AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1997
Registration No. 333-34053
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 to
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------------
BB&T CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
NORTH CAROLINA 6060 56-0939887
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
200 WEST SECOND STREET
WINSTON-SALEM, NORTH CAROLINA 27101
(910) 733-2000
(Address, including Zip Code, and telephone
number, including area code, of
registrant's principal executive offices)
JERONE C. HERRING, ESQ.
200 WEST SECOND STREET, 3RD FLOOR
WINSTON-SALEM, NORTH CAROLINA 27101
(910) 733-2180
(Name, address, including Zip Code, and
telephone number, including area
code, of agent for service)
COPIES TO:
DOUGLAS A. MAYS WAYNE A. WHITHAM, JR.
WOMBLE CARLYLE SANDRIDGE & RICE, PLLC WILLIAMS MULLEN CHRISTIAN & DOBBINS
3300 ONE FIRST UNION CENTER 1021 EAST CARY STREET
301 SOUTH COLLEGE STREET POST OFFICE BOX 1320
CHARLOTTE, NORTH CAROLINA 28202 RICHMOND, VIRGINIA 23218
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: |_|
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CRAIGIE INCORPORATED
823 East Main Street, Richmond, Virginia 23219-3310
August 28, 1997
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders
(the "Special Meeting") of Craigie Incorporated ("Craigie"), to be held at the
offices of Craigie, 823 East Main Street, Richmond, Virginia on September 30,
1997 at 10:00 a.m. local time. At the Special Meeting, you will be asked to
consider and vote on the Amended and Restated Agreement and Plan of
Reorganization, dated as of March 7, 1997 (the "Reorganization Agreement"), by
and between Craigie and BB&T Corporation, a North Carolina corporation ("BB&T"),
and a related Plan of Merger (the "Plan of Merger"), pursuant to which BB&T
Acquisition, Inc., a Virginia corporation that is a wholly owned subsidiary of
BB&T, will merge with and into Craigie (the "Merger"), and each share of common
stock of Craigie ("Craigie Common Stock") (other than shares held by dissenting
shareholders) will be converted into the right to receive shares of common stock
of BB&T ("BB&T Common Stock"), as described below (the "Merger Consideration").
At the effective time of the Merger (the "Effective Time"), each
outstanding share of Craigie Common Stock (other than shares held by dissenting
shareholders) will be converted into the right to receive a number of shares of
BB&T Common Stock calculated according to a formula based in part upon the
Closing Value (defined below) of BB&T Common Stock (the "Exchange Formula"). The
Exchange Formula provides that the number of shares of BB&T Common Stock to be
exchanged for each share of Craigie Common Stock will be equal to the lesser of:
(a) 1.20 multiplied by the sum of (i) the Tangible Book Value per Share (defined
below) determined as of December 31, 1996 plus (ii) the Considered Earnings per
Share (defined below), which product will be divided by the Closing Value; or
(b) 1.20 multiplied by the Tangible Book Value per Share as of the date of the
closing of the transactions contemplated by the Reorganization Agreement (the
"Closing Date"), divided by the Closing Value. Notwithstanding the foregoing,
if the Closing Value is less than $29.43, BB&T may elect to terminate the
Reorganization Agreement or enter into negotiations with Craigie to decrease
the Merger Consideration.
"Closing Value" means the average closing price per share of BB&T
Common Stock on the New York Stock Exchange (the "NYSE") for the 20 trading days
immediately preceding the tenth calendar day prior to the Closing Date.
Notwithstanding the foregoing, if the average closing price per share described
in the preceding sentence is between $49.03 and $52.00, the Closing Value will
be deemed to be $49.03, and if the average closing price is greater than $52.00,
the Closing Value will be deemed to equal the sum of (a) $49.03 plus (b) the
amount by which the average closing price exceeds $52.00. If the Craigie
shareholders approve the Reorganization Agreement and Plan of Merger at the
Special Meeting and the necessary regulatory approvals have been obtained, it is
expected that the Closing Value will be determined based on the 20 trading days
ending on and including September 19, 1997.
"Tangible Book Value per Share" means an amount per share of Craigie
Common Stock determined by dividing (a) the aggregate shareholders' equity of
Craigie on the applicable date, as adjusted in certain respects (including,
without limitation, to include unrealized gains or losses on Craigie's
marketable securities based on the then current market value of such
securities), by (b) the number of shares of Craigie Common Stock issued and
outstanding as of the Effective Time. The Tangible Book Value per Share of
Craigie Common Stock was $14.57 at December 31, 1996 and $14.90 at June 30,
1997. Although there can be no assurance that such will be the case, Craigie
management believes that the Tangible Book Value per Share of Craigie Common
Stock will be approximately $15.10 at the anticipated Closing Date of October
1, 1997.
"Considered Earnings per Share" means an amount per share of Craigie
Common Stock determined by dividing the number of shares of Craigie Common Stock
issued and outstanding as of the Effective Time into the lesser of (a) Craigie's
actual net earnings after tax for the period beginning on January 1, 1997 and
ending on and including the Closing Date, determined in accordance with
generally accepted accounting principles consistently applied, or (b) $1.435
million multiplied by a fraction, the numerator of which is the number of days
in 1997 ending on and including the Closing Date and the denominator of which is
365. As of June 30, 1997, Craigie's year-to-date actual net earnings after
tax totaled $305,397, and, although there can be no assurance that such will be
the case, Craigie management
<PAGE>
believes that net earnings after tax as of the anticipated Closing Date of
October 1, 1997 will be approximately $500,000. Assuming a Closing Date
of October 1, 1997, the amount referred to in clause (b) of the first sentence
of this paragraph would equal approximately $1,073,300.
Assuming that the foregoing estimates are accurate and that the Closing
Date occurs on October 1, 1997, Craigie management believes that the total
Merger Consideration will equal approximately $22.8 million, or $18.12 per
share of Craigie Common Stock, as measured in shares of BB&T Common Stock valued
at the Closing Value. Assuming a Closing Value of $51.25, which was the closing
price per share market price of BB&T Common Stock on the NYSE on August 26,
1997, it is expected that each share of Craigie Common Stock (other than shares
held by dissenting shareholders) would be converted into the right to receive
approximately 0.3536 shares of BB&T Common Stock. SHAREHOLDERS SHOULD
RECOGNIZE, HOWEVER, THAT THE FINAL DETERMINATION OF THE MERGER CONSIDERATION
WILL NOT BE MADE UNTIL THE COMPLETION OF THE AUDIT OF CRAIGIE'S FINANCIAL
STATEMENTS AS OF THE CLOSING DATE, AND THAT THE ACTUAL MERGER CONSIDERATION MAY
BE MORE OR LESS THAN THE AMOUNT ESTIMATED ABOVE. CRAIGIE'S RESULTS OF OPERATIONS
FOR THE PERIOD BEGINNING JANUARY 1, 1997 UNTIL THE CLOSING DATE, AND
FLUCTUATIONS IN THE VALUE OF CRAIGIE'S MARKETABLE SECURITIES PRIOR TO THE
CLOSING DATE, MAY MATERIALLY AFFECT THE AMOUNT OF MERGER CONSIDERATION
SHAREHOLDERS OF CRAIGIE WILL BE ENTITLED TO RECEIVE. SEE "INFORMATION ABOUT
CRAIGIE--MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION" IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS FOR A
DISCUSSION OF FACTORS WHICH MAY IMPACT CRAIGIE'S RESULTS OF OPERATIONS.
MOREOVER, ANY CHANGES IN THE MARKET PRICE OF BB&T COMMON STOCK AFTER THE PERIOD
DURING WHICH THE CLOSING VALUE IS DETERMINED WILL NOT AFFECT THE NUMBER OF
SHARES OF BB&T COMMON STOCK THAT HOLDERS OF CRAIGIE COMMON STOCK WILL RECEIVE,
AND THE ACTUAL MARKET PRICE OF BB&T COMMON STOCK AT THE EFFECTIVE TIME COULD BE
MORE OR LESS THAN THE CLOSING VALUE USED IN THE EXCHANGE FORMULA.
The parties to the Reorganization Agreement will make their best
estimate of the Merger Consideration as of the Effective Time, and 90% of this
amount (disregarding any fractional share that would otherwise be included) (the
"Closing Merger Consideration") will be distributed as soon as practicable after
the Effective Time to those who held shares of Craigie Common Stock at the
Effective Time (other than dissenting shareholders). Following the Effective
Time, the parties will determine the difference, if any, between the Closing
Merger Consideration and the actual Merger Consideration (the "Post-Closing
Merger Consideration"), based on an audit of Craigie's financial condition as of
the Closing Date. It is anticipated that, absent any disagreement as to the
results of the audit, the distribution of the Post-Closing Merger Consideration
will be completed within 90 days after the Closing Date.
No fractional shares of BB&T Common Stock will be issued in the Merger.
Instead, holders of Craigie Common Stock otherwise entitled to a fractional
share will be paid an amount in cash at the time of the distribution of the
Post-Closing Merger Consideration. Such amount will be determined by multiplying
the fractional part of such share by the closing price per share of BB&T Common
Stock on the NYSE on the day immediately preceding the date of distribution. It
is a condition to the Merger that the exchange of BB&T Common Stock for shares
of Craigie Common Stock will be tax free to the shareholders of Craigie for
federal income tax purposes to the extent that shares of Craigie Common Stock
are exchanged solely for shares of BB&T Common Stock.
THE ENCLOSED NOTICE OF SPECIAL MEETING AND PROXY STATEMENT/PROSPECTUS
CONTAIN IMPORTANT INFORMATION CONCERNING THE SPECIAL MEETING AND THE PROPOSED
MERGER, INCLUDING DETAILS AS TO THE DETERMINATION OF THE EXCHANGE RATIO. PLEASE
CAREFULLY READ THESE MATERIALS AND THOUGHTFULLY CONSIDER THE INFORMATION
CONTAINED IN THEM.
Whether or not you plan to attend the Special Meeting, you are urged to
complete, sign, date, and promptly return the enclosed proxy card to assure that
your shares will be voted at the Special Meeting. If you attend the Special
Meeting, you may vote in person, whether or not you have previously submitted a
proxy.
THE BOARD OF DIRECTORS OF CRAIGIE UNANIMOUSLY APPROVED THE
REORGANIZATION AGREEMENT AND PLAN OF MERGER AND BELIEVES THAT THE MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF CRAIGIE. ACCORDINGLY, THE
BOARD OF DIRECTORS OF CRAIGIE RECOMMENDS THAT SHAREHOLDERS OF CRAIGIE VOTE "FOR"
APPROVAL OF THE REORGANIZATION AGREEMENT AND THE PLAN OF MERGER.
Sincerely,
Allen Mead Ferguson
CHIEF EXECUTIVE OFFICER
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CRAIGIE INCORPORATED
823 EAST MAIN STREET, RICHMOND, VIRGINIA 23219-3310
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 30, 1997
-----------------------------------------------------------------------
TO THE SHAREHOLDERS OF CRAIGIE INCORPORATED:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Special Meeting") of Craigie Incorporated, a Virginia corporation ("Craigie"),
will be held at the offices of Craigie, 823 East Main Street, Richmond, Virginia
on September 30, 1997 at 10:00 a.m. local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Amended and
Restated Agreement and Plan of Reorganization, dated as of March 7,
1997 (the "Reorganization Agreement"), by and between Craigie and BB&T
Corporation, a North Carolina corporation ("BB&T"), and a related Plan
of Merger (the "Plan of Merger"), pursuant to which BB&T Acquisition,
Inc., a Virginia corporation and a wholly owned subsidiary of BB&T,
will merge with and into Craigie, and each share of common stock of
Craigie (other than shares held by dissenting shareholders) will be
converted into the right to receive shares of common stock of BB&T, in
an amount to be determined as described in the accompanying Proxy
Statement/Prospectus. A copy of the Reorganization Agreement and the
Plan of Merger set forth therein is attached to the accompanying Proxy
Statement/Prospectus as Appendix I.
2. To transact such other business as may be properly brought before the
Special Meeting or at any and all adjournments or postponements
thereof.
Shareholders of Craigie of record at the close of business on August
28, 1997 are entitled to notice of and to vote at the Special Meeting. You are
cordially invited to attend the Special Meeting in person; however, whether or
not you plan to attend, we urge you to complete, date, and sign the accompanying
proxy card and to return it promptly in the enclosed postage prepaid envelope.
BY ORDER OF THE BOARD OF DIRECTORS
OF CRAIGIE INCORPORATED
Richmond, Virginia Merlin P. Grim
August 28, 1997 SECRETARY
ANY CRAIGIE SHAREHOLDER SHALL HAVE THE RIGHT TO DISSENT FROM THE CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED BY THE REORGANIZATION AGREEMENT AND THE PLAN OF
MERGER AND TO RECEIVE PAYMENT OF THE FAIR VALUE OF HIS OR HER SHARES UPON
COMPLIANCE WITH THE PROCEDURES PRESCRIBED BY TITLE 13.1, CHAPTER 9, ARTICLE 15
OF THE VIRGINIA CODE. SEE "THE MERGER--DISSENTERS' RIGHTS" IN THE PROXY
STATEMENT/PROSPECTUS THAT ACCOMPANIES THIS NOTICE AND THE FULL TEXT OF TITLE
13.1, CHAPTER 9, ARTICLE 15 ATTACHED THERETO AS APPENDIX II FOR A DESCRIPTION OF
THESE PROCEDURES.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY WHETHER
OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING.
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PROXY STATEMENT
CRAIGIE INCORPORATED
-------------
PROSPECTUS
BB&T CORPORATION
COMMON STOCK
This Proxy Statement/Prospectus is being furnished to the holders of
the common stock of Craigie Incorporated, a Virginia corporation ("Craigie"), in
connection with the solicitation of proxies by the Board of Directors of Craigie
(the "Craigie Board") for use at the special meeting of shareholders of Craigie,
or any adjournment or postponement thereof (the "Special Meeting"), to be held
on September 30, 1997 at 10:00 a.m. local time, at the offices of Craigie, 823
East Main Street, Richmond, Virginia. At the Special Meeting, the shareholders
of Craigie will be asked to consider and vote upon a proposal to approve an
Amended and Restated Agreement and Plan of Reorganization, dated as of March 7,
1997 (the "Reorganization Agreement"), between Craigie and BB&T Corporation, a
North Carolina corporation ("BB&T"), a copy of which is attached hereto as
Appendix I, and the related Plan of Merger (the "Plan of Merger"), a copy of
which appears as Annex A to the form of Articles of Merger attached as Exhibit A
to the Reorganization Agreement. See "SPECIAL MEETING OF SHAREHOLDERS."
The Reorganization Agreement and Plan of Merger provide for the merger
of BB&T Acquisition, Inc., a Virginia corporation and a wholly owned subsidiary
of BB&T ("BB&T Acquisition"), with and into Craigie (the "Merger"). At such time
(the "Effective Time"), and as a result of the Merger, BB&T Acquisition will
cease to exist and the shareholders of Craigie (other than dissenting
shareholders) will become shareholders of BB&T in accordance with the terms of
the Reorganization Agreement and the Plan of Merger. See "THE MERGER--Merger
Consideration."
