixed or floating) per year at which such
Offered Securities will bear interest, if any, or the method of determining
the same; (7) the date from which such interest, if any, on such Offered
Securities will accrue, the dates on which such interest, if any, will be
payable, the date on which payment of such interest, if any, will commence and
the Regular Record Dates for such Interest Payment Dates, if any; (8) the
extent to which any of such Offered Securities will be issuable in the form of
one or more temporary or permanent Global Securities, and if so, the identity
of the Depositary for such Global Securities, or the manner in which any
interest payable on temporary or permanent Global Securities will be paid; (9)
the dates, if any, on which, and the price or prices at which, such Offered
Securities will, pursuant to any mandatory sinking fund provisions, or may,
pursuant to any optional sinking fund or to any purchase fund provisions, be
redeemed by the Company, and the other detailed terms and provisions of such
sinking and/or purchase funds; (10) the date, if any, after which, and the
price or prices at which, such Offered Securities may, pursuant to an optional
redemption provision, be redeemed at the option of the Company or of the
holder thereof and the other detailed terms and provisions of such optional
redemption; (11) the denomination or denominations in which such Offered
Securities are authorized to be issued; (12) whether such Offered Securities
will be issued as Registered Securities, Bearer Securities, or both and any
limitations on the issuance of such Bearer Securities (including exchange for
Registered Securities of the same series); (13) information with respect to
book-entry procedures; (14) each office or agency where,
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subject to the terms of the applicable Indenture, such Offered Securities may
be presented for registration of transfer or exchange; and (15) any other
terms of such Offered Securities (which will not be inconsistent with the
provisions of the applicable Indenture).
Debt Securities may be issued as Original Issue Discount Securities to be
sold at a substantial discount below their principal amount. Special federal
income tax and other considerations relating thereto will be described in the
applicable Prospectus Supplement.
The Debt Securities may be issuable as Registered Securities, Bearer
Securities or both. Unless otherwise indicated in the applicable Prospectus
Supplement, each series of Debt Securities will be issued as Registered
Securities. Debt Securities issued as Bearer Securities shall have interest
coupons attached, unless issued as zero coupon securities. Unless otherwise
indicated in the applicable Prospectus Supplement, Registered Securities will
be issued only in denominations of $1,000 or integral multiples thereof and
Bearer Securities will be issued only in denominations of $5,000 or integral
multiples thereof.
Bearer Securities shall not be offered, sold, resold or delivered in
connection with their original issuance in the United States or to any United
States person (as defined below) other than to offices located outside the
United States of certain United States financial institutions. "United States
person" means any citizen or resident of the United States, any corporation,
partnership or other entity created or organized in or under the laws of the
United States or any estate or trust the income of which is subject to United
States federal income taxation regardless of its source, and "United States"
means the United States of America (including the States and the District of
Columbia) and its possessions. Purchasers of Bearer Securities will be subject
to certification procedures and may be affected by certain limitations under
United States tax laws. Such procedures and limitations will be described in
the Prospectus Supplement relating to the offering of the Bearer Securities.
The applicable Prospectus Supplement will include a description of the
requirements for certification of ownership by non-United States persons that
will apply prior to (1) the issuance of Bearer Securities or (2) the payment
of interest that occurs prior to the issuance of Bearer Securities.
Unless otherwise indicated in the applicable Prospectus Supplement,
Registered Securities of any series (other than a Global Security, except as
set forth below) will be exchangeable into an equal aggregate principal amount
of Registered Securities of the same series, tenor and terms of different
authorized denominations and Bearer Securities may be exchanged for Registered
Securities on the terms set forth in the applicable Prospectus Supplement. In
no event will Registered Securities be exchangeable for Bearer Securities.
Unless otherwise indicated in the applicable Prospectus Supplement, Debt
Securities may be presented for exchange, and Registered Securities (other
than a Global Security) may be presented for registration of transfer, at the
offices of the appropriate Trustee. The Company also may designate in the
applicable Prospectus Supplement the corporate trust department of BB&T-NC as
an office where the transfer of the Registered Securities may be registered.
No service charge will be made for any registration of transfer or exchange
of the Debt Securities, but the Company may require payment sufficient to
cover any tax or other governmental charge payable in connection therewith.
PAYMENT AND PAYING AGENT
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of and any premium and interest on Registered Securities will be
made at the office of the appropriate Trustee, except that at the option of
the Company interest may be paid by mailing a check to the address of the
person entitled thereto as it appears on the Security Register (Section 3.02
of the Senior Indenture; Section 4.02 of the Subordinated Indenture). The
Company also may designate in the applicable Prospectus Supplement the
corporate trust department of BB&T-NC, as an office where principal and any
premium and interest on Registered Securities may be paid. Paying Agents will
be named in the Prospectus Supplement and may be terminated at any time.
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Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of and any premium and interest on Bearer Securities will be
made, subject to applicable laws and regulations, at such paying agencies
outside the United States as the Company may designate from time to time. Any
such payment may be made, at the option of the holder, by check or by transfer
to an account maintained by the payee with a bank located outside the United
States. Unless otherwise indicated in the applicable Prospectus Supplement,
payment of interest on Bearer Securities will be made only against surrender
of the coupon relating to the relevant Interest Payment Date. No payment with
respect to any Bearer Security will be made at any office or agency of the
Company in the United States or by check mailed to any address in the United
States or by transfer to an account maintained with a bank located in the
United States.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on
behalf of, a depositary (the "Depositary") identified in the Prospectus
Supplement relating to such series. Global Securities may be issued in either
registered or bearer form and in either temporary or permanent form. Unless
and until it is exchanged in whole or in part for the individual certificates
evidencing the Debt Securities represented thereby, a Global Security may not
be transferred except as a whole by the Depositary for such Global Security to
a nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by such Depositary or any
such nominee to a successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company anticipates that the following provisions will apply
to all depositary arrangements although no assurance can be given that such
will be the case.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit, on its book-entry registration and
transfer system, the respective principal amounts of the Debt Securities
represented by such Global Security to the accounts of institutions that have
accounts with such Depositary ("participants"). The accounts to be credited
shall be designated by the underwriters or agents of such Debt Securities or
by the Company if such Debt Securities are offered and sold directly by the
Company. Ownership of beneficial interests in a Global Security will be
limited to participants or persons that may hold interests through
participants. Ownership of such beneficial interests will be shown on, and the
transfer of that ownership will be effected only through, records maintained
by the Depositary or its nominee for such Global Security (with respect to
interests of participants) and the records of participants (with respect to
persons other than participants). The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
owner of such Global Security, such Depositary or such nominee, as the case
may be, will be considered the sole owner or holder of the Debt Securities
represented by such Global Security for all purposes under the Indenture
governing such Debt Securities. Except as set forth below, owners of
beneficial interest in a Global Security registered in their names will not
receive or be entitled to receive physical delivery of Debt Securities of such
series in definitive form and will not be considered the owners or holders
thereof under the Indenture governing such Debt Securities.
Payments of principal of and any premium and interest on Debt Securities
registered in the name of or held by a Depositary or its nominee will be made
to the Depositary or its nominee, as the case may be, as the registered owner
or the holder of the Global Security representing such Debt Securities. None
of the Company, the Trustee for such Debt Securities or any Paying Agent or
the registrar for such Debt Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in a Global Security for such Debt
Securities or for maintaining, supervising or reviewing any records relating
to or payments made on account of beneficial ownership interests in a Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
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The Company expects that the Depositary for Debt Securities of a series,
upon receipt of any payment of principal, premium or interest in respect of a
permanent Global Security, immediately will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security as shown on the records of such
Depositary or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers in bearer form or registered in "street name," and will be the
responsibility of such participants.
If the Depositary for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as Depositary and a successor Depositary is
not appointed by the Company within 90 days, the Company will issue Debt
Securities of such series in definitive form in exchange for the Global
Security or Securities representing the Debt Securities of such series. In
addition, the Company at any time and in its sole discretion, subject to any
limitations described in the Prospectus Supplement relating to such Debt
Securities, may determine not to have any Debt Securities of a series
represented by one or more Global Securities and, in such event, will issue
Debt Securities of such series in definitive form in exchange for the Global
Security or Securities representing such Debt Securities. Further, if the
Company so specifies with respect to the Debt Securities of a series, an owner
of a beneficial interest in a Global Security representing Debt Securities of
such series may receive, on terms acceptable to the Company and the Depositary
for such Global Security, Debt Securities of such series in definitive form in
exchange for such beneficial interest, subject to any limitations described in
the Prospectus Supplement relating to such Debt Securities. In any such
instance, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery in definitive form of Debt Securities of the
series represented by such Global Security equal in principal amount to such
beneficial interest and to have such Debt Securities registered in its name
(if the Debt Securities of such series are issuable as Registered Securities).
Debt Securities of such series so issued in definitive form will be issued (a)
as Registered Securities in denominations, unless otherwise specified by the
Company, of $1,000 or integral multiples thereof if the Debt Securities of
such series are issuable as Registered Securities, (b) as Bearer Securities in
denominations, unless otherwise specified by the Company, of $5,000 or
integral multiples thereof if the Debt Securities of such series are issuable
as Bearer Securities or (c) as either Registered or Bearer Securities, if the
Debt Securities of such series are issuable in either form.