This Proxy Statement/Prospectus also constitutes a prospectus of BB&T
with respect to up to 550,000 shares of common stock, par value $5.00 per share,
of BB&T ("BB&T Common Stock") to be issued to holders of the outstanding shares
of common stock, no par value, of Craigie ("Craigie Common Stock") in accordance
with the Reorganization Agreement and the Plan of Merger. BB&T Common Stock is
listed for trading on the New York Stock Exchange, Inc. (the "NYSE") under the
trading symbol "BBK." On August 26, 1997, the last sale price of BB&T Common
Stock as reported on the NYSE Composite Transactions List was $51.25. Craigie
Common Stock is not publicly traded.
This Proxy Statement/Prospectus, the Notice of Special Meeting, and the
accompanying proxy card are first being mailed to the shareholders of Craigie on
or about August 29, 1997.
NEITHER THE MERGER NOR THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS HAVE 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 PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OF BB&T COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY
OF BB&T AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
The date of this Proxy Statement/Prospectus is August 28, 1997.
<PAGE>
AVAILABLE INFORMATION
BB&T 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
Commission. The reports, proxy statements, and other information filed with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the following Regional Offices of the Commission:
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including BB&T.
Shares of BB&T Common Stock are listed on the NYSE, and proxy
statements, reports and other information concerning BB&T can also be inspected
and copied at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
BB&T has filed a Registration Statement on Form S-4 (together with all
amendments, exhibits, and schedules thereto, the "Registration Statement") with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of BB&T Common Stock to be issued in the
Merger. This Proxy Statement/Prospectus does not include all of the information
set forth in the Registration Statement, as permitted by the rules and
regulations of the Commission. The Registration Statement, including any
amendments, schedules, and exhibits filed or incorporated by reference as a part
thereof, is available for inspection and copying as set forth above. Statements
contained in this Proxy Statement/Prospectus or in any document incorporated
herein by reference as to the contents of any contract or other document
referred to herein or therein are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, and each such
statement shall be deemed qualified in its entirety by such reference.
The information contained herein with respect to BB&T has been provided
by BB&T, and the information contained herein with respect to Craigie before the
Merger has been provided by Craigie.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BB&T OR
CRAIGIE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY THE SECURITIES COVERED BY THIS PROXY
STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR
TO OR FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION
OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF BB&T OR CRAIGIE SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by BB&T with the Commission
under the Exchange Act are incorporated herein by reference:
(a) BB&T's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(b) BB&T's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1997 and June 30, 1997;
i
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(c) BB&T's Current Reports on Form 8-K, dated April 11, 1997, May
23, 1997, June 11, 1997, July 11, 1997, July 14, 1997,
August 15, 1997 and August 15, 1997;
(d) BB&T's Registration Statement on Form 8-A, dated January 10,
1997, with respect to the adoption of its shareholder rights
plan; and
(e) The description of BB&T Common Stock in BB&T's registration
statement filed under the Exchange Act with respect to the
Common Stock, including all amendments and reports filed for
the purpose of updating such description.
All documents filed by BB&T pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus and
prior to the Special Meeting shall be deemed to be incorporated by reference
into this Proxy Statement/Prospectus and to be a part hereof from the date of
the filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
subsequently filed document that is or is deemed to be incorporated by reference
herein) modifies or supersedes such previous statement. Any statement so
modified or superseded shall not be deemed to constitute a part hereof except as
so modified or superseded. In particular, reference is made to BB&T's Current
Report on Form 8-K dated August 15, 1997, which includes supplemental
consolidated financial statements on the related management's discussion and
analysis of financial condition and results of operations of BB&T, giving effort
to the acquisition of United Carolina Bancshares Corporation, effected July 1,
1997 and accounted for as a pooling of interests. See "INFORMATION ABOUT
BB&T--UCB Acquisition."
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST BY
ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF CRAIGIE COMMON STOCK, TO WHOM THIS
PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED. REQUESTS FOR DOCUMENTS RELATING
TO BB&T SHOULD BE DIRECTED TO INVESTOR RELATIONS, BB&T CORPORATION, 223 WEST
NASH STREET, WILSON, NORTH CAROLINA 27893 OR TELEPHONE: (919) 246-4219. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE RECEIVED
BY SEPTEMBER 23, 1997.
ii
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TABLE OF CONTENTS
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AVAILABLE INFORMAION..............................................................................................i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................................i
SUMMARY .........................................................................................................1
Special Meeting of Shareholders..........................................................................1
Parties to the Merger....................................................................................1
The Merger...............................................................................................2
Comparison of Shareholders' Rights.......................................................................5
Market Prices and Dividends..............................................................................6
Selected Consolidated Financial Data -- BB&T.............................................................7
Selected Consolidated Financial Data -- Craigie..........................................................8
Comparative per Share Data...............................................................................9
SPECIAL MEETING OF SHAREHOLDERS..................................................................................10
General ...............................................................................................10
Record Date, Voting Rights, and Vote Required...........................................................10
Voting and Revocation of Proxies........................................................................10
Solicitation of Proxies.................................................................................11
Recommendation of Craigie Board.........................................................................11
THE MERGER.......................................................................................................12
General ...............................................................................................12
Background of the Merger................................................................................12
Reasons for the Merger..................................................................................13
Merger Consideration....................................................................................14
Transfer of BB&T Common Stock Certificates..............................................................16
The Reorganization Agreement............................................................................16
Interests of Certain Persons in the Merger..............................................................19
Dissenters' Rights......................................................................................22
Regulatory Considerations...............................................................................24
Certain Federal Income Tax Consequences of the Merger...................................................25
Accounting Treatment....................................................................................25
Effect on Employee Benefit Plans and Stock Options......................................................26
Restrictions on Resales by Affiliates...................................................................26
INFORMATION ABOUT BB&T...........................................................................................26
General ...............................................................................................26
Subsidiaries............................................................................................27
UCB Merger..............................................................................................27
Other Acquisitions......................................................................................28
Capital ...............................................................................................28
Deposit Insurance Assessments...........................................................................29
INFORMATION ABOUT CRAIGIE........................................................................................29
General ...............................................................................................29
Management's Discussion and Analysis of Financial Condition and Results of Operations...................30
Buy-Sell Agreement......................................................................................30
OWNERSHIP OF CRAIGIE COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
.......................................................................................................30
iii
<PAGE>
DESCRIPTION OF BB&T CAPITAL STOCK................................................................................31
General ...............................................................................................31
BB&T Common Stock.......................................................................................31
BB&T Preferred Stock....................................................................................32
Shareholder Rights Plan.................................................................................32
Certain Provisions of the NCBCA, BB&T Articles and BB&T Bylaws..........................................34
COMPARISON OF SHAREHOLDERS' RIGHTS...............................................................................35
Authorized Capital Stock................................................................................35
Directors...............................................................................................35
Dividends and Other Distributions.......................................................................36
Notice of Shareholder Nominations and Shareholder Proposals.............................................36
Exculpation and Indemnification.........................................................................37
Mergers, Share Exchanges and Sales of Assets............................................................37
Anti-takeover Statutes..................................................................................37
Amendments to Articles of Incorporation and Bylaws......................................................38
Shareholders' Rights of Dissent and Appraisal...........................................................38
Liquidation Rights......................................................................................40
LEGAL MATTERS....................................................................................................40
EXPERTS ........................................................................................................40
CRAIGIE FINANCIAL STATEMENTS....................................................................................F-1
Appendix I -- Agreement and Plan of Reorganization and the Plan of
Merger
Appendix II -- Title 13.1, Chapter 9, Article 15 of the Virginia
Code
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iv
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS INTENDED ONLY TO HIGHLIGHT CERTAIN INFORMATION
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. THIS SUMMARY IS NOT
INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, THE
APPENDICES HERETO, AND THE DOCUMENTS INCORPORATED BY REFERENCE OR OTHERWISE
REFERRED TO HEREIN. SHAREHOLDERS ARE URGED TO REVIEW CAREFULLY THIS ENTIRE PROXY
STATEMENT/PROSPECTUS, INCLUDING THE APPENDICES HERETO.
SPECIAL MEETING OF SHAREHOLDERS
The Special Meeting will be held on September 30, 1997 at 10:00 a.m.
local time, at the offices of Craigie, 823 East Main Street, Richmond, Virginia.
At the Special Meeting, the shareholders of Craigie will vote upon a proposal to
approve the Reorganization Agreement and the Plan of Merger attached hereto as
Appendix I. On August 28, 1997, the record date for the Special Meeting (the
"Record Date"), there were 64 holders of record of the 948,933 shares of
Craigie Common Stock then outstanding and entitled to vote at the Special
Meeting.
The affirmative vote of the holders of more than two-thirds of the
outstanding shares of Craigie Common Stock is required to approve the
Reorganization Agreement and the Plan of Merger. As of the Record Date,
directors and executive officers of Craigie and their affiliates beneficially
owned 884,994 shares or 93.3% of the Craigie Common Stock entitled to vote at
the Special Meeting, all of which are expected to be voted in favor of the
Reorganization Agreement and the Plan of Merger. Officers of Craigie holding an
aggregate of 520,563 shares of Craigie Common Stock as of the Record Date, or
54.9% of the shares then outstanding, have agreed in the Reorganization
Agreement that they will not transfer any of such shares and that they will vote
all of such shares in favor of the Reorganization Agreement and the Plan of
Merger. See "SPECIAL MEETING OF SHAREHOLDERS."
PARTIES TO THE MERGER
BB&T
BB&T is a multi-bank holding company headquartered in Winston-Salem,
North Carolina. BB&T 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. BB&T's bank subsidiaries are
Branch Banking and Trust Company ("BB&T-NC") and United Carolina Bank
("UCB-NC"), which are North Carolina chartered banks that currently operate 299
and 139 banking offices, respectively, throughout North Carolina; Branch Banking
and Trust Company of South Carolina ("BB&T-SC") and United Carolina Bank of
South Carolina ("UCB-SC"), which are South Carolina chartered banks that
currently operate 93 and 16 banking offices, respectively, throughout South
Carolina; Branch Banking and Trust Company of Virginia ("BB&T-VA"), a Virginia
chartered bank that currently operates 21 banking offices in the Hampton Roads
region of Virginia; and Fidelity Federal Savings Bank ("FFSB"), a federally
chartered savings bank that currently operates seven banking offices in the
Richmond, Virginia area.
Effective July 1, 1997, United Carolina Bancshares Corporation, a bank
holding company headquartered in Whiteville, North Carolina ("UCB"), merged with
and into BB&T (the "UCB Merger"). Upon consummation of the UCB Merger, each
share of the common stock of UCB ("UCB Common Stock") issued and outstanding at
such time was converted into and exchanged for 1.135 shares of BB&T Common
Stock. Approximately 27.7 million shares of BB&T Common Stock were issued in the
UCB Merger. It is expected that UCB-NC and UCB-SC will be merged into BB&T-NC
and BB&T-SC, respectively, during September 1997. For additional information
about the UCB Merger, see "INFORMATION ABOUT BB&T--UCB Merger."
The mailing address and telephone number of BB&T's principal executive
offices are 200 West Second Street, Winston-Salem, North Carolina 27101, (910)
733-2000. Additional information with respect to BB&T and its subsidiaries is
included elsewhere in this Proxy Statement/Prospectus and in documents
incorporated by reference in this Proxy Statement/Prospectus. See "AVAILABLE
INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "INFORMATION
ABOUT BB&T."
<PAGE>
BB&T ACQUISITION
BB&T Acquisition is a newly-formed Virginia corporation that will not
conduct any significant activities other than those incident to its formation,
participation in the preparation of this Proxy Statement/Prospectus and
completion of the Merger. BB&T Acquisition is a wholly owned subsidiary of BB&T.
In the Merger, BB&T Acquisition will be merged with and into Craigie, and
Craigie will be the surviving corporation. The mailing address and telephone
number of BB&T Acquisition's principal executive offices are 200 West Second
Street, Winston-Salem, North Carolina 27101, (910) 733-2000.
CRAIGIE
Craigie, founded in 1929, is a regional investment banking firm with
headquarters in Richmond, Virginia and offices in Richmond and in Charlotte,
North Carolina. At June 30, 1997 Craigie had assets of $75.59 million and
stockholders' equity of $14.36 million. Craigie is engaged in the underwriting
and trading of municipal securities (both taxable and tax exempt), U.S.
government securities, corporate debt and equity securities and asset-backed
securities. Craigie's investment banking business principally is focused on debt
issuances for municipalities, universities and other public entities, and small
and mid-size businesses, with a lesser emphasis on underwriting common stock
offerings. Craigie had 88 employees at December 31, 1996.
Of Craigie's shareholders at the Record Date, 62 were current employees
of Craigie and two were former employees.
THE MERGER
GENERAL
At the Effective Time, BB&T Acquisition will be merged with and into
Craigie, and Craigie will be the surviving corporation in the Merger. Following
the Merger, Craigie will be a wholly-owned subsidiary of BB&T, and each share of
Craigie Common Stock outstanding immediately before the Effective Time (other
than shares held by dissenting shareholders) will be converted into the right to
receive shares of BB&T Common Stock (with cash in lieu of any fractional share)
(the "Merger Consideration").
MERGER CONSIDERATION
In the Merger, each outstanding share of Craigie Common Stock (other
than shares held by dissenting shareholders) will be converted into the right to
receive a number of shares of BB&T Common Stock calculated according to a
formula based in part upon the Closing Value (as defined below) of BB&T Common
Stock (the "Exchange Formula"). The Exchange Formula provides that the number of
shares of BB&T Common Stock to be exchanged for each share of Craigie Common
Stock will be equal to the lesser of:
(a) 1.20 multiplied by the sum of (i) the Tangible Book Value
per Share (as defined below) determined as of December 31, 1996 plus
(ii) the Considered Earnings per Share (as defined below), which
product will be divided by the Closing Value; or
(b) 1.20 multiplied by the Tangible Book Value per Share as of
the date of closing of the transactions contemplated in the
Reorganization Agreement (the "Closing Date"), divided by the Closing
Value.
Notwithstanding the foregoing, if the Closing Value is less than $29.43,
BB&T may elect to terminate the Reorganization Agreement or enter into
negotiations with Craigie to decrease the Merger Consideration.
"Closing Value" means the average closing price per share of BB&T
Common Stock on the NYSE for the 20 trading days immediately preceding the tenth
calendar day prior to the Closing Date. Notwithstanding the foregoing, if the
average closing price per share described in the preceding sentence is between
$49.03 and $52.00, the Closing Value will be deemed to be $49.03, and if the
average closing price is greater than $52.00, the Closing Value will be deemed
to equal the sum of (a) $49.03 plus (b) the amount by which the average closing
price exceeds $52.00. If the Craigie shareholders approve the Reorganization
Agreement and Plan of Merger at the Special Meeting and the necessary regulatory
approvals have been obtained, it is expected that the Closing Value will be
determined based on the 20 trading days ending on and including
September 19, 1997.
2
<PAGE>
"Tangible Book Value per Share" means an amount per share of Craigie
Common Stock determined by dividing (a) the aggregate shareholders' equity of
Craigie on the applicable date, as adjusted in certain respects (including,
without limitation, to include unrealized gains or losses on Craigie's
marketable securities based on the then current market value of such
securities), by (b) the number of shares of Craigie Common Stock issued and
outstanding as of the Effective Time. The Tangible Book Value per Share of
Craigie Common Stock was $14.57 at December 31, 1996 and $14.90 at June 30,
1997. Although there can be no assurance that such will be the case, Craigie
management believes that the Tangible Book Value per Share of Craigie Common
Stock will be approximately $15.10 at the anticipated Closing Date of October
1, 1997.