CERTAIN COVENANTS OF THE COMPANY
Limitation on Certain Dispositions and on Merger and Sale of Assets. Except
as described below under "Consolidation, Merger, Sale, Conveyance and Lease,"
each Indenture prohibits the sale or other disposition by the Company of
shares of, or securities convertible into, or options, warrants or rights to
subscribe for or purchase shares of, Voting Stock of a Principal Constituent
Bank, the merger or consolidation of a Principal Constituent Bank with any
other corporation (unless the surviving corporation is the Company or a
Controlled Subsidiary), and the lease, sale or transfer of all or
substantially all the assets of a Principal Constituent Bank to any
corporation or Person, except to the Company or a Controlled Subsidiary or a
Person that, upon such lease, sale or transfer, will become the Company or a
Controlled Subsidiary. The Indentures, however, do not prohibit any such sale,
assignment, transfer or disposition of securities, any such merger or
consolidation or any such lease, sale or transfer of properties and assets if
required (i) by law or (ii) as a condition imposed by law to the acquisition
by the Company or any Controlled Subsidiary, directly or indirectly, of any
Person if, thereafter, (a) such person would be a Controlled Subsidiary; (b)
the Consolidated Net Banking Assets of the Company would not be decreased; and
(c) BB&T-NC would still be a Controlled Subsidiary (Section 3.06 of the Senior
Indenture; Section 4.06 of the Subordinated Indenture). "Controlled
Subsidiary" means any Subsidiary of which more than 80% of the aggregate
voting power of the outstanding shares of the Voting Stock is at the time
owned directly or indirectly by the Company or by one or more Controlled
Subsidiaries or by the Company and one or more Controlled Subsidiaries, after
giving effect to the issuance to any Person other than the Company or any
Controlled Subsidiary of Voting Stock of the Subsidiary issuable on exercise
of options, warrants or rights to subscribe for such Voting Stock or on
conversion of securities convertible into such Voting Stock. "Principal
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Constituent Bank" means BB&T-NC and, at any time, any other bank subsidiary
the total assets of which (as set forth in the most recent statement of
condition of such bank subsidiary) equal more than 30% of the total assets of
all bank subsidiaries as determined from the most recent statements of
condition of the bank subsidiaries.
Limitation on Creation of Liens. Each Indenture provides that the Company
will not create, assume, incur or suffer to exist any pledge, encumbrance or
lien, as security for indebtedness for borrowed money, upon any shares of, or
securities convertible into, or options, warrants or rights to subscribe for
or purchase shares of, Voting Stock of a Principal Constituent Bank now or
hereafter owned by the Company, directly or indirectly, if, treating the
pledge, encumbrance or lien as a transfer to the secured party, the Principal
Constituent Bank would not be a Controlled Subsidiary (Section 3.07 of the
Senior Indenture; Section 4.07 of the Subordinated Indenture).
No Other Restrictive Covenants. Neither of the Indentures restricts the
Company from incurring, assuming or becoming liable for any type of debt nor
from creating, assuming, incurring or permitting to exist any mortgage,
pledge, encumbrance, lien or charge on its property (except the Voting Stock
of a Principal Constituent Bank). In addition, the Indentures do not require
the Company to maintain any financial ratios or specified levels of net worth
or liquidity and do not contain any other provisions which would provide
protection to holders of the Debt Securities due to a sudden or dramatic
decline in the credit quality of such Debt Securities caused by a change in
control, recapitalization or other capital restructuring of the Company.
MODIFICATION OF THE INDENTURES; WAIVER OF COVENANTS
Each Indenture contains provisions permitting the Company and the Trustee to
modify the Indenture with the consent of the holders of not less than a
majority in aggregate principal amount of the outstanding Debt Securities of
each series affected thereby, except that, without the consent of the holder
of each Debt Security affected thereby, no such modification may, among other
things: (a) change the stated maturity date of the principal of or any
premium, or any installment of interest on, any Outstanding Security; (b)
reduce the principal amount of, or any premium or interest on, any Outstanding
Security; (c) reduce the amount of principal of an Original Issue Discount
Security payable upon acceleration of the maturity thereof; (d) change the
place of payment of principal of, or any premium or interest on, any
Outstanding Security; (e) impair the right to institute suit for the
enforcement of any payment on or with respect to any Outstanding Security; (f)
reduce the percentage in principal amount of Outstanding Securities of any
series the consent of whose holders is required for modification or amendment
of the Indenture or for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults and their consequences; or (g) in
the case of the Subordinated Indenture, make any change in the subordination
provisions that adversely affects the rights of any holder of Subordinated
Debt Securities.