"Considered Earnings per Share" means an amount per share of Craigie
Common Stock determined by dividing the number of shares of Craigie Common Stock
issued and outstanding as of the Effective Time into the lesser of (a) Craigie's
actual net earnings after tax for the period beginning on January 1, 1997 and
ending on and including the Closing Date, determined in accordance with
generally accepted accounting principles consistently applied, or (b) $1.435
million multiplied by a fraction, the numerator of which is the number of days
in 1997 ending on and including the Closing Date and the denominator of which is
365. As of June 30, 1997, Craigie's year-to-date actual net earnings after
tax totaled $305,397, and, although there can be no assurance that such will be
the case, Craigie management believes that net earnings after tax as of the
anticipated Closing Date of October 1, 1997 will be approximately
$500,000. Assuming a Closing Date of October 1, 1997, the amount referred to in
clause (b) of the first sentence of this paragraph would equal approximately
$1,073,300.
Assuming that the foregoing estimates are accurate and that the Closing
Date occurs on October 1, 1997, Craigie management believes that the total
Merger Consideration will equal approximately $22.8 million, or $18.12 per
share of Craigie Common Stock, as measured in shares of BB&T Common Stock valued
at the Closing Value. Assuming a Closing Value of $51.25, which was the closing
price per share market price of BB&T Common Stock on the NYSE on August 26,
1997, it is expected that each share of Craigie Common Stock (other than shares
held by dissenting shareholders) would be converted into the right to receive
approximately 0.3536 shares of BB&T Common Stock. SHAREHOLDERS SHOULD RECOGNIZE,
HOWEVER, THAT THE FINAL DETERMINATION OF THE MERGER CONSIDERATION WILL NOT BE
MADE UNTIL THE COMPLETION OF THE AUDIT OF CRAIGIE'S FINANCIAL STATEMENTS AS OF
THE CLOSING DATE, AND THAT THE ACTUAL MERGER CONSIDERATION MAY BE MORE OR LESS
THAN THE AMOUNT ESTIMATED ABOVE. CRAIGIE'S RESULTS OF OPERATIONS FOR THE PERIOD
BEGINNING JANUARY 1, 1997 UNTIL THE CLOSING DATE, AND FLUCTUATIONS IN THE VALUE
OF CRAIGIE'S MARKETABLE SECURITIES PRIOR TO THE CLOSING DATE, MAY MATERIALLY
AFFECT THE AMOUNT OF MERGER CONSIDERATION SHAREHOLDERS OF CRAIGIE WILL BE
ENTITLED TO RECEIVE. SEE "INFORMATION ABOUT CRAIGIE-- MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" FOR A DISCUSSION
OF FACTORS WHICH MAY IMPACT CRAIGIE'S RESULTS OF OPERATIONS. MOREOVER, ANY
CHANGES IN THE MARKET PRICE OF BB&T COMMON STOCK AFTER THE PERIOD DURING WHICH
THE CLOSING VALUE IS DETERMINED WILL NOT AFFECT THE NUMBER OF SHARES OF BB&T
COMMON STOCK THAT HOLDERS OF CRAIGIE COMMON STOCK WILL RECEIVE, AND THE ACTUAL
MARKET PRICE OF BB&T COMMON STOCK AT THE EFFECTIVE TIME COULD BE MORE OR LESS
THAN THE CLOSING VALUE USED IN THE EXCHANGE FORMULA.
The parties to the Reorganization Agreement will make their best
estimate of the Merger Consideration as of the Effective Time, and 90% of this
amount (disregarding any fractional shares that would otherwise be included)
(the "Closing Merger Consideration") will be distributed as soon as practicable
after the Effective Time to those who held shares of Craigie Common Stock at the
Effective Time (other than dissenting shareholders). Following the Effective
Time, the parties will determine the difference, if any, between the Closing
Merger Consideration and the actual Merger Consideration (the "Post-Closing
Merger Consideration"), based on an audit of Craigie's financial condition as of
the Closing Date. It is anticipated that, absent any disagreement as to the
results of the audit, the distribution of the Post-Closing Merger Consideration
will be completed within 90 days after the Closing Date.
No fractional shares of BB&T Common Stock will be issued in the Merger.
Instead, holders of Craigie Common Stock otherwise entitled to a fractional
share will be paid an amount in cash at the time of the distribution of the
Post-Closing Merger Consideration. Such amount will be determined by multiplying
the fractional part of such share by the closing price per share of BB&T Common
Stock on the NYSE on the day immediately preceding the date of distribution. See
"THE MERGER--Merger Consideration."
EFFECTIVE DATE AND TIME OF THE MERGER
3
<PAGE>
The Merger will be effective on the date and at the time specified in
the Articles of Merger to be filed with the State Corporation Commission of the
Commonwealth of Virginia. Assuming the Reorganization Agreement and the Plan of
Merger are approved by Craigie shareholders at the Special Meeting, it is
anticipated that the Articles of Merger will be filed on or about October 1,
1997. See "THE MERGER--The Reorganization Agreement--Effective Date and Time of
the Merger."
RECOMMENDATION OF CRAIGIE BOARD; REASONS FOR THE MERGER
The Craigie Board has unanimously approved the Reorganization Agreement
and Plan of Merger and the transactions contemplated thereby. The Craigie Board
believes that the Merger is in the best interests of Craigie and its
shareholders and recommends that the shareholders of Craigie vote "FOR" approval
of the Reorganization Agreement and Plan of Merger. For further discussion of
the factors considered by the Craigie Board in reaching its conclusions, see
"THE MERGER--Background of the Merger" and "--Reasons for the Merger."
CONDITIONS TO THE MERGER
The consummation of the Merger is subject to various conditions,
including the approval of the Reorganization Agreement and the Plan of Merger by
the shareholders of Craigie, receipt of necessary regulatory approvals, receipt
of a legal opinion regarding the tax consequences of the Merger and other
customary conditions to closing. See "THE MERGER--The Reorganization
Agreement--Conditions to the Merger."
TERMINATION OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement may be terminated by either BB&T or
Craigie if the Merger is not consummated by October 1, 1997 for any reason other
than delay or nonperformance of the party seeking the termination or the failure
to receive certain regulatory approvals, which approvals must in any event be
obtained by December 31, 1997. The parties also have certain rights of
termination upon the occurrence of certain other events. See "THE MERGER--The
Reorganization Agreement--Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As a condition to BB&T's obligation to consummate the Merger, four
members of Craigie management are entering into employment agreements that
provide for continued employment with Craigie through December 31, 2001. Such
employment agreements also provide for minimum salaries of at least $200,000 per
year, severance payments and other benefits upon the occurrence of a merger or
other change in control of BB&T or Craigie after the Merger. In addition,
following the Effective Time BB&T will cause Craigie to adopt a Performance
Incentive Program (the "Incentive Program") pursuant to which employees of
Craigie, including members of management, will be entitled to receive bonus
payments if certain income goals are met. See "THE MERGER--Interests of Certain
Persons in the Merger."
REGULATORY CONSIDERATIONS
Consummation of the Merger is conditioned on the receipt by BB&T and
Craigie of all necessary approvals by governmental regulatory agencies. The
Merger is subject to approval by the Board of Governors of the Federal Reserve
System (the "Federal Reserve") under Section 4 of the Bank Holding Company Act
and the Federal Reserve's implementing regulation thereunder, Regulation Y.
Consummation of the Merger is also conditioned on the expiration or termination
of the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. BB&T anticipates that the regulatory
approvals described herein will be obtained in time to allow for consummation of
the Merger on or about October 1, 1997, but there is no assurance that such
regulatory approvals will be obtained so as to permit consummation of the Merger
or that such approvals will not be conditioned upon matters that would cause the
parties to abandon the Merger. See "THE MERGER--Regulatory Considerations."
4
<PAGE>
DISSENTERS' RIGHTS
Under the Virginia Stock Corporation Act (the "VSCA"), holders of
Craigie Common Stock who do not vote in favor of the Reorganization Agreement
and Plan of Merger and who comply with certain notice requirements and other
procedures will have the right to dissent and to be paid cash for the "fair
value" of their shares. Such "fair value" as finally determined under such
procedures may be more or less than the consideration to be received by other
shareholders of Craigie under the terms of the Reorganization Agreement and Plan
of Merger. The procedures to be followed by dissenting shareholders are
described elsewhere in this Proxy Statement/Prospectus, and the text of the
applicable statutory provisions is set forth in Appendix II hereto. Failure to
follow these procedures precisely may result in the loss of dissenters' rights.
Dissenting shareholders who receive cash for their shares of Craigie Common
Stock pursuant to their dissenters' rights will recognize gain or loss for
federal income tax purposes. See "THE MERGER--Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger has been structured to qualify as a nontaxable transaction
under the Internal Revenue Code of 1986, as amended (the "Code"). It is a
condition to the Merger that BB&T and Craigie receive an opinion from Womble
Carlyle Sandridge & Rice, PLLC, counsel to BB&T, to the effect that the Merger
will constitute a reorganization under Section 368 of the Code and that the
holders of Craigie Common Stock will not recognize any gain or loss to the
extent that shares of Craigie Common Stock are exchanged solely for shares of
BB&T Common Stock. See "THE MERGER--Certain Federal Income Tax Consequences of
the Merger."
ACCOUNTING TREATMENT
It is anticipated that the Merger and other transactions contemplated
in the Reorganization Agreement will be accounted for as a "purchase" for
accounting and financial reporting purposes. See "THE MERGER--Accounting
Treatment."
COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of the shareholders of Craigie currently are determined by
the VSCA, the Articles of Incorporation of Craigie (the "Craigie Articles") and
the Bylaws of Craigie (the "Craigie Bylaws"). At the Effective Date, the
shareholders of Craigie (other than dissenting shareholders) will become
shareholders of BB&T. Their rights as shareholders will then be determined by
the North Carolina Business Corporation Act (the "NCBCA"), the Articles of
Incorporation of BB&T (the "BB&T Articles") and the Bylaws of BB&T (the "BB&T
Bylaws"). See "DESCRIPTION OF BB&T CAPITAL STOCK" and "COMPARISON OF
SHAREHOLDERS' RIGHTS."
5
<PAGE>
MARKET PRICES AND DIVIDENDS
BB&T Common Stock is listed on the NYSE under the symbol "BBK". The
following table sets forth, for the periods indicated, the high and low sales
price of BB&T Common Stock on the NYSE Composite Transactions List and cash
dividends paid per share. The prices do not include retail markups, markdowns or
commissions. Craigie Common Stock is not publicly traded, and there is therefore
no comparable information with respect to such stock. No cash dividends have
been paid on Craigie Common Stock during the periods indicated. For a
description of a buy-sell agreement among Craigie shareholders relating to
ownership and transfers of Craigie Common Stock, see "INFORMATION ABOUT CRAIGIE
- --Buy-Sell Agreement."
CASH
HIGH LOW DIVIDEND
------------- ------------- -------------
Quarter Ended
March 31, 1997 $40.75 $35.25 $.27
June 30, 1997 47.13 35.75 .27
September 30, 1997 52.00 40.50 .31
(through August 26, 1997)
Quarter Ended
March 31, 1996 29.75 25.88 .23
June 30, 1996 31.75 28.88 .23
September 30, 1996 33.88 28.63 .27
December 31, 1996 36.75 33.38 .27
For year 1996 36.75 25.88 1.00
Quarter Ended
March 31, 1995 22.38 18.88 .20
June 30, 1995 24.13 19.88 .20
September 30, 1995 27.13 23.63 .23
December 31, 1995 27.00 25.63 .23
For year 1995 27.13 18.88 .86
6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA -- BB&T
The following table sets forth certain consolidated financial data of
BB&T restated to include the accounts of United Carolina Bancshares Corporation,
completed on July 1, 1997, for the five years ended December 31, 1996, and the
six months ended June 30, 1997 and June 30, 1996. Results of BB&T for the six
months ended June 30, 1997 are not necessarily indicative of results expected
for the entire year. All adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of results of interim periods have
been included. 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."
<TABLE>
<CAPTION>
AS OF/FOR THE SIX
MONTHS ENDED
JUNE 30, AS OF/FOR THE TWELVE MONTHS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- ------- --------- -------- -------- ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income................. $ 1,033,939 $ 947,413 $ 1,934,570 $ 1,880,157 $ 1,586,515 $ 1,427,684 $ 1,436,751
Interest expense................ 490,546 454,038 926,870 948,839 678,571 590,709 686,922
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income............. 543,393 493,375 1,007,700 931,318 907,944 836,975 749,829
Provision for loan and lease
losses..................... 45,950 28,761 62,511 41,924 23,730 59,829 76,030
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for loan
and lease losses............ 497,443 464,614 945,189 889,394 884,214 777,146 673,799
Noninterest income.............. 201,367 169,188 353,468 271,710 278,339 268,856 229,736
Noninterest expense............. 402,917 375,552 808,550 820,718 740,234 791,060 625,875
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes...... 295,893 258,250 490,107 340,386 422,319 254,942 277,660
Provision for income taxes...... 100,611 86,400 159,932 113,118 147,003 95,229 97,290
----------- ------------ ----------- ----------- ----------- ---------- -----------
Income before cumulative
effect of changes in
accounting principles...... 195,282 171,850 330,175 227,268 275,316 159,713 180,370
Less: cumulative effect of
changes in accounting
principles, net of
income taxes.......... -- -- -- -- -- (32,762) --
----------------------------------------- ------------- ------------ ------------------------
Net income ..................... $ 195,282 $ 171,850 $ 330,175 $ 227,268 $ 275,316 $ 126,951 $ 180,370
========== ========= ========== ========= ========= ========= =========
PER COMMON SHARE
Average shares outstanding (000's)
Primary...................... 139,081 137,262 138,152 137,129 135,332 130,419 123,271
Fully diluted................ 139,394 139,298 139,518 142,154 140,382 136,303 130,938
Primary earnings
Income before cumulative effect $ 1.40 $ 1.25 $ 2.39 $ 1.62 $ 2.00 $ 1.18 $ 1.43
Less: cumulative effect...... -- -- -- -- -- (0.25) --
-------------- -------------------------- ------------- ------------ ----- --------------
Net income................ $ 1.40 $ 1.25 $ 2.39 $ 1.62 $ 2.00 $ 0.93 $ 1.43
====== ====== ====== ====== ====== ====== ======
Fully diluted
Income before cumulative effect $ 1.40 $ 1.23 $ 2.37 $ 1.60 $ 1.96 $ 1.17 $ 1.38
Less: cumulative effect...... -- -- -- -- -- (0.24) --
------------ ------------ ------------ ------------ ------------ ------ ------------
Net income................ $ 1.40 $ 1.23 $ 2.37 $ 1.60 $ 1.96 $ 0.93 $ 1.38
====== ====== ====== ====== ====== ======= ======
Cash dividends declared......... $ 0.54 $ 0.46 $ 1.00 $ 0.86 $ 0.74 $ 0.64 $ 0.50
Shareholders' equity............ 15.64 14.21 15.13 14.32 12.79 12.06 11.95
AVERAGE BALANCE SHEETS
Securities at carrying value.... $ 6,249,761 $ 5,816,670 $ 6,137,748 $ 6,244,509 $ 6,050,612 $ 5,401,762 $ 4,733,403
Loans and leases*............... 18,469,521 17,052,975 16,958,876 16,286,928 14,711,409 13,155,522 11,978,837
Other assets.................... 1,601,198 1,476,505 1,673,478 1,694,578 1,707,055 1,626,305 1,567,185
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total assets.............. $26,320,480 $24,346,150 $24,770,102 $24,226,015 $22,469,076 $20,183,589 $18,279,425
=========== =========== =========== =========== =========== =========== ===========
Deposits........................ $19,302,187 $18,229,530 $18,577,368 $17,691,264 $17,318,921 $16,260,492 $15,167,080
Other liabilities............... 2,615,245 2,507,871 2,346,374 3,507,910 2,724,841 1,687,474 1,535,422
Long-term debt.................. 2,285,012 1,648,477 1,861,380 1,130,460 679,654 598,753 154,113
Common shareholders' equity..... 2,118,036 1,929,788 1,969,821 1,824,036 1,671,517 1,562,727 1,357,005
Preferred shareholders' equity.. -- 30,484 15,159 72,345 74,143 74,143 65,805
----------------------------------------- ------------- ------------------------- -------------
Total liabilities and
shareholders' equity...... $26,320,480 $24,346,150 $24,770,102 $24,226,015 $22,469,076 $20,183,589 $18,279,425
=========== =========== =========== =========== =========== =========== ===========
PERIOD END BALANCES
Total assets.................... $27,472,081 $24,877,597 $25,707,646 $24,671,277 $23,497,824 $22,273,226 $18,979,348
Deposits........................ 20,050,730 18,718,877 19,003,340 18,321,708 17,458,085 17,594,408 15,674,867
Long-term debt.................. 2,643,534 1,958,381 2,054,040 1,386,910 913,060 839,631 424,102
Shareholders' equity............ 2,117,747 1,942,738 2,071,567 2,025,112 1,803,888 1,686,134 1,510,774
SELECTED PERFORMANCE RATIOS
Rate of return on:
Average total assets...... 1.50% 1.42% 1.33% 0.94% 1.23% 0.63% 0.99%
Average common
shareholders' equity...... 18.59 17.84 16.73 12.18 16.16 7.79 12.95
Dividend payout................. 38.57 36.80 41.84 53.09 37.00 68.82 34.97
Average equity to average assets 8.05 8.05 8.01 7.83 7.77 8.11 7.78
</TABLE>
- -----------------
* Loans and leases are net of unearned income and the allowance for losses.
Amounts include loans held for sale.
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA -- CRAIGIE
The following table sets forth certain consolidated financial data of
Craigie for the five years ended December 31, 1996, and the six months ended
June 30, 1997 and June 30, 1996. Results of Craigie for the six months ended
June 30, 1997 are not necessarily indicative of results expected for the entire
year. All adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of results of interim periods have been included.
The information is qualified in its entirety by the detailed information and
consolidated financial statements included elsewhere in this Proxy
Statement/Prospectus. See "INFORMATION ABOUT CRAIGIE -- Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "CRAIGIE
CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
As of/For the
Six Months Ended As of/For the Years Ended December 31,
---------------- --------------------------------------
June 30 June 30
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA
Revenues:
Commissions 557,993 453,272 820,439 815,221 670,273 851,793 651,846
Investment Banking 3,010,871 2,482,245 7,551,448 6,257,968 4,793,567 11,652,925 7,242,889
Profits from trading
securities 3,096,793 3,473,842 7,173,532 6,854,099 7,378,980 13,753,935 11,466,126
Interest and dividends 1,167,132 1,222,304 2,650,922 2,562,651 1,857,176 2,912,876 2,066,264
Other (14,001) 78,759 745,905 170,055 191,375 220,512 194,714
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total Revenues 7,818,788 7,710,422 18,942,246 16,659,994 14,891,371 29,392,041 21,621,839
Operating Expenses
Compensation and
benefits 4,659,954 5,419,888 11,515,899 10,892,973 10,039,721 19,022,653 13,874,733
Communications 547,697 569,138 1,142,692 970,610 1,038,699 599,963 548,428
Occupancy & equipment 316,032 359,800 702,911 737,480 702,831 701,415 604,807
Interest 1,208,201 1,265,407 2,815,647 2,684,547 1,540,326 2,360,182 1,387,733
Floor brokerage,
exchange and clearing
fees 201,470 199,560 382,403 358,036 334,387 744,611 599,220
Other operating
expenses 623,395 561,427 1,150,258 1,107,704 1,204,084 1,305,649 1,018,377
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses 7,554,749 8,375,220 17,709,810 16,751,350 14,860,048 24,734,473 18,033,298
Income (loss) before income 264,039 (664,798) 1,232,436 (91,356) 31,323 4,657,588 3,588,541
taxes
Income tax expense (benefit) (41,358) (294,258) 10,735 (198,896) (438,285) 1,247,464 1,034,000
Cumulative effect of change
in accounting for income
taxes -- -- -- -- -- 241,000 --
--------------------------------------------------------------------- ----------- ---------------
Net income (loss) 305,397 (370,540) 1,221,701 107,540 469,608 3,651,104 2,554,541
Return on average
stockholders' equity (1) 2.17% -2.97% 9.25% 0.71% 2.56% 21.91% 17.21%
BALANCE SHEET DATA
Total assets 75,594,437 89,711,400 88,171,130 78,568,035 77,634,697 88,327,681 101,667,899
Total liabilities 56,953,596 73,043,512 69,554,212 63,910,180 56,227,389 65,508,294 84,514,073
Total subordinated liabilities
and deferred credits 4,305,000 4,305,000 4,803,391 2,055,000 3,625,000 3,875,000 2,775,000
Total stockholders' equity 14,335,841 12,362,888 13,813,527 12,602,855 17,782,308 18,944,387 14,378,826
</TABLE>
(1) Calculated by dividing after-tax earnings for the year by the average
stockholders' equity for the year. Average stockholders' equity is
calculated by adding stockholders' equity on the first day of the year
to stockholders' equity on the last day of the year and dividing by
two.
8
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth: (a) selected comparative per share data
for each of BB&T and Craigie on an historical basis; (b) selected unaudited pro
forma comparative per share data assuming the Merger had been effective during
the periods presented for BB&T and Craigie combined; and (c) Craigie pro forma
equivalent amounts.
The comparative per share data presented are based on and derived from,
and should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of each of BB&T and Craigie included or
incorporated by reference herein. Results of each of BB&T and Craigie for the
six months ended June 30, 1996 are not necessarily indicative of results
expected for the entire year, nor are pro forma amounts necessarily indicative
of results of operations or combined financial position that would have resulted
had the Merger been consummated at the beginning of the period indicated. All
adjustments, consisting of only normal adjustments, necessary for a fair
statement of results of interim periods have been included. The pro forma
equivalent amounts are calculated assuming an exchange ratio of .45 shares of
BB&T Common Stock for each share of Craigie Common Stock. The exchange ratio
is subject to possible adjustment as described in "MERGER CONSIDERATION".
<TABLE>
<CAPTION>
As of/For the Six Months Ended As of/For the Year Ended
EARNINGS PER COMMON SHARE June 30, 1997 December 31, 1996
---------------------------------------------------------------
<S> <C> <C>
BB&T
Historical primary $1.40 $2.39
Historical fully diluted 1.40 2.37
Pro forma combined primary 1.40 2.39
Pro forma combined fully diluted 1.40 2.37
Craigie
Historical 0.24 1.30
Pro forma equivalent primary 0.63 1.08
Pro forma equivalent fully diluted 0.63 1.07
CASH DIVIDENDS DECLARED
BB&T historical 0.54 1.00
BB&T pro forma combined 0.54 1.00
Craigie historical -- --
Craigie pro forma equivalent 0.24 0.45
SHAREHOLDERS' EQUITY PER COMMON SHARE
BB&T historical 15.59 15.13
BB&T pro forma combined 15.66 15.19
Craigie historical 14.90 14.70
Craigie pro forma combined 7.05 6.84
</TABLE>
9
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS
GENERAL
This Proxy Statement/Prospectus is being furnished to the shareholders
of Craigie as of the Record Date and is accompanied by a form of proxy that is
solicited by the Craigie Board for use at the Special Meeting to be held on
September 30, 1997 at 10:00 a.m. local time, at the offices of Craigie, 823 East
Main Street, Richmond, Virginia and any adjournment or postponement thereof. At
the Special Meeting, the shareholders of Craigie will vote on a proposal to
approve the Reorganization Agreement and the Plan of Merger attached hereto as
Appendix I. Proxies may be voted on such other matters as may properly come
before the Special Meeting, or any adjournment or postponement thereof, at the
discretion of the proxy holders named therein. The Craigie Board knows of no
such other matters except matters incidental to the conduct of the Special
Meeting.
Holders of Craigie Common Stock are requested to complete, date, and
sign the accompanying proxy and return it promptly to Craigie in the enclosed
postage prepaid envelope.
RECORD DATE, VOTING RIGHTS, AND VOTE REQUIRED
Only the holders of Craigie Common Stock on the Record Date (August
28, 1997) are entitled to receive notice of and to vote at the Special Meeting
and at any adjournments or postponements thereof. On the Record Date, there were
948,933 shares of Craigie Common Stock outstanding, which were held by
64 holders of record. Each share of Craigie Common Stock outstanding on the
Record Date is entitled to one vote as to each of the matters submitted at
the Special Meeting.
APPROVAL OF THE REORGANIZATION AGREEMENT AND THE PLAN OF MERGER WILL
REQUIRE THE AFFIRMATIVE VOTE OF THE HOLDERS OF MORE THAN TWO-THIRDS OF THE
OUTSTANDING SHARES OF CRAIGIE COMMON STOCK. FAILURE OF A HOLDER OF CRAIGIE
COMMON STOCK TO VOTE SUCH SHARES WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST"
THE REORGANIZATION AGREEMENT AND THE PLAN OF MERGER.
As of the Record Date, the directors and executive officers of Craigie
and their affiliates beneficially owned a total of 1,021,944 shares, or 81.2%
of the shares of Craigie Common Stock issued and outstanding or issuable upon
the conversion of convertible debentures, and owned 884,994, or 93.3%, of the
issued and outstanding shares of Craigie Common Stock, all of which are
expected to be voted in favor of the Reorganization Agreement and the Plan of
Merger. Officers of Craigie holding an aggregate of 520,563 shares of Craigie
Common Stock as of the Record Date, or 54.9% of the shares then outstanding,
have agreed in the Reorganization Agreement that they will not transfer any
of such shares and that they will vote all of such shares in favor of the
Reorganization Agreement and the Plan of Merger.
VOTING AND REVOCATION OF PROXIES
The shares of Craigie Common Stock represented by properly completed
proxies received at or prior to the time for the Special Meeting will be voted
as directed by the shareholders unless revoked as described below. If no
instructions are given, executed proxies will be voted "FOR" approval of the
Reorganization Agreement and the Plan of Merger. Shares with respect to which
proxies have been marked as abstentions will not be counted as votes cast.
Shares with respect to which proxies have been marked as abstentions, however,
will be treated as shares present for purposes of determining whether a quorum
is present. If any other matters are properly presented at the Special Meeting
and may be properly voted on, the proxies solicited hereby will be voted on such
matters at the discretion of the proxy holders named therein. However, in such
event, voting authority will be exercised only to the extent permissible under
the applicable federal securities laws. The Craigie Board is not aware of any
other business to be presented at the Special Meeting, other than matters
incidental to the conduct of the Special Meeting. This proxy is being solicited
for the Special Meeting called to consider the Reorganization Agreement and the
Plan of Merger and any adjournments or postponements of the Special Meeting and
will not be used for any other meeting of the shareholders of Craigie.
10
<PAGE>
The presence of a shareholder at the Special Meeting will not
automatically revoke such shareholder's proxy. A shareholder may, however,
revoke a proxy at any time prior to its exercise by filing a written notice of
revocation with, or by delivering a duly executed proxy bearing a later date to,
the Secretary of Craigie at Craigie's principal executive offices prior to the
Special Meeting, or by attending the Special Meeting and voting in person. The
proxy will not be revoked by the death or incapacity of the shareholder
executing it unless, before the shares are voted, notice of such death or
incapacity is filed with the Secretary of Craigie or other person authorized to
tabulate the votes.
BECAUSE APPROVAL OF THE REORGANIZATION AGREEMENT AND PLAN OF MERGER
REQUIRES THE AFFIRMATIVE VOTE OF MORE THAN TWO-THIRDS OF THE OUTSTANDING SHARES
OF CRAIGIE COMMON STOCK, ABSTENTIONS WILL HAVE THE SAME EFFECT AS NEGATIVE
VOTES. ACCORDINGLY, THE CRAIGIE BOARD URGES ITS SHAREHOLDERS TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PREPAID ENVELOPE.
SOLICITATION OF PROXIES
BB&T will bear the cost of printing and mailing this Proxy
Statement/Prospectus, and Craigie will bear all other costs of soliciting
proxies. In addition to the use of the mails, proxies may be solicited
personally or by telephone or facsimile by directors, officers, and other
employees of Craigie, who will not be specially compensated for such
solicitation activities. Craigie does not presently intend to utilize the
services of a proxy soliciting firm in connection with the solicitation of
proxies in connection with the Special Meeting.
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this Proxy
Statement/Prospectus and, if given or made, such information or representation
should not be relied upon as having been authorized by Craigie, BB&T or any
other person. The delivery of this Proxy Statement/Prospectus will not, under
any circumstances, create any implication that there has been no change in the
affairs of Craigie or BB&T since the date of this Proxy Statement/Prospectus.
RECOMMENDATION OF CRAIGIE BOARD
The Craigie Board has unanimously adopted the Reorganization Agreement
and the Plan of Merger and believes that the proposed transaction is fair to and
in the best interests of Craigie and its shareholders. The Craigie Board
unanimously recommends that Craigie's shareholders vote "FOR" approval of the
Reorganization Agreement and the Plan of Merger. See "THE MERGER--Background of
the Merger" and "--Reasons for the Merger."
11
<PAGE>
THE MERGER
THE FOLLOWING DESCRIPTION OF THE MERGER IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE COMPLETE TEXT OF THE REORGANIZATION AGREEMENT AND THE PLAN OF
MERGER INCLUDED THEREIN, A COPY OF WHICH IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS APPENDIX I AND INCORPORATED HEREIN BY REFERENCE.
GENERAL
In the Merger, BB&T Acquisition, a wholly-owned subsidiary of BB&T,
will be merged with and into Craigie, and Craigie will be the surviving
corporation in the Merger and will become a wholly-owned subsidiary of BB&T.
Shareholders of Craigie (other than dissenting shareholders) will receive shares
of BB&T Common Stock and cash in lieu of fractional shares as described below.
BACKGROUND OF THE MERGER
In 1996 Craigie was approached by several institutions, including bank
holding companies and investment banks, about a potential acquisition. Before
those contacts, the Craigie Board had not seriously considered an acquisition of
Craigie, nor had it solicited any offers. However, in 1996 Craigie's management
determined that it would be prudent to consider the possible advantages of an
acquisition of Craigie by a larger financial institution.
Craigie's management held preliminary discussions with three potential
acquirors, including BB&T. Based on those discussions, Craigie's management
concluded that an acquisition by a larger financial institution would benefit
Craigie and its shareholders, primarily through exchanging Craigie Common Stock
for a more liquid, dividend paying security; by providing more capital to
support Craigie's business; and by expanding Craigie's client base to include an
acquiror's customers. Craigie's management decided to enter into serious
discussions with BB&T because, based on preliminary discussions, management had
concluded (1) that BB&T was likely to offer the highest price; (2) that Craigie
could continue to operate with a high degree of autonomy and remain
headquartered in Richmond, Virginia, since BB&T did not already have an
investment banking subsidiary; and (3) that Craigie's management and BB&T's
management were compatible. Craigie did not have serious negotiations with or
receive a firm offer from any potential acquiror other than BB&T.