Prior to any acceleration of the Debt Securities of any series, the holders
of a majority in aggregate principal amount of the outstanding Debt Securities
of such series may waive any past default or Event of Default under the
applicable Indenture, except a default under a covenant that cannot be
modified without the consent of each holder of a Debt Security of the series
affected thereby (Section 4.07(b) of the Senior Indenture; Section 5.07(b) of
the Subordinated Indenture). In addition, the holders of a majority in
aggregate principal amount of the outstanding Debt Securities of any series
may rescind a declaration of acceleration of the Debt Securities of any series
before any judgment has been obtained if (i) the Company pays the Trustee
certain amounts due the Trustee plus all matured installments of principal of
and any premium and interest on the Debt Securities of such series (other than
installments due by acceleration) and interest on the overdue installments to
the extent provided in the applicable Indenture and (ii) all other defaults
with respect to Debt Securities of that series under the applicable Indenture
have been cured or waived (Section 4.01 of the Senior Indenture; Section 5.01
of the Subordinated Indenture).
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Each Indenture provides that the Company may not consolidate with or merge
into another corporation, or convey, transfer or lease its properties and
assets substantially as an entirety to any Person unless: (a) the successor is
organized under the laws of any domestic jurisdiction and assumes the
Company's obligations on
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the Debt Securities and under the applicable Indenture; (b) after giving
effect to the transaction, no Event of Default, and no event which, after
notice or lapse of time or both, would become an Event of Default, has
occurred and is continuing; and (c) certain other conditions are met (Section
9.01 of the Senior Indenture; Section 10.01 of the Subordinated Indenture). In
that event, the successor will be substituted for the Company and except in
the case of a lease, the Company will be relieved of its obligations under the
applicable Indenture and the Debt Securities of each series (Section 9.02 of
the Senior Indenture; Section 10.02 of the Subordinated Indenture).
THE TRUSTEE
The Company will have no material relationship with the Trustee other than
as Trustee. Any Principal Constituent Bank may transact business with the
Trustee in the ordinary course.
The Indenture, under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), is deemed to contain certain limitations on the right of the
Trustee, as a creditor of the Company, to obtain payment of claims in certain
cases or to realize on certain property received in respect of any such claim,
as security or otherwise. The Trustee will be permitted to engage in
transactions with the Company, provided that such transactions do not result
in a material relationship between the Company and the Trustee. The occurrence
of a default under either Indenture with respect to Subordinated Debt
Securities or Senior Debt Securities could create a conflicting interest for
the Trustee under the Trust Indenture Act. If the default has not been cured
or waived within 90 days after the Trustee has or acquires a conflicting
interest, the Trustee generally is required by the Trust Indenture Act to
eliminate such conflicting interest or resign as Trustee with respect to the
Senior Debt Securities or the Subordinated Debt Securities. In the event of
the Trustee's resignation, the Company promptly will appoint a successor
trustee with respect to the affected securities.
SENIOR DEBT SECURITIES
The Senior Debt Securities will be direct, unsecured obligations of the
Company and will rank equally and ratably with all outstanding unsecured and
unsubordinated indebtedness of the Company.
EVENTS OF DEFAULT
The Senior Indenture defines an Event of Default with respect to any
particular series of Senior Debt Securities as being any one of the following
events unless it is either inapplicable to a particular series or specifically
deleted or modified for the Senior Debt Securities of such series: (a) default
for 30 days in the payment of any interest upon any of the Senior Debt
Securities of that series; (b) default in the payment of the principal of or
any premium on any of the Senior Debt Securities of that series when due; (c)
default in the payment of any sinking fund installment or analogous obligation
with respect to any of the Senior Debt Securities of that series when due; (d)
a default or event of default under any instrument under which there may be
issued or borrowed, or by which there may be secured or evidenced, any
indebtedness of the Company (other than the Senior Debt Securities of such
series or indebtedness to a Subsidiary) or any Subsidiary (other than
indebtedness of any Subsidiary owing to the Company or to another Subsidiary)
shall happen and not less than $1,000,000 of such indebtedness shall be past
due, or become due by acceleration, and such indebtedness or acceleration is
not discharged or rescinded within 15 days after notice by the Senior Trustee
or holders of at least 25% in aggregate principal amount of the outstanding
Senior Debt Securities of that series (calculated in accordance with the
formula set forth in such series in the case of a series of Senior Debt
Securities issued as Original Issue Discount Securities); (e) final
judgment(s) or order(s) for the payment of money in excess of $1,000,000 is
entered against the Company or one or more Principal Constituent Banks and
within 90 days of entry is not discharged or the execution thereof is not
stayed pending appeal, or within 90 days after the expiration of the stay the
judgment(s) or order(s) is not discharged; (f) default in the observance or
performance of any other covenant or agreement in the Senior Debt Securities
of such series or the Senior Indenture for 90 days after notice by the Senior
Trustee or holders of at least 25% in aggregate principal amount of the
outstanding Senior Debt Securities of the series (calculated in accordance
with the formula set forth in such series in the case of a series of Senior
Debt Securities issued at an Original Issue Discount); or (g) certain events
of bankruptcy, insolvency or reorganization of the Company or a Principal
Constituent Bank (Section 4.01).