Discussions between Craigie and BB&T about a potential business
combination began in June, 1996. Craigie was represented by Messrs. John Wright
and John Jung, who are executive vice presidents of Craigie, and Mr. John
Wallace, who is a senior vice president of Craigie. BB&T was represented by
Messrs. Morris Marley and Michael Sperry, who are senior executive vice
presidents of BB&T, and Mr. Burney Warren, who is an executive vice president of
BB&T-NC. Financial statements were exchanged and pro forma financial statements
were developed on Craigie as a subsidiary of BB&T and as a subsidiary of one of
BB&T's banking subsidiaries, incorporating the potential synergies between the
two organizations. At the time discussions between Craigie and BB&T began, due
to composition of Craigie's revenue, it was not clear that Craigie could operate
as a direct subsidiary of BB&T without a substantial change to its operations.
Federal Reserve policy at the time limited the percentage of revenue that a bank
holding company subsidiary could derive from underwriting and dealing in bank
ineligible securities to ten percent of total revenue. "Bank ineligible
securities" are those that a bank may not underwrite or deal in, and Craigie's
revenue from bank ineligible securities has consistently exceeded ten percent of
total revenue. See "--Regulatory Considerations." Similarly, despite the
existence of certain court decisions to the effect that the Federal Reserve
could not prohibit BB&T from operating Craigie as a subsidiary of one of its
bank subsidiaries, it was not certain that Federal Reserve would not oppose
such a structure.
On August 15, 1996 representatives of Craigie and BB&T met to negotiate
preliminary terms, including the merger consideration and performance bonus
program. In late August, 1996 the BB&T Board approved the transaction with the
contemplation that Craigie would become a subsidiary of BB&T-NC.
On September 11, 1996 representatives of BB&T and Craigie met with
personnel of the Federal Reserve and were informed that it was their opinion
that Craigie could not operate as a subsidiary of BB&T-NC and would have to
operate as
12
<PAGE>
a direct subsidiary of BB&T. On September 26, 1996 representatives of BB&T and
Craigie met with the General Counsel of the Federal Reserve in Washington, D.C.,
who confirmed that the Federal Reserve would object to Craigie operating as a
bank subsidiary.
On December 30, 1996, the Federal Reserve amended its
policy to increase the percentage of revenue that a bank holding company
subsidiary may derive from bank ineligible securities, and the parties
concluded that under the revised policy Craigie could operate as a subsidiary
of BB&T without any substantial changes in its operations. Negotiations
continued through the end of 1996 and the beginning of 1997. The Craigie Board
approved the Reorganization Agreement on February 25, 1997,
and the definitive agreement was executed on March 7, 1997. In its original
version, the Reorganization Agreement provided that if the Closing Value
exceeded $49.03 the Craigie Board could elect to terminate the Reorganization
Agreement or enter into negotiations to increase the Merger Consideration.
Shortly before the mailing of this Proxy Statement/Prospectus, and in light of
the fact that BB&T Common Stock was at that time trading above $50.00, the
parties renegotiated the definition of "Closing Value" to its current form
(See "-- Merger Consideration"), and executed an amended and restated version of
the Reorganization Agreement that included this new definition, accommodated the
indemnification arrangement described in the following paragraph and made
certain technical corrections.
In connection with the negotiation of the Reorganization Agreement,
BB&T requested indemnification with respect to certain potential losses arising
from activities of Craigie prior to the Merger, and Craigie's current directors
and executive officers have entered into an Indemnification and Escrow Agreement
(the "Indemnification Agreement") with BB&T pursuant to which a specified
portion of the shares of BB&T Common Stock to be issued to such individuals in
the Merger will be placed in escrow as the sole means to satisfy these
indemnification obligations. Craigie is not a party to the Indemnification
Agreement, nor does Craigie or any other shareholder of Craigie have any
obligation under the Indemnification Agreement.
REASONS FOR THE MERGER
BB&T
BB&T's traditional customer market has been the small to middle-market
company, with an emphasis on providing full banking services to the client in
both the credit and non-credit areas. The range of investment banking services
being offered by BB&T's competitors has grown rapidly recently, and BB&T
management believes that diversification into investment services is necessary
for BB&T to continue to achieve its stated goal of offering competitive products
and services with features and functions equal to those of its competitors at an
optimal price. BB&T management believes that the acquisition of Craigie will
expand its current market coverage and product specialties by enabling it to
offer basic investment banking/capital markets products as well as merger and
acquisition consulting, capital sourcing, business valuations and other
specialty products for which Craigie has developed a particular expertise. In
addition, BB&T intends to use Craigie for many of its own investment banking
needs in such areas as portfolio investments, trust investments, mergers and
acquisitions activities and marketing bank and holding company securities
issues, and anticipates significant savings in annual investment banking
expenses. BB&T management also believes that the acquisition offers significant
prospects for increasing Craigie's volume of business due to BB&T's large
customer base and name recognition, especially in the Carolinas.
CRAIGIE
Craigie's management concluded, based on its preliminary discussions
with potential acquirors, that an acquisition by a larger financial institution
would benefit Craigie and its shareholders, primarily through exchanging Craigie
Common Stock for a more liquid, dividend paying security; by providing more
capital to support Craigie's business; and by expanding Craigie's client base to
include an acquiror's customers. Craigie's management determined to enter into
the Reorganization Agreement with BB&T based on its conclusions, formed during
its preliminary discussions with potential acquirors and the negotiation of the
Reorganization Agreement, that (1) BB&T was likely to offer the highest price;
(2) Craigie could continue to operate with a high degree of autonomy and remain
headquartered in Richmond, Virginia, since BB&T did not already have an
investment banking subsidiary; and (3) Craigie's management and BB&T's
management were compatible.
13
<PAGE>
MERGER CONSIDERATION
In the Merger, each outstanding share of Craigie Common Stock (other
than shares held by dissenting shareholders) will be converted into the right to
receive a number of shares of BB&T Common Stock calculated according to the
Exchange Formula, which is based in part upon the Closing Value (as defined
below) of BB&T Common Stock. The Exchange Formula provides that the number of
shares of BB&T Common Stock to be exchanged for each share of Craigie Common
Stock will be equal to the lesser of:
(a) 1.20 multiplied by the sum of (i) the Tangible Book Value
per Share (as described below) determined as of December 31, 1996 plus
(ii) the Considered Earnings per Share (as described below), which
product will be divided by the Closing Value; or
(b) 1.20 multiplied by the Tangible Book Value per Share as of
the Closing Date, divided by the Closing Value.
Notwithstanding the foregoing, if the Closing Value is less than $29.43, BB&T
may elect to terminate the Reorganization Agreement or enter into negotiations
with Craigie to decrease the Merger Consideration.
"Closing Value" means the average closing price per share of BB&T
Common Stock on the NYSE for the 20 trading days immediately preceding the tenth
calendar day prior to the Closing Date. Notwithstanding the foregoing, if the
average closing price per share described in the preceding sentence is between
$49.03 and $52.00, the Closing Value will be deemed to be $49.03, and if the
average closing price is greater than $52.00, the Closing Value will be deemed
to equal the sum of (a) $49.03 plus (b) the amount by which the average closing
price exceeds $52.00. If the Craigie shareholders approve the Reorganization
Agreement and Plan of Merger at the Special Meeting, it is expected that the
Closing Value will be determined based on the 20 trading days ending on and
including September 19, 1997.
"Tangible Book Value per Share" means an amount per share of Craigie
Common Stock determined by dividing (a) the aggregate shareholders' equity of
Craigie on the applicable date, as adjusted in certain respects (including,
without limitation, to include unrealized gains or losses on Craigie's
marketable securities based on the then current market value of such
securities), by (b) the number of shares of Craigie Common Stock issued and
outstanding as of the Effective Time. The Tangible Book Value per Share of
Craigie Common Stock was $14.57 at December 31, 1996 and $14.90 at June 30,
1997. Although there can be no assurance that such will be the case, Craigie
management believes that the Tangible Book Value per Share of Craigie Common
Stock will be approximately $15.10 at the anticipated Closing Date of October
1, 1997.
"Considered Earnings per Share" means an amount per share of Craigie
Common Stock determined by dividing the number of shares of Craigie Common Stock
issued and outstanding as of the Effective Time into the lesser of (a) Craigie's
actual net earnings after tax for the period beginning on January 1, 1997 and
ending on and including the Closing Date, determined in accordance with
generally accepted accounting principles consistently applied, or (b) $1.435
million multiplied by a fraction, the numerator of which is the number of days
in 1997 ending on and including the Closing Date and the denominator of which is
365. As of June 30, 1997, Craigie's year-to-date actual net earnings after
tax totaled $305,397, and, although there can be no assurance that such will be
the case, Craigie management believes that net earnings after tax as of the
anticipated Closing Date of October 1, 1997 will be approximately
$500,000. Assuming a Closing Date of October 1, 1997, the amount referred to in
clause (b) of the first sentence of this paragraph would equal approximately
$1,073,300.
Assuming that the foregoing estimates are accurate and that the Closing
Date occurs on October 1, 1997, Craigie management believes that the total
Merger Consideration will equal approximately $22.8 million, or $18.12 per
share of Craigie Common Stock, as measured in shares of BB&T Common Stock valued
at the Closing Value. Assuming a Closing Value of $51.25, which was the closing
price per share market price of BB&T Common Stock on the NYSE on August 26,
1997, it is expected that each share of Craigie Common Stock (other than shares
held by dissenting shareholders) would be converted into the right to receive
approximately 0.3536 shares of BB&T Common Stock. SHAREHOLDERS SHOULD RECOGNIZE,
HOWEVER, THAT THE FINAL DETERMINATION OF THE MERGER CONSIDERATION WILL
14
<PAGE>
NOT BE MADE UNTIL THE COMPLETION OF THE AUDIT OF CRAIGIE'S FINANCIAL STATEMENTS
AS OF THE CLOSING DATE, AND THAT THE ACTUAL MERGER CONSIDERATION MAY BE MORE OR
LESS THAN THE AMOUNT ESTIMATED ABOVE. CRAIGIE'S RESULTS OF OPERATIONS FOR THE
PERIOD BEGINNING JANUARY 1, 1997 UNTIL THE CLOSING DATE, AND FLUCTUATIONS IN THE
VALUE OF CRAIGIE'S MARKETABLE SECURITIES PRIOR TO THE CLOSING DATE, MAY
MATERIALLY AFFECT THE AMOUNT OF MERGER CONSIDERATION SHAREHOLDERS OF CRAIGIE
WILL BE ENTITLED TO RECEIVE. SEE "INFORMATION ABOUT CRAIGIE-- MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" FOR A
DISCUSSION OF FACTORS WHICH MAY IMPACT CRAIGIE'S RESULTS OF OPERATIONS.
MOREOVER, ANY CHANGES IN THE MARKET PRICE OF BB&T COMMON STOCK AFTER THE PERIOD
DURING WHICH THE CLOSING VALUE IS DETERMINED WILL NOT AFFECT THE NUMBER OF
SHARES OF BB&T COMMON STOCK THAT HOLDERS OF CRAIGIE COMMON STOCK WILL RECEIVE,
AND THE ACTUAL MARKET PRICE OF BB&T COMMON STOCK AT THE EFFECTIVE TIME COULD BE
MORE OR LESS THAN THE CLOSING VALUE USED IN THE EXCHANGE FORMULA.
The parties to the Reorganization Agreement will make their best
estimate of the Merger Consideration as of the Effective Time, and the Closing
Merger Consideration, representing 90% of this amount (disregarding any
fractional share that would otherwise be included), will be distributed as soon
as practicable after the Effective Time to the holders of Craigie Common Stock
at the Effective Time (other than dissenting shareholders) (the "Closing
Shareholders"). The Post-Closing Merger Consideration, if any, will be
determined based on the parties' calculation of the actual Merger Consideration.
Promptly after the Closing Date, BB&T will cause the preparation of a balance
sheet and income statement (the "Closing Financial Statements") showing
Craigie's Tangible Book Value per Share as of the Closing Date and Considered
Earnings per Share. The Closing Financial Statements will be prepared in
accordance with generally accepted accounting principles consistently applied
with prior periods, except for adjustments for determining Tangible Book Value
per Share. The Closing Financial Statements will be audited and reported on by
Arthur Andersen LLP ("Arthur Andersen"), BB&T's independent public accountants.
The report of Arthur Andersen will be unqualified except as necessary to reflect
adjustments in determining Tangible Book Value per Share.
BB&T will exercise its reasonable best efforts to cause the Closing
Financial Statements, together with the report of Arthur Andersen, to be
delivered to the Closing Shareholders as soon as practicable, but no later than
the 60th day after the Closing Date. The Closing Financial Statements will be
delivered to Allen Mead Ferguson, John W. Wright and John T. West, IV, whom
Craigie has appointed in the Reorganization Agreement as representatives of the
Closing Shareholders (the "Shareholders' Representatives") to act on their
behalf with respect to certain matters.
Following delivery of the Closing Financial Statements to the
Shareholders' Representatives, BB&T will cause Arthur Andersen to provide the
Shareholders' Representatives with an opportunity to observe all aspects of the
audit, to review Arthur Andersen's work papers and to discuss the audit with
Arthur Andersen representatives. The Shareholders' Representatives will have 30
days to review the Closing Financial Statements and to give notice to BB&T if
they have a disagreement with Arthur Andersen regarding the Closing Financial
Statements (an "Objection Notice"). Failing such Objection Notice, the Closing
Financial Statements as delivered to the Shareholders' Representatives will be
final and binding on the parties.
If the Shareholders' Representatives give an Objection Notice in a
timely manner, and BB&T and the Shareholders' Representatives are able to
resolve such objections, the Closing Financial Statements, as modified to
resolve such objections, will be binding on the parties. If BB&T and the
Shareholders' Representatives are unable to reach agreement as to all
differences within 15 days after BB&T's receipt of the Shareholders'
Representatives' Objection Notice, then the unresolved differences will be
submitted to arbitration to resolve the dispute and make a determination that
will be binding on the parties. Such arbitration will be conducted by
arbitrators experienced in the matters at issue and selected in accordance with
the then current Commercial Arbitration Rules of the American Arbitration
Association. The decision of the arbitrator(s) will be final and binding as to
any matters submitted to arbitration; if necessary, such decision may be
enforced by either BB&T or the Shareholders' Representatives in any court having
competent jurisdiction. After delivery of the arbitrator's decision, the Closing
Financial Statements, modified as appropriate to reflect the arbitrator's
decision, will be final and binding. The determination of who will bear the
costs and expenses incurred in connection with any such arbitration proceedings
will be determined by the arbitrator.
15
<PAGE>
The Post-Closing Merger Consideration will be distributed as soon as
practicable following the close of the 30-day period described above if an
Objection Notice has not been timely filed. If an Objection Notice is timely
filed, the portion of the Post-Closing Merger Consideration that BB&T and
Craigie agree is distributable will be distributed (disregarding any fractional
share of BB&T Common Stock) as soon as practicable following the close of such
30-day period, and the remainder of the Post-Closing Merger Consideration, if
any, will be distributed as soon as practicable following final resolution of
all objections in the Objection Notice.
No fractional shares of BB&T Common Stock will be issued in the Merger.