15
<PAGE>
In case an Event of Default with respect to the Senior Debt Securities of
any series shall occur and be continuing, the Senior Trustee or the holders of
not less than 25% in aggregate principal amount (in the case of a series of
Senior Debt Securities issued at an Original Issue Discount, calculated in
accordance with the formula set forth in such series) of all the outstanding
Senior Debt Securities of such series may declare the principal (or in the
case of a series of Senior Debt Securities issued at an Original Issue
Discount, the amount calculated in accordance with the formula set forth in
such series of Senior Debt Securities) of all the securities of such series to
be immediately due and payable (Section 4.01). The Senior Indenture provides
that the Senior Trustee, within 90 days after the occurrence of a default with
respect to Senior Debt Securities of any series under the Senior Indenture,
shall mail to the holders of the Senior Debt Securities of such series notice
of all uncured defaults known to it that have not been waived (the term
defaults to include events specified above which, after notice or lapse of
time or both, would become an Event of Default); provided that, except in the
case of default in the payment of principal of or any premium or interest on
any of the Senior Debt Securities of that series or in the making of any
sinking fund payment or analogous obligation with respect to the Senior Debt
Securities of such series, the Senior Trustee may withhold such notice if it
in good faith determines that withholding such notice is in the interest of
the holders of the securities of that series (Section 4.08).
Subject to the provisions of the Senior Indenture relating to the duties of
the Senior Trustee in case an Event of Default shall occur and be continuing,
the Senior Trustee is under no obligation to exercise any of the rights or
powers vested in it under the Senior Indenture at the request, order or
direction of any of the holders of the Senior Debt Securities, unless such
holders offer to the Senior Trustee reasonable security or indemnity (Section
5.02(d)). Subject to certain limitations contained in the Senior Indenture
(including among other limitations that the Senior Trustee will not be exposed
to personal liability), the holders of a majority in aggregate principal
amount of the outstanding Senior Debt Securities of all series affected
(voting as one class) have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Senior Trustee, or
exercising any trust or power conferred on the Senior Trustee (Section 4.07).
No holder of any Senior Debt Security of any series will have any right to
institute any proceeding with respect to the Senior Indenture or for any
remedy thereunder, unless such holder previously shall have given to the
Senior Trustee written notice of a continuing Event of Default with respect to
Senior Debt Securities of that series and unless also the holders of not less
than 25% in aggregate principal amount (in the case of a series of Senior Debt
Securities issued at an Original Issue Discount, calculated in accordance with
the formula set forth in such series) of the outstanding Senior Debt
Securities of that series shall have made written request, and offered
reasonable indemnity, to the Senior Trustee to institute such proceeding as
trustee, and the Senior Trustee shall not have received from the holders of a
majority in principal amount of the outstanding Senior Debt Securities of that
series a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days (Section 4.04). However, the holder
of any Senior Debt Security will have an absolute right to receive payment of
the principal of and any premium and interest, if any, on such Senior Debt
Security on or after the due dates expressed in such Senior Debt Security and
to institute suit for the enforcement of any such payment (Section 4.04).
The Company is obligated to furnish annually to the Senior Trustee a
statement as to the performance by the Company of its obligations under the
Senior Indenture and as to any default in such obligations (Section 3.04).
DEFEASANCE
The Company may terminate certain of its obligations under the Senior
Indenture with respect to the Senior Debt Securities of any series on the
terms and subject to the conditions contained in the Senior Indenture, by (a)
depositing irrevocably with the Senior Trustee as trust funds in trust (i)
U.S. dollars or U.S. Government Obligations (as defined below) in an amount
which through the payment of interest, principal and premium, if any, in
respect thereof in accordance with their terms will provide (without any
reinvestment of such interest, principal or premium), not later than one
business day before the due date of any payment, money or (ii) a combination
of money and U.S. Government Obligations sufficient to pay the principal of
and any premium and
16
<PAGE>
interest on the Senior Debt Securities of such series as such are due and (b)
satisfying certain other conditions precedent specified in the Senior
Indenture. Such deposit and termination are conditioned among other things
upon the Company's delivery of an opinion of independent counsel that the
holders of the Senior Debt Securities of such series will have no federal
income tax consequences as a result of such deposit and termination. Such
termination will not relieve the Company of its obligation to pay when due the
principal of and premium and interest on the Senior Debt Securities of such
series if the Senior Debt Securities of such series are not paid from the
money or U.S. Government Obligations held by the Senior Trustee for payment
thereof (Section 13.05).
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit are pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
under clause (i) or (ii) are not callable or redeemable at the option of the
issuer thereof.
SUBORDINATED DEBT SECURITIES
The Subordinated Debt Securities will be direct, unsecured obligations of
the Company and will rank equally and ratably with all outstanding
subordinated indebtedness of the Company. The Subordinated Debt Securities
will have a minimum weighted maturity of at least five years.
SUBORDINATION
The obligation of the Company to make any payment of principal, premium or
interest on the Subordinated Debt Securities, to the extent set forth in the
Subordinated Indenture, will be subordinate and junior in right of payment to
the prior payment in full of all existing and future Senior Indebtedness (as
defined). Upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company, the holders of
Senior Indebtedness are entitled to receive payment in full of principal and
any premium and interest before the holders of the Subordinated Debt
Securities are entitled to receive any payment on account of the principal of
and any premium or interest on the Subordinated Debt Securities, except
holders of the Subordinated Debt Securities, in a reorganization or
readjustment of the Company, may receive securities of the Company or any
other corporation subordinated to both Senior Indebtedness and any securities
received in the reorganization or readjustment by holders of Senior
Indebtedness (except to the extent that any securities so received are by
their terms expressly not superior in right of payment to the Subordinated
Debt Securities) (Section 3.03). The dissolution, winding up, liquidation or
reorganization of the Company following a conveyance, transfer or lease of its
properties and assets substantially as an entirety in compliance with the
terms described above under "Consolidation, Merger, Sale, Conveyance and
Lease" will not be deemed to be a dissolution, winding up, liquidation or
reorganization for this purpose (Section 3.03(d)). In addition, the Company
may not pay principal of, or any premium or interest on, the Subordinated Debt
Securities and may not acquire any Subordinated Debt Securities for cash or
property other than capital stock of the Company if: (1) a default on Senior
Indebtedness occurs and is continuing that permits holders of such Senior
Indebtedness to accelerate its maturity; and (2) such default is the subject
of judicial proceedings or the Company receives written notice of such default
from a representative of all holders of such Senior Indebtedness. If the
Company receives any such notice, a similar notice received within 360 days
thereafter relating to the same default on the same issue of Senior
Indebtedness shall not be effective for such purpose. The Company may resume
payments on the Subordinated Debt Securities and may acquire them when: (i)
such default is cured or waived or shall have ceased to exist, or the Senior
Indebtedness to which such default relates shall have been paid in full in
cash or cash equivalent; or (ii) if such default is not the subject of
judicial proceedings, 120 days pass after such written notice is received by
the Company (Section 3.02(b)).
By reason of this subordination, in the event of the Company's insolvency,
holders of Senior Indebtedness may receive more, ratably, and holders of the
Subordinated Debt Securities may receive less, ratably, than other creditors
of the Company. However, such subordination will not prevent the occurrence of
any Event of Default (Section 3.12).
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<PAGE>
The Subordinated Indenture does not restrict the incurrence of additional
Senior Indebtedness.
"Senior Indebtedness" means the principal of, and premium, if any, on (a)
all obligations of the Company for money borrowed, whether outstanding on the
date of execution of the Subordinated Indenture or thereafter created, except
(i) such indebtedness as is by its terms expressly stated to be junior in
right of payment to the Subordinated Debt Securities and (ii) such
indebtedness as is by its terms expressly stated to rank pari passu in right
of payment with the Subordinated Debt Securities, and (b) any deferrals,
renewals or extensions of any such Senior Indebtedness.
LIMITED RIGHTS OF ACCELERATION
Unless otherwise specified in the Prospectus Supplement relating to any
series of Subordinated Debt Securities, payment of principal of the
Subordinated Debt Securities may be accelerated only in the case of an
"Acceleration Event" which is defined in the Indenture as any of the
bankruptcy, insolvency or reorganization events with respect to the Company
that constitute an Event of Default (as defined below). There is no right of
acceleration in the case of a default in the payment of principal of or any
premium or interest on the Subordinated Debt Securities or the performance of
any other covenant of the Company in the Subordinated Indenture.