Instead, holders of Craigie Common Stock otherwise entitled to a fractional
share will be paid an amount in cash at the time of the distribution of the
Post-Closing Merger Consideration. Such amount will be determined by multiplying
the fractional part of such share by the closing price per share of BB&T Common
Stock on the NYSE on the day immediately preceding the date of distribution.
TRANSFER OF BB&T COMMON STOCK CERTIFICATES
Prior to the Effective Time, instruction forms will be mailed to
each record holder of Craigie Common Stock at the Effective Time. The
instruction form will include instructions to be followed in receiving
certificates evidencing shares of BB&T Common Stock and, if applicable, cash in
lieu of fractional shares. Upon surrender of properly executed instruction
forms with respect to shares of Craigie Common Stock, each holder thereof will
receive a certificate evidencing the number of whole shares of BB&T Common Stock
representing that portion of the Closing Merger Consideration to which that
holder is entitled at such time. At the time of the distribution of the
Post-Closing Merger Consideration, each holder will receive a second
certificate evidencing the number of whole shares of BB&T Common Stock (if any)
to which that holder is entitled at such time, and any cash payable in lieu
of a fractional share.
After the Effective Time, until so surrendered and exchanged, shares of
Craigie Common Stock outstanding immediately prior to the Effective Time will
represent only the right to receive the Merger Consideration. No interest will
be paid or accrued on the Merger Consideration.
THE REORGANIZATION AGREEMENT
EFFECTIVE DATE AND TIME OF THE MERGER
The Merger will be effective at the time and on the date specified in
the Articles of Merger to be filed with the State Corporation Commission of the
Commonwealth of Virginia. The filing of the Articles of Merger will take place
following approval of the Plan of Merger by the Craigie shareholders and
satisfaction of all other conditions to the consummation of the Merger set forth
in the Reorganization Agreement. If the Merger is approved at the Special
Meeting on September 30, 1997, it is currently anticipated that the filing of
the Articles of Merger and the consummation of the Merger will occur on or about
October 1, 1997.
CONDITIONS TO THE MERGER
The respective obligations of BB&T and Craigie to consummate the Merger
are subject to the satisfaction or, where permissible, the waiver of certain
conditions, including, without limitation, (a) the authorization of the
execution, delivery and performance of the Reorganization Agreement and the
transactions contemplated thereby by all necessary Craigie corporate action,
including approval of the Merger by the requisite vote of the shareholders of
Craigie; (b) the receipt of all required regulatory approvals of the Merger; (c)
the absence of any injunction, judgment, decree, restraining order or order of
any nature by court or government agency of competent jurisdiction enjoining or
preventing the consummation of the Merger; and (d) the receipt of the opinion of
Womble Carlyle Sandridge & Rice, PLLC, counsel to BB&T, substantially to the
effect that the Merger will constitute a reorganization under Section 368 of the
Code and that the shareholders of Craigie will not recognize any gain or loss to
the extent that such shareholders exchange shares of Craigie Common Stock for
shares of BB&T Common Stock.
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The obligations of Craigie to consummate the Merger are also subject to
the satisfaction or waiver of the following conditions: (a) the material
accuracy of the representations and warranties and the performance of all
covenants, agreements and conditions required to be performed or complied with
by BB&T pursuant to the Reorganization Agreement and (b) the receipt of certain
legal opinions from counsel to BB&T and compliance certificates from BB&T.
The obligations of BB&T to consummate the Merger are also subject to
the satisfaction or waiver of the following conditions: (a) the material
accuracy of the representations, warranties and certifications and the
performance of all covenants, agreements and conditions required to be performed
or complied with by Craigie pursuant to the Reorganization Agreement; (b) the
receipt of certain legal opinions from counsel to Craigie and compliance
certificates from Craigie; (c) the good faith determination by BB&T that neither
the staff nor the Board of Governors of the Federal Reserve shall have material
objections to the Merger or to the conduct by Craigie of its business following
the Merger in substantially the same manner as previously conducted; (d) the
receipt of written agreements from "Affiliates," as defined in Rule 145 under
the Securities Act, of Craigie regarding certain restrictions on the resale of
BB&T Common Stock received in the Merger; (e) the execution of employment and
noncompetition agreements between Craigie and certain current employees of
Craigie; (f) the absence of any material adverse change in the financial
condition, operations or prospects of Craigie; (g) the cancellation prior to the
closing date of the Merger of all shareholder agreements between or among
Craigie and any of its shareholders relating to Craigie Common Stock; and (h)
the holders of fewer than 10% of the outstanding shares of Craigie Common Stock
having (i) given written notice of their intent to demand payment for their
shares and (ii) not voted in favor of the Merger.
CONDUCT OF CRAIGIE'S BUSINESS PRIOR TO THE EFFECTIVE DATE OF THE MERGER
Except as permitted, required or specifically contemplated by the
Reorganization Agreement or with the prior written consent of BB&T, Craigie has
covenanted under the Reorganization Agreement not to:
(a) carry on its business other than in the usual, regular and
ordinary course and substantially the same manner as theretofore
conducted, or establish or acquire any subsidiary, or engage in any new
type of business endeavor;
(b) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock, other than regularly
scheduled dividends payable on record dates and in amounts consistent
with past practice;
(c) issue any shares of its capital stock, pursuant to
conversion rights or otherwise;
(d) issue, grant or authorize any rights to acquire its
capital stock or effect any recapitalization, reclassification, stock
dividend, stock split or other capital change;
(e) amend its articles of incorporation or bylaws;
(f) impose or permit imposition of any lien, charge or
encumbrance on any of its assets except for liens incurred to procure
financing to acquire securities inventory in the ordinary course of
business;
(g) merge or consolidate with or acquire control over any
other corporation or dispose any of its assets or acquire any assets,
other than in the ordinary course of business;
(h) fail to comply with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its
business;
(i) increase the rate of compensation of any of its directors,
officers or employees, or pay or agree to pay any bonus to or provide
any other employee benefit or incentive to, any of its directors,
officers
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or employees, except in the ordinary course of business consistent with
past practices, or change the commission pay out schedule for its
registered representatives;
(j) enter into or substantially modify (except as may be
required by applicable law or regulation) any pension or other employee
benefit plan or arrangement;
(k) solicit or encourage inquiries or proposals with respect
to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition or purchase of
all or a substantial portion of the assets of, or a substantial equity
interest in, Craigie, or any business combination with Craigie other
than as contemplated by the Reorganization Agreement (except to the
extent that such acts or forbearances conflict with the fiduciary or
legal obligations of Craigie's Board of Directors to its shareholders),
or authorize any officer, director, agent or affiliate of Craigie to do
any of the above, or fail to notify BB&T immediately if any such
inquiries or proposals are received, any such information as requested
or required, or any such negotiations or discussions are sought to be
initiated;
(l) enter into any material agreement, arrangement or
commitment other than in the ordinary course of business, including,
without limitation, any contract, agreement or understanding with a
labor union;
(m) change its underwriting, trading, investment banking,
sales, investment or asset liability management policies in any
material respect, except as may be required by applicable law,
regulation or directive;
(n) change its method of accounting as in effect at December
31, 1996 or change any of its methods of reporting income and
deductions for federal income tax purposes from those employed in
preparation of its federal income tax return for the year ended
December 31, 1996, except as required by changes in law or regulation;
(o) incur any capital expenditures or obligation to make
capital expenditures in excess of $50,000 for any one expenditure or
$250,000 in the aggregate;
(p) incur any indebtedness, liability or obligations other
than in the ordinary course of business;
(q) take any action that would or might be expected to (i)
cause the Merger not to constitute a reorganization under Section 368
of the Code as determined by BB&T, (ii) result in any representation or
warranty contained in the Reorganization Agreement to be untrue in any
material respect, or (iii) cause any of the conditions precedent to the
Merger to fail to be satisfied; or
(r) agree to do any of the foregoing.
TERMINATION
The Reorganization Agreement may be terminated and the Merger abandoned
at any time prior to the effective date of the Merger by the mutual written
consent of BB&T and Craigie. In addition, either BB&T or Craigie may terminate
the Reorganization Agreement at any time prior to the effective date of the
Merger if: (a) any court or governmental or regulatory agency issues any order,
writ, injunction or decree binding on Craigie or BB&T that prohibits or
restrains Craigie or BB&T from consummating the Merger; (b) the closing has not
occurred by October 1, 1997, for any reason other than the delay or
nonperformance of the parties seeking such termination, or other than failure to
receive approval from the Federal Reserve of Craigie as a subsidiary of BB&T as
described in Section 20 of the Glass-Steagall Act; (c) the closing has not
occurred by December 31, 1997 for any reason other than delay or nonperformance
of the party seeking termination; (d) any of certain approvals required for the
consummation of the Merger is denied and the time period for appeals and
requests for reconsideration has expired; or (e) the shareholders of Craigie do
not approve the Merger at the Special Meeting.
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In addition, at any time prior to the effective date of the Merger,
BB&T may elect to terminate the Reorganization Agreement if the Closing Value is
less than $29.43. Also, either party may terminate the Reorganization Agreement
at any time prior to the effective date of the Merger if the other party fails
to perform in any material respect its covenants or agreements prior to the date
the Merger is closed or materially breaches any of its representations and
warranties contained in the Reorganization Agreement, and fails to cure such
breach within ten days after the nonbreaching party has notified the breaching
party of its intent to terminate the Reorganization Agreement.
If the Reorganization Agreement is terminated by either BB&T or
Craigie, the Reorganization Agreement will become void. Thereafter, there will
be no liability on the part of BB&T or Craigie other than, in either case, with
respect to (a) its obligations to protect the other party's confidential
information; (b) payment of its cost and expenses incurred in connection with
the transaction described herein; and (c) with respect to a party that has
caused the termination by failing to perform in any material respect its
covenants or agreements or by materially breaching any of its representations or
warranties contained in the Reorganization Agreement, any claims arising out of
any uncured breach of any such covenant, agreement, representation or warranty.
AMENDMENT AND WAIVER
BB&T and Craigie may amend or supplement the Reorganization Agreement
and the Plan of Merger at any time by mutual written agreement. Except with
respect to any required regulatory approval, BB&T and Craigie may at any time
extend the time for performance of any of the obligations or other acts of the
other party and may waive (a) any inaccuracies in the representations or
warranties of the other party contained in the Reorganization Agreement or in
any document delivered pursuant thereto; (b) compliance with any of the
covenants, undertakings or agreements of the other party, or satisfaction of any
of the conditions precedent to its obligations, contained in the Reorganization
Agreement or in the Plan of Merger; or (c) performance by the other party of any
of its obligations set out in the Reorganization Agreement. However, no such
extension or waiver, or amendment or supplement of the Reorganization Agreement
and the Plan of Merger executed after approval by the shareholders of Craigie
may reduce either the number of shares of BB&T Common Stock into which each
share of Craigie Common Stock will be converted in the Merger or the payment
terms for fractional shares.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Craigie's management have certain interests in the
Merger that are in addition to their interests as shareholders of Craigie
generally.
EMPLOYMENT AGREEMENTS
During the negotiation of the Reorganization Agreement, BB&T insisted
that certain officers of Craigie enter into employment agreements with Craigie
at or before the Effective Time. Previously, there have been no employment
contracts between Craigie and its officers. BB&T insisted that certain officers
enter into employment agreements to prevent such officers from later resigning
and competing with BB&T and Craigie. Accordingly, it is a condition to BB&T's
obligation to consummate the Merger that Craigie enter into employment
agreements with each of Messrs. Ferguson, West, Wright and Pugh (each
individually an "Executive" and collectively the "Executives") at the Effective
Time. The employment agreements provide for the employment of the Executives in
their current capacities until December 31, 2001, and will supersede any of
their existing employment agreements and change of control arrangements. No
other Craigie employees will be required to enter into employment agreements or
noncompetition agreements.
The employment agreement for each Executive, with the exception of Mr.
Wright, provides that the Executive will receive a minimum annual salary equal
to $200,000, subject to annual increases as may be determined by Craigie
management and the Craigie Board based on their assessment of the Executive's
performance and Craigie's performance generally. Mr. Wright's employment
agreement provides for a minimum annual salary of $325,000 until such time as
Craigie determines that his duties shall be primarily production, at which point
his minimum annual salary will be $237,500. Each Executive will participate in
any bonus or incentive plans for executives as Craigie and the Craigie Board may
adopt, except that after Mr. Wright's duties become primarily production he will
then be entitled to incentive pay consistent with and comparable to the
incentive pay then in effect for other production employees of Craigie. While
employed by Craigie, each Executive also will be entitled to receive those
employee pension and welfare benefits and
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group employee benefits as were in effect for the Executive in question
immediately before the Merger, except to the extent such benefits may be
prohibited or made impracticable by applicable law.
Each Executive's employment agreement provides that, if Craigie
terminates his employment other than by reason of death or disability or for
"Just Cause" (as defined below), the Executive will, if he complies with certain
noncompetition provisions, be entitled to receive an annual salary for the
remainder of what would otherwise have been the term of the employment agreement
equal to the average of the cash compensation (including cash bonuses and other
cash-based benefits earned or paid) received during the preceding three calendar
years ("Termination Compensation"). In addition, Craigie would use its best
efforts to accelerate vesting of any unvested benefits of the Executive under
any employee stock-based or other benefit plan or arrangement, to the extent
permitted by applicable law and the terms of such plan (except that rights to
any amounts payable pursuant to the Incentive Program will be governed by the
terms of such Program and will not be affected by the provisions of the
employment agreement). In addition, the Executive would continue to participate
in employee benefit plans or programs for which officers of Craigie generally
are eligible, on the same terms as were in effect prior to the Executive's
termination, for all periods during which the Executive receives Termination
Compensation.
Termination for "Just Cause" includes termination for the Executive's
personal dishonesty, gross incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, conviction of a
felony or of a misdemeanor involving moral turpitude, unethical business
practices in connection with Craigie's or BB&T's business, misappropriation of
Craigie's or BB&T's assets (determined on a reasonable basis) or those of their
affiliates, or material breach of any other provision of the employment
agreement, if the Executive has received written notice from Craigie of the
material breach and the breach remains uncured 30 days after the delivery of
such notice. In the event the Executive's employment under his employment
agreement is terminated for Just Cause, the Executive will have no right to
receive compensation or other benefits under the agreement for any period after
the termination.
In the event of a Change of Control (as defined below) of Craigie or
BB&T during the term of an Executive's employment agreement and the voluntary
termination of his employment with Craigie for Good Reason (as defined below) at
any time during the 24 months following such Change of Control, the Executive
would be entitled to receive a lump sum payment, in lieu of any other amounts
payable under his employment agreement, equal to any compensation due but not
yet paid plus twice the amount of his Termination Compensation. In addition, the
Executive would be entitled to continue to participate in the employee benefit
plans or programs for which officers of Craigie generally are eligible, or
comparable plans or coverage, for a period of two years following termination of
employment, on the same terms as were in effect either (a) at the date of such
termination or (b) if such plans and programs in effect prior to the Change of
Control were, considered together as a whole, materially more generous to the
officers of Craigie, then at the date of the Change of Control. Any such
benefits would be paid by Craigie to the same extent as they were so paid prior
to the termination or the Change of Control, as the case may be.
A "Change of Control" will be deemed to have occurred if: (a) any
person or group (as defined in Section 13(d) and 14(d) of the Exchange Act) of
persons, other than BB&T or its affiliates or their employee benefit plans, is
or becomes the beneficial owner of securities of BB&T or Craigie representing
20% or more of the combined voting power of such corporation's then outstanding
securities; (b) as a result of any tender offer, exchange offer, proxy contest,
merger, consolidation or sale of assets, individuals who at the beginning of any
two-year period constitute the BB&T Board, plus new directors whose election is
approved by at least two-thirds of the directors still in office who were
directors at the beginning of such two-year period, cease for any reason to
constitute at least two-thirds of the members of the BB&T Board; (c) the
shareholders of BB&T approve a merger or consolidation involving BB&T that
results in the shareholders of BB&T having less than 60% of the voting power of
the combined entity; (d) the shareholders of BB&T approve a plan of complete
liquidation of BB&T or an agreement for the sale or disposition of all or
substantially all of BB&T's assets; or (e) any other event occurs that the BB&T
Board determines to be a change of control. "Good Reason" is defined as: (a) the
assignment to the Executive of duties inconsistent with the position and status
provided for in the employment agreement; (b) a reduction by Craigie in the
Executive's base annual salary below the minimum annual salary provided for in
the employment agreement, or the exclusion of the Executive from participation
in benefit
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plans in which he previously participated; (c) an involuntary relocation of the
Executive more than 100 miles from Richmond, Virginia; or (d) the breach by
Craigie of any material provision of the employment agreement.
INCENTIVE PROGRAM
Immediately following the Effective Time, and as provided in the
Reorganization Agreement, BB&T will cause Craigie to establish the Incentive
Program. The Incentive Program will provide for the creation of a bonus pool
(the "Pool"), a portion of which will be distributed each calendar year through
2001 (with 1997 pro-rated from the Closing Date and included with 1998) to
Craigie employees who were also shareholders of Craigie immediately before the
Effective Time (the "Plan Participants"), including members of
Craigie management, if "Net Income" (as defined below) for such year meets or
exceeds certain goals. The Pool will be equal to 45% of the "Tangible Book
Value" (as defined below) of Craigie on the day preceding the effective date of
the Merger or, as estimated by Craigie Management, approximately $8,550,000
if the Closing Date is October 1, 1997. At the end of each year, a portion of
the Pool, determined by the extent to which the Net Income for such year equal
or exceeds 85% of the year's "Target Amount" (as described below), will be
distributed to the Plan Participants. No portion of the Pool will be
distributed to Plan Participants for any year in which Net Income is less than
85% of the Target Amount for such year. Each Plan Participant will receive a
set percentage of each year's distribution from the Pool based on his or her
beneficial ownership of Craigie Common Stock immediately before the Effective
Time. Sixty percent of the value of each Incentive Program distribution to Plan
Participants will consist of whole shares of BB&T Common Stock, with the
remainder in cash. The number of shares of BB&T Common Stock will be determined
using the closing price per share of BB&T Common Stock on the NYSE on the day
preceding the date of distribution. All distributions of cash from the Incentive
Program will be made as soon as practicable following determination of the Net
Income for each year, but in no event later than March 1 of the following year.
For each year, the portion of the Pool distributed to Plan Participants
will be calculated as follows: (a) if Net Income is at least 85% but less than
90% of the Target Amount for such year, 3.125% of the Pool will be distributed;
(b) if Net Income is at least 90% but less than 95% of the Target Amount, 6.25%
of the Pool will be distributed; (c) if Net Income is at least 95% but less than
100% of the Target Amount, 9.375% of the Pool will be distributed; and (d) if
the Net Income exceeds 100% of the Target Amount, 12.5% of the Pool will be
distributed. The Target Amount for each year will be calculated as follows: (a)
for 1998, the Target Amount will be the sum of (i) $1,993,000 multiplied by a
fraction, the numerator of which is the number of days in 1997 following the
Closing Date and the denominator of which is 365, plus (ii) $3,600,000; (b) for
1999, the Target Amount will be $3,896,000; (c) for 2000, the Target Amount will
be $4,246,000; and (d) for 2001, the Target Amount will be $4,595,000. For the
1999, 2000 and 2001, an additional portion of each such year's Pool will be
distributed to Plan Participants to the extent that less than 12.5% of the Pool
was distributed during preceding years, provided that the aggregate Net Income
for such year and all preceding years exceeds certain levels. In no event will
more than 12.5% of the Pool be distributed for any year.
Any Plan Participant whose employment with Craigie is terminated for
any reason will not participate in any distribution from the Pool for the year
during which such termination occurred or for any subsequent year, even if such
Plan Participant becomes reemployed by Craigie. If a Plan Participant loses the
right to participate in the Incentive Program, any interest in the Pool
allocable to such person will either be allocated to one or more new
participants named by the Craigie Board or be forfeited and eliminated from the
Pool. Plan Participants who die, become disabled or are terminated by Craigie
without fault will be entitled to receive a portion of the Pool for the year in
which such death, disability or termination occurs equal to the Plan
Participant's participation percentage in the amount distributable for such year
multiplied by a fraction, the numerator of which is the number of days in such
year through the date of such death, disability or termination, and the
denominator of which is the number of days in such year.
In the event of any material change in the corporate structure, key
personnel, revenue and expense structure, product offerings, nature of the
business, assets or liabilities of Craigie caused by BB&T or by the Craigie
Board, except if such changes are, in the exercise of good faith judgment,
deemed necessary to respond to changes generally occurring in other similarly
situated firms in Craigie's business, the criteria for earning and distributing
the Pool will be amended by the Craigie Board in good faith to provide the Plan
Participants with as much of a likelihood that they will receive the same
distributions from the Pool that they would have received if such change had not
been made. The plan also provides for immediate distribution of the entire Pool,
regardless of whether Craigie has obtained the requisite levels of Net Income
for the year in question or any other year, in the event of a change in control
of BB&T prior to December 31, 2001.
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"Tangible Book Value" means the shareholders' equity of Craigie
determined in accordance with generally accepted accounting principles
consistently applied, adjusted to include any unrealized gains or losses on
marketable securities held by Craigie and to eliminate good will and other
intangible assets.
"Net Income" means Craigie's net income before taxes, adjusted as
follows: (a) to eliminate the effect of any interest charged by BB&T on the
books of Craigie related to the Merger; (b) to eliminate the effect of all
charges and expenses incurred in complying with Section 20 of the Glass-Steagall
Act; (c) to eliminate the effect of any revenues allocated by BB&T to Craigie to
insure compliance with Section 20 of the Glass-Steagall Act, and any positive or
negative spread on matched book positions established to insure compliance with
Section 20 of the Glass-Steagall Act; (d) to eliminate goodwill expense; (e) to
eliminate from expense the amount of $87,500 per Plan Year (prorated for any
portion of a calendar year) during the period that Mr. Wright receives minimum
annual salary of $325,000 pursuant to his employment agreement (see
"--Employment Agreements"); and (f) subject to periodic review and change by the
Craigie Board if it determines that a change is advisable to be fair to Craigie
and to the Plan Participants, to eliminate 50% of the revenues minus expenses
attributable to any unsolicited orders placed by BB&T and its affiliates for
securities, loans or other instruments to be placed in their own investment
portfolios.
INDEMNIFICATION AGREEMENT
Pursuant to the Indemnification Agreement, the current directors and
executive officers of Craigie have agreed to indemnify and hold harmless BB&T
with respect to certain potential losses arising from activities of Craigie
prior to the Merger. The Indemnification Agreement requires that shares of BB&T
Common Stock to be issued to those individuals in the Merger with an estimated
aggregate value of $1.34 million will be placed in escrow for up to two years as
the sole means by which the indemnification obligations may be satisfied.
Craigie is not a party to the Indemnification Agreement, nor does Craigie or any
other shareholder of Craigie have any obligation under the Indemnification
Agreement.
DISSENTERS' RIGHTS
Under Virginia law, holders of Craigie Common Stock who do not vote in
favor of the Reorganization Agreement and the Plan of Merger and who comply with
certain notice requirements and other procedures will have the right to dissent
and to be paid cash for the "fair value" of their shares. The "fair value" of
Craigie Common Stock may be more or less than the consideration to be received
by other shareholders of Craigie under the terms of the Reorganization Agreement
and the Plan of Merger. Failure to follow such procedures precisely may result
in loss of dissenters' rights. It is a condition to BB&T's obligation to effect
the Merger that the holders of no more than 10% of the Craigie Common Stock may
dissent from the Merger. See "--The Reorganization Agreement--Conditions to the
Merger."
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO DISSENTERS' RIGHTS UNDER THE VSCA AND IS QUALIFIED IN ITS ENTIRETY
BY THE FULL TEXT OF TITLE 13.1, CHAPTER 9, ARTICLE 15 OF THE VIRGINIA CODE
("ARTICLE 15"), WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX II TO THIS PROXY
STATEMENT/PROSPECTUS.
A record shareholder may assert dissenters' rights as to fewer than all
the shares of Craigie Common Stock registered in his name only if he dissents
with respect to all shares beneficially owned by any one person and notifies
Craigie in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter will be determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders. A beneficial owner may assert dissenters'
rights as to shares of Craigie Common Stock held on his behalf only if he: (a)
submits to Craigie the record shareholder's written consent to the dissent not
later than the time the beneficial shareholder asserts dissenters' rights and
(b) asserts dissenters' rights with respect to all shares of which he is the
beneficial owner.
A holder of shares of Craigie Common Stock wishing to exercise
dissenters' rights (a) must give Craigie written notice of the holder's intent
to demand payment for his shares if the Merger is consummated and (b) must not
vote his shares in favor of the Merger. If the Reorganization Agreement is
approved by holders of the requisite number of
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outstanding shares of Craigie Common Stock, Craigie will, no later than ten days
following the consummation of the Merger, mail a written dissenters' notice to
all of its shareholders who gave the aforementioned notice of intent to demand
payment. Such dissenters' notice will in each case: (a) state where the payment
demand must be sent and where and when certificates for certificated shares must
be deposited; (b) inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is received;
(c) supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
Merger and requires that the person asserting dissenters' rights to certify
whether he acquired beneficial ownership of the shares before or after the date;
(d) set a date by which the corporation must receive the payment demand, which
date may not be fewer than 30 nor more than 60 days after the date on which the
dissenters' notice is sent; and (e) be accompanied by a copy of Article 15. To
exercise his dissenters' rights, a shareholder sent a dissenters' notice must
demand payment, make the required certification as to when he acquired his
shares and deposit his share certificates in accordance with the terms of the
notice. A shareholder failing to do so will not be entitled to payment for his
shares under Article 15. A shareholder who demands payment and deposits his
share certificates in accordance with the terms of the notice will retain all
other rights of a shareholder until consummation of the Merger. All notices,
demands and other communications directed to Craigie in connection with the
appraisal process should be sent to Craigie at 823 East Main Street, Richmond,
Virginia 23219-3310, Attention: Secretary.
Upon receipt of a payment demand (a) by a shareholder who was the
beneficial owner of the shares on the date of the first publication by news
media or the first announcement to shareholders generally, whichever is earlier,
of the terms of the proposed Merger and (b) made in compliance with the
above-described procedures, Craigie will pay such shareholder the amount it
estimates to be the value of his shares, plus interest accrued to the date of
payment. Such payment will be accompanied by (a) Craigie's balance sheet as of
the fiscal year ended December 31, 1996, an income statement and a statement of
cash flows for that year and the latest available interim financial statements;
(b) an explanation of how Craigie estimated the fair value of the shares and how
the interest was calculated; (c) a statement of the dissenter's right to demand
payment if he is dissatisfied with Craigie's offer; and (d) a copy of Article
15. A shareholder entitled to payment as described in this paragraph may enforce
Craigie's obligation to make such payment in the circuit court in Richmond,
Virginia or the circuit court of the city or county in Virginia, if any, in
which the dissenter resides or has its principal office.
With respect to other dissenting shareholders, after the consummation
of the Merger Craigie will offer to pay its estimated fair value of the shares,
plus accrued interest, to each such dissenter who agrees to accept it in full
satisfaction of his demand. Craigie will send with its offer an explanation of
how it estimated the fair value of the shares and of how the interest was
calculated and a statement of the dissenter's right to demand payment as
described in the next paragraph.
If any dissenter believes that the amount paid or offered by Craigie is
less than the fair value of his shares, or that the interest due is incorrectly
calculated, the dissenter may notify Craigie in writing of his own estimate of
the fair value of his shares and amount of interest due and demand payment of
his estimate (less any amount already paid) or reject the corporation's offer
and demand payment of the fair value of his shares and interest due. A dissenter
will waive his right to demand payment as described in this paragraph unless he
notifies Craigie of his demand in writing within 30 days after Craigie made or
offered payment for his shares.
If a demand for payment as described above remains unsettled, Craigie
must commence a proceeding within 60 days after receiving the payment demand and
petition the court to determine the fair value of the shares and accrued
interest. If Craigie does not commence a proceeding within the 60-day period, it
must pay each dissenter whose demand remains unsettled the amount demanded.
A proceeding as described above would be commenced in the circuit court
in Richmond, Virginia. Craigie would make all dissenters, whether or not
Virginia residents, whose demands remain unsettled parties to the proceeding as
in an action against their shares and all parties would be served with a copy of
the petition. Craigie could join as a party to the proceeding any shareholder
who claimed to be a dissenter but who did not, in Craigie's opinion, comply
with the provisions of Article 15. If the court determined that such
shareholder had not complied with the provisions of Article 15, he would be
dismissed as a, party.
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The jurisdiction of the court in which the proceeding is commenced
would be plenary and exclusive. The court could appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The dissenters would be entitled to the same discovery rights as parties
in other civil proceedings. Each dissenter made a party to the proceeding would
be entitled to judgment (a) for the amount, if any, by which the court found
that the fair value of his shares, plus interest, exceeded the amount paid by
Craigie or (b) for the fair value, plus accrued interest, of his shares for
which the corporation elected to withhold payment as described above.
The court would assess the costs of a proceeding described above,
including the compensation and expenses of appointed appraisers, against
Craigie, except that the court could assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters did not act in good faith in demanding payment. With respect to
the fees and expenses of counsel and experts for the parties to the proceeding,
the court could assess such costs against (a) Craigie, and in favor of any or
all dissenters, if it finds that Craigie did not substantially comply with the
above-described procedures or (b) either Craigie or a dissenter, in favor of any
other party, if it finds that the party against whom such costs are assessed did
not act in good faith with respect to the dissenters' rights provided under
Article 15. In addition, if the court finds that the services of counsel to any
dissenter were of substantial benefit to other dissenters and that the costs of
such services should not be assessed against the corporation in question, the
court could award to such counsel reasonable fees to be paid out of the amounts
to the dissenters who were benefitted.
REGULATORY CONSIDERATIONS
Consummation of the Merger is conditioned on the receipt by BB&T and
Craigie of all necessary approvals by governmental regulatory agencies.
Consummation of the Merger is also conditioned on the expiration or termination
of the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. BB&T anticipates that the regulatory
approvals described herein will be obtained in time to allow for consummation of
the Merger on or about October 1, 1997, but there is no assurance that such
regulatory approvals will be obtained so as to permit consummation of the Merger
or that such approvals will not be conditioned upon matters that would cause the
parties to abandon the Merger. There likewise is no assurance that the U.S.
Department of Justice or a state attorney general will not challenge the Merger,
or if such challenge is made, as to the results thereof. See "--Conditions to
the Merger."