EVENTS OF DEFAULT
The Subordinated Indenture defines an Event of Default with respect to any
particular series of Subordinated Debt Securities as being any one of the
following events unless it is either inapplicable to a particular series or
specifically deleted or modified for the Subordinated Debt Securities of such
series: (a) default for 30 days in the payment of any interest on any of the
Subordinated Debt Securities of that series; (b) default in the payment of the
principal of or any premium on any of the Subordinated Debt Securities of that
series when due; (c) default in the payment of any sinking fund installment or
analogous obligation with respect to that series when due; (d) a default or
event of default under any instrument under which there may be issued or
borrowed, or by which there may be secured or evidenced, any indebtedness of
the Company (other than the Subordinated Debt Securities of such series or
indebtedness to a Subsidiary) or of any Subsidiary (other than indebtedness of
any Subsidiary owing to the Company or to another Subsidiary) shall happen and
not less than $1,000,000 of such indebtedness shall be past due, or become due
by acceleration, and such indebtedness or acceleration is not discharged or
rescinded within 15 days after notice by the Subordinated Trustee or holders
of at least 25% in aggregate principal amount (in the case of a series of
Subordinated Debt Securities issued at an Original Issue Discount, calculated
in accordance with the formula set forth in such series) of the outstanding
Subordinated Debt Securities of that series; (e) final judgment(s) or order(s)
for the payment of money in excess of $1,000,000 is entered against the
Company or one or more Principal Constituent Banks and within 90 days of entry
is not discharged, or the execution thereof is not stayed pending appeal, or
within 90 days after the expiration of the stay, the judgment(s) or order(s)
is not discharged; (f) default in the observance or performance of any other
covenant or agreement in the Subordinated Debt Securities of such series or
the Subordinated Indenture for 90 days after notice by the Subordinated
Trustee or holders of at least 25% in aggregate principal amount (in the case
of a series of Subordinated Debt Securities issued at an Original Issue
Discount, calculated in accordance with the formula set forth in such series)
of the outstanding Subordinated Debt Securities of the series; or (g) certain
events of bankruptcy, insolvency or reorganization of the Company or a
Principal Constituent Bank (Section 5.01). Rights of acceleration in case an
Event of Default occurs are limited. See "Limited Rights of Acceleration."
In case an Acceleration Event shall have occurred and be continuing, the
Subordinated Trustee or the holders of not less than 25% in aggregate
principal amount (in the case of a series of Subordinated Debt Securities
issued at an Original Issue Discount, calculated in accordance with the
formula set forth in such series) of the outstanding Subordinated Debt
Securities of such series may declare the principal (or, in the case of a
series of Subordinated Debt Securities issued at an Original Issue Discount,
the amount calculated in accordance with the formulas set forth in such series
of Subordinated Debt Securities) of all the securities of such series to be
immediately due and payable (Section 5.01). The Subordinated Indenture
provides that the Subordinated
18
<PAGE>
Trustee, within 90 days after the occurrence of a default with respect to
Subordinated Debt Securities of any series under the Subordinated Indenture,
shall mail to the holders of the Subordinated Debt Securities of such series
notice of all uncured defaults known to it that have not been waived (the term
defaults to include events specified above which, after notice or lapse of
time or both, would become an Event of Default); provided that, except in the
case of default in the payment of principal of or any premium or interest on
any of the Subordinated Debt Securities of that series or in the making of any
sinking fund payment or analogous obligation with respect to the Subordinated
Debt Securities of such series, the Subordinated Trustee may withhold such
notice if it in good faith determines that withholding such notice is in the
interest of the holders of the Subordinated Debt Securities of that series
(Section 5.08).
Subject to the provisions of the Subordinated Indenture relating to the
duties of the Subordinated Trustee in case an Event of Default shall occur and
be continuing, the Subordinated Trustee is under no obligation to exercise any
of the rights or powers vested in it under the Subordinated Indenture at the
request, order or direction of any of the holders of the Subordinated Debt
Securities, unless such holder offers to the Subordinated Trustee reasonable
security or indemnity (Section 6.02(d)). Subject to certain limitations
contained in the Subordinated Indenture (including among other limitations
that the Subordinated Trustee will not be exposed to personal liability), the
holders of a majority in aggregate principal amount of the outstanding
Subordinated Debt Securities of all series affected (voting as one class) have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Subordinated Trustee, or exercising any trust
or power conferred on the Subordinated Trustee (Section 5.07).
No holder of any Subordinated Debt Security of any series will have any
right to institute any proceeding with respect to the Subordinated Indenture
or for any remedy thereunder unless such holder previously shall have given to
the Subordinated Trustee written notice of a continuing Event of Default with
respect to Subordinated Debt Securities of that series and unless also the
holders of not less than 25% in aggregate principal amount (in the case of a
series of Subordinated Debt Securities issued at an Original Issue Discount,
calculated in accordance with the formula set forth in such series) of the
outstanding Subordinated Debt Securities of that series shall have made
written request, and offered reasonable indemnity, to the Subordinated Trustee
to institute such proceeding as trustee, and the Subordinated Trustee shall
not have received from the holders of a majority in principal amount of the
outstanding Subordinated Debt Securities of that series a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days (Section 5.04). However, the holder of any
Subordinated Debt Security will have an absolute right to receive payment of
the principal of and any premium and interest on such Subordinated Debt
Security on or after the due dates expressed in such Subordinated Debt
Security and to institute suit for the enforcement of any such payment
(Section 5.04).
The Company is obligated to furnish to the Subordinated Trustee annually a
statement as to the performance by the Company of its obligations under the
Subordinated Indenture and as to any default in such obligations (Section
4.04).
VALIDITY OF OFFERED SECURITIES
The validity of any Offered Securities will be passed upon for the Company
by Womble Carlyle Sandridge & Rice, PLLC, Charlotte, North Carolina, and for
any underwriters or agents by Gibson, Dunn & Crutcher LLP, New York, New York.
Gibson, Dunn & Crutcher LLP will rely upon the opinion of Womble Carlyle
Sandridge & Rice, PLLC as to matters of North Carolina law, and Womble Carlyle
Sandridge & Rice, PLLC will rely upon the opinion of Gibson, Dunn & Crutcher
LLP as to matters of New York law.
EXPERTS
The consolidated financial statements and schedule included in the Company's
1995 Annual Report on Form 10-K incorporated by reference in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated by
reference herein upon the authority of said firm as experts in giving said
reports.
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<PAGE>
PLAN OF DISTRIBUTION
The Company may offer and sell Debt Securities to or through underwriters to
be designated from time to time, and also may offer and sell Debt Securities
directly to other purchasers or through agents. The distribution of the Debt
Securities may be effected from time to time in one or more transactions at a
fixed price or prices, which may be changed, or at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices.
The Debt Securities will be new issues of securities with no established
trading market. It has not presently been established whether the
underwriters, if any, of the Debt Securities will make a market in the Debt
Securities. If a market in the Debt Securities is made by any such
underwriters, such market making may be discontinued at any time without
notice. No assurance can be given as to the liquidity of the trading market
for the Debt Securities.
In connection with the sale of Debt Securities, underwriters may receive
compensation from the Company or from purchasers of Debt Securities for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell Debt Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers and agents that participate in the
distribution of Debt Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on
the resale of Debt Securities by them may be deemed to be underwriting
discounts and commissions under the Securities Act. Any such underwriter or
agent will be identified, and any such compensation received from the Company
will be described, in the applicable Prospectus Supplement(s) relating to such
Debt Securities.
Unless otherwise indicated in the applicable Prospectus Supplement(s), the
obligations of any such underwriters to purchase the Debt Securities will be
subject to certain conditions precedent, and each of the underwriters with
respect to a sale of Debt Securities will be obligated to purchase all of its
Debt Securities if any are purchased. Unless otherwise indicated in the
applicable Prospectus Supplement(s), any such agent involved in the offer and
sale of the Debt Securities in respect of which this Prospectus is being
delivered will be acting on a best efforts basis for the period of its
appointment.
Under agreements which may be entered into by the Company, underwriters,
agents and their controlling persons who participate in the distribution of
Debt Securities may be entitled to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement(s) relating to any
Offered Securities, the Company will authorize dealers or other persons acting
as the Company's agents to solicit offers by certain institutions to purchase
any Offered Securities from the Company pursuant to contracts providing for
payment and delivery on a future date. Institutions with which such contracts
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and
others, but in all cases such institutions must be approved by the Company.
The obligations of any purchaser under any such contract will be subject to
the condition that the purchase of any Offered Securities shall not at the
time of delivery be prohibited under the laws of the jurisdiction to which
such purchaser is subject. The underwriters and such other agents will not
have any responsibility in respect of the validity or performance of such
contracts.
Underwriters or agents and their associates may be customers of (including
borrowers from), engage in transactions with, and/or perform services for, the
Company and its subsidiaries, the Senior Trustee and the Subordinated Trustee,
in the ordinary course of business.
20
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference............................ S-2
The Company................................................................ S-3
Use of Proceeds............................................................ S-3
Consolidated Ratios of Earnings to Fixed Charges........................... S-4
Selected Consolidated Financial Data....................................... S-5
Recent Developments........................................................ S-6
Description of Subordinated Notes.......................................... S-7
Underwriting............................................................... S-9
Validity of Subordinated Notes............................................. S-9
Experts.................................................................... S-9
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
The Company................................................................ 3
Use of Proceeds............................................................ 4
Consolidated Ratios of Earnings to Fixed Charges........................... 4
Certain Regulatory Considerations.......................................... 4
Description of the Debt Securities......................................... 10
Senior Debt Securities..................................................... 15
Subordinated Debt Securities............................................... 17
Validity of Offered Securities............................................. 19
Experts.................................................................... 19
Plan of Distribution....................................................... 20
</TABLE>
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$250,000,000
SOUTHERN NATIONAL
CORPORATION
7.05% SUBORDINATED NOTES
DUE 2003
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PROSPECTUS SUPPLEMENT
----------------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
MAY 21, 1996
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