The Merger is subject to approval by the Federal Reserve under Section
4 of the Bank Holding Company Act and the Federal Reserve's implementing
regulation thereunder, Regulation Y. In considering a notice submitted in
connection with a transaction such as the Merger, the Bank Holding Company Act
requires that the Federal Reserve consider whether performance of the proposed
activity by a bank holding company or a subsidiary of such company can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. In
addition, because a transaction such as the Merger involves the acquisition of a
non-banking firm by a bank holding company, Regulation Y requires that
additional information be included in the notice, including evidence that the
proposed activity is so closely related to banking or managing or controlling
banks as to be a proper incident thereto, or, if the Federal Reserve previously
determined by order that the activity is permissible for a bank holding company
to conduct, a commitment to comply with all the conditions and limitations
established by the Federal Reserve governing the activity. Further, because a
transaction such as the Merger involves a bank holding company subsidiary that
will be engaged in securities underwriting and dealing activities, the Federal
Reserve requires that additional information be provided in the notice,
including information on revenues derived from such securities activities, in
order to determine whether the subsidiary following consummation of the
transaction will be in compliance with Section 20 of the Glass-Steagall Act.
Under the Federal Reserve's application of Section 20 of the Glass-Steagall Act,
no more than 25 percent of the gross revenues of the subsidiary may be derived
from underwriting or dealing in securities that member banks may not underwrite
or deal in. The bank holding company and the subsidiary also must submit to a
pre-approval examination by the Federal Reserve of the holding company's and the
subsidiary's ability to comply with certain restrictions and requirements, or
"firewalls," established by the Federal Reserve.
Applicable federal law provides for the publication of notice and
public comment on applications filed with the Federal Reserve, and permits the
Federal Reserve to allow interested parties to intervene in the proceedings. If
an
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interested party is permitted to intervene, such intervention could delay the
regulatory approvals required to consummate the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary description of certain anticipated federal
income tax consequences of the Merger to the shareholders of Craigie and to BB&T
and Craigie. This summary is not intended to be a complete description of all of
the federal income tax consequences of the Merger. No information is provided
with respect to the tax consequences of the Merger under any other tax laws,
including applicable state, local and foreign tax laws. In addition, the
following discussion may not be applicable with respect to certain specific
categories of shareholders, including but not limited to persons who are
corporations, trusts, dealers in securities, financial institutions, insurance
companies, or tax exempt organizations; persons who are not United States
citizens or resident aliens or domestic entities (partnerships or trusts);
persons who are subject to alternative minimum tax (to the extent that tax
affects the tax consequences of the Merger) or are subject to the "golden
parachute" provisions of the Code (to the extent that tax affects the tax
consequences of the Merger); persons who acquired Craigie Common Stock pursuant
to employee stock options or otherwise as compensation if such shares are
subject to any restriction related to employment; persons who do not hold their
shares as capital assets; or persons who hold their shares as part of a
"straddle" or "conversion transaction." The federal income tax laws are complex,
and a shareholder's individual circumstances may affect the tax consequences to
the shareholder. Consequently, each Craigie shareholder is urged to consult his
or her own tax advisor regarding the tax consequences of the Merger. No ruling
has been or will be requested from the IRS with respect to the tax effects of
the Merger.
In the opinion of Womble Carlyle Sandridge & Rice, PLLC, counsel to
BB&T, upon consummation of the Merger in accordance with the Reorganization
Agreement, for federal income tax purposes: (a) the Merger will constitute a
reorganization under Section 368 of the Code; (b) no gain or loss will be
recognized by BB&T or Craigie by reason of the Merger; (c) the shareholders of
Craigie will recognize no gain or loss upon the receipt of BB&T Common Stock
solely in exchange for Craigie Common Stock; (d) a shareholder of Craigie
who receives cash in lieu of a fractional share of BB&T Common Stock will
recognize gain or loss as if the shareholder received the fractional share and
it was then redeemed for cash in an amount equal to the amount paid by BB&T in
respect of such fractional share; (e) the aggregate tax basis of the BB&T
Common Stock received by a shareholder (including any fractional share
interest deemed received) will be the same as the tax basis in the Craigie
Common Stock surrendered in exchange therefor; and (f) the holding period for
BB&T Common Stock received (including any fractional share interest deemed
received) in exchange for shares of Craigie Common Stock will include the period
during which the shareholder held the shares of Craigie Common Stock surrendered
in the exchange, provided that the Craigie Common Stock was held as a capital
asset at the Effective Time.
The receipt of cash for shares of Craigie Common Stock by a shareholder
pursuant to exercise of dissenters' rights under the VSCA will be a taxable
transaction. Any holder of Craigie Common Stock considering the exercise of such
rights should consult a tax advisor about the tax consequences of doing so.
The consummation of the Merger is conditioned upon the receipt by BB&T
and Craigie of the legal opinion of Womble Carlyle Sandridge & Rice, PLLC,
counsel to BB&T, dated as of the Closing Date to the effect of items (a) and (c)
as described above.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for under the
purchase method of accounting, wherein BB&T will record the acquired
identifiable assets and liabilities assumed at the fair market value at the
time of consummation of the Merger. Any excess of the cost of Craigie and the
sum of the fair values of tangible and indentifiable intangible assets less
liabilities assumed will be recorded as goodwill. Any goodwill recorded is
expected to be amortized over of the period of expected benefit. BB&T's
reported income shall include the operations of Craigie after acquisition,
based on the cost of the transaction. Financial statements of BB&T issued
after consummation of the Merger would reflect the impact of Craigie. Financial
statements of BB&T issued after consummation of the Merger would not be
restated retroactively to reflect Craigie's historical financial position or
results of operations. The unaudited proforma financial information contained
in this Proxy Statement/Prospectus has been prepared using the purchase
accounting basis to account for the Merger.
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The pooling of interests method of accounting was used to reflect the
UCB Merger. As required by generally accepted accounting principles, under
pooling-of-interests accounting, as of the effective date of the UCB Merger, the
assets and liabilities of UCB were added to those of BB&T at their recorded book
values and the shareholders' equity accounts of BB&T and UCB were combined on
BB&T's consolidated balance sheet. On a pooling-of-interests accounting basis,
income and other financial statements of BB&T issued after consummation of the
UCB Merger are restated retroactively to reflect the consolidated combined
financial position and results of operations of BB&T and UCB as if the UCB
Merger had taken place prior to the periods covered by such financial
statements.
EFFECT ON EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS
There will be no immediate effects upon the employee benefit plans of
Craigie as a result of the Merger, and employees of Craigie will continue to
participate in such plans on the same basis as they did immediately prior to the
Effective Time. BB&T management may in the future determine that Craigie
employees may become eligible to participate in certain of the employee benefits
plans generally in effect for employees of BB&T and its other subsidiaries, but
it is not anticipated that any such determinations will be made until after the
Merger has occurred.
As of the Record Date, no options to purchase shares of Craigie
Common Stock were outstanding.
RESTRICTIONS ON RESALES BY AFFILIATES
All shares of BB&T Common Stock issuable in the Merger will be
registered under the Securities Act and will be freely transferable, except that
any such shares received by "Persons" who are deemed to be "Affiliates" (as such
terms are defined under the Securities Act) of Craigie at the Effective Time may
be resold by them only in transactions registered under the Securities Act or
permitted by the resale provisions of Rule 145 under the Securities Act or as
otherwise permitted by the Securities Act. Those who may be deemed Affiliates of
Craigie generally include individuals or entities that directly, or indirectly
through one or more intermediaries, control, are controlled by or are under
common control with Craigie and include certain executive officers and directors
of Craigie. The restrictions on resales by an Affiliate extend also to certain
related parties of the Affiliate, including spouse, relatives and spouse's
relatives who in each case have the same home as the Affiliate.
The Reorganization Agreement requires Craigie to cause each of its
Affiliates to deliver to BB&T a written agreement to the effect that such person
will not offer or otherwise dispose of any shares of BB&T Common Stock issued to
that person in the Merger except in compliance with applicable securities laws.
INFORMATION ABOUT BB&T
GENERAL
BB&T is a multi-bank holding company headquartered in Winston-Salem,
North Carolina. BB&T conducts 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 BB&T's loans are to
businesses and individuals in the Carolinas and Virginia. BB&T has no material
amount of foreign loans and no loans that can be defined as highly leveraged
transactions. BB&T's bank subsidiaries are BB&T-NC and UCB-NC, which are North
Carolina chartered banks; BB&T-SC and UCB-SC, which are South Carolina chartered
banks; BB&T-VA, a Virginia chartered bank; and FFSB, a federally chartered
savings bank. The principal assets of BB&T are all of the issued and outstanding
shares of common stock of BB&T-NC, UCB-NC and UCB-SC; BB&T Financial Corporation
of South Carolina, Greenville, South Carolina, which in turn owns all of the
issued and outstanding shares of BB&T-SC; and BB&T Financial Corporation of
Virginia ("BB&T Financial-VA"), Virginia Beach, Virginia, which in turn owns all
of the issued and outstanding shares of BB&T-VA and FFSB.
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SUBSIDIARIES
BB&T-NC, BB&T's largest subsidiary, is the oldest bank in North
Carolina and currently operates through 299 banking offices throughout North
Carolina. BB&T-NC provides 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 Corporation, a wholly owned subsidiary of BB&T-NC, located in Charlotte,
North Carolina, offers lease financing to commercial businesses and municipal
governments. BB&T Investment Services, Inc., also a wholly owned subsidiary of
BB&T-NC, located in Charlotte, North Carolina, offers customers investment
alternatives, including discount brokerage services, fixed-rate and
variable-rate annuities, mutual funds, and government and municipal bonds. BB&T
Insurance Services, Inc., located in Raleigh, North Carolina, is also a
subsidiary of BB&T-NC and offers life, property and casualty and title insurance
on an agency basis. Additional subsidiaries of BB&T-NC include Phillips Factors
Corporation, which buys and manages account receivables primarily in the
furniture, textiles and home furnishings-related industries; Sheffield Financial
Corp., which specializes in loans to small commercial lawn care businesses
across the country; 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 93 banking offices. BB&T-SC
provides 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.
BB&T-VA, formerly Commerce Bank, was acquired on January 10, 1995 by
BB&T Financial Corporation ("BB&T Financial") prior to the merger of BB&T
Financial with and into BB&T, which was then named Southern National
Corporation. BB&T-VA offers a full range of commercial and retail banking
services through 21 banking offices in the Hampton Roads region of Virginia.
FFSB was acquired on March 1, 1997, upon the merger of its parent
company, Fidelity Financial Bankshares Corporation ("FFBC"), with and into BB&T
Financial-VA. FFSB operates seven branch offices offering commercial and retail
banking services in the Richmond, Virginia area.
Regional Acceptance Corporation ("RAC"), of Greenville, North Carolina,
was acquired on September 1, 1996. RAC, which has 28 branch offices in North
Carolina, South Carolina, Tennessee and Virginia, specializes in indirect
financing for consumer purchases of mid-model and late-model used automobiles.
UCB MERGER
Effective July 1, 1997, UCB merged with and into BB&T. Each share of
UCB Common Stock issued and outstanding at the effective time of the UCB Merger
was converted into and exchanged for 1.135 shares of BB&T Common Stock (the "UCB
Exchange Ratio"). In addition, at the effective time, all rights with respect to
UCB Common Stock outstanding at the effective time pursuant to stock options
granted by UCB under the existing stock plans of UCB were converted into and
became rights with respect to BB&T Common Stock on a basis reflecting the UCB
Exchange Ratio. Approximately 27.7 million shares of BB&T Common Stock were
issued in the UCB Merger. The UCB Merger constituted a tax-free transaction
under the Code, and has been accounted for as a pooling of interests. It is
expected that UCB-NC, which operates 139 banking offices in North Carolina, and
UCB-SC, which operates 16 banking offices in South Carolina, will be merged
into BB&T-NC and BB&T-SC, respectively, during September 1997.
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OTHER ACQUISITIONS
BB&T's profitability and market share have been enhanced through both
internal growth and acquisitions during recent years. Specifically, BB&T has
expanded by both the acquisition of financial institutions (including thrift
institutions) and the purchase of deposits and assets from the Resolution Trust
Corporation in federally assisted transactions.
On March 1, 1997, BB&T completed the acquisition of FFBC, which was a
Virginia corporation that served as the holding company for FFSB, in a
transaction accounted for as a purchase. BB&T intends to effect the merger of
FFSB, which is currently a wholly owned subsidiary of BB&T Financial-VA, with
and into BB&T-VA not later than the first quarter of 1998.
On May 6, 1997, BB&T announced that it will acquire Virginia First
Financial Corporation ("VFFC"), of Petersburg, Virginia, in a transaction valued
at $148.4 million based on the closing price of BB&T Common Stock of $40.63 on
May 5, 1997. VFFC, with approximately $817 million in assets, operates 24
banking offices through its banking subsidiary, Virginia First Savings Bank, and
12 mortgage loan production centers in Virginia and Maryland under Virginia
First Mortgage. Its primary businesses are retail banking and mortgage banking.
The acquisition, which is subject to the approval of the shareholders of VFFC
and federal and state banking regulators, is expected to be completed by year
end.
BB&T expects to continue to take advantage of the consolidation of the
financial services industry by further developing its franchise through the
acquisition of financial institutions. Such acquisitions may entail the payment
by BB&T of consideration in excess of the book value of the underlying net
assets acquired, may result in the issuance of additional shares of BB&T capital
stock or the incurring of an additional indebtedness by BB&T, and could have a
dilutive effect on the per share earnings or book value of BB&T Common Stock.
Moreover, such acquisitions sometimes result in significant charges against
earnings, although cost savings, especially incident to in-market acquisitions,
also are frequently anticipated.
CAPITAL
The Federal Reserve has established a minimum requirement for a bank
holding company's ratio of capital to risk-weighted assets (including certain
off-balance-sheet activities, such as standby letters of credit) of 8%. At least
half of the total capital is required to be composed of common equity, retained
earnings, and qualifying perpetual preferred stock, less certain intangibles
("Tier 1 capital"). The remainder may consist of certain subordinated debt,
certain hybrid capital instruments and other qualifying preferred stock, and a
limited amount of the loan loss allowance ("Tier 2 capital" and, together with
Tier 1 capital, "total capital"). At June 30, 1997, BB&T's Tier 1 and total
capital ratios were 10.5% and 14.9%, respectively. Effective January 1, 1997,
with mandatory compliance as of January 1, 1998, the Federal Reserve also is
requiring certain bank holding companies that engage in trading activities to
adjust their risk-based capital to take into consideration market risk that may
result from movements in market prices of covered trading positions in trading
accounts, or from foreign exchange or commodity positions, whether or not in
trading accounts, including changes in interest rates, equity prices, foreign
exchange rates or commodity prices. Any capital required to be maintained
pursuant to these provisions may consist of new "Tier 3 capital" consisting of
certain short term subordinated debt. In addition, the Federal Reserve has
issued a policy statement, pursuant to which a bank holding company that is
determined to have weaknesses in its risk management processes or a high level
of interest rate risk exposure may be required, among other things, to hold
additional capital.
The Federal Reserve also 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% 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 from at least 100 to 200 basis points above the stated minimum. BB&T's
leverage ratio at June 30, 1997 was 7.3%. Bank holding companies experiencing
internal growth or making acquisitions are expected to maintain strong capital
positions substantially above the minimum supervisory levels without significant
reliance on intangible assets. Furthermore, the
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requirements indicate that the Federal Reserve will continue to consider a
"tangible Tier 1 leverage ratio" (deducting all intangibles) in evaluating
proposals for expansion or new activity.
The FDIC has adopted minimum risk-based and leverage ratio regulations
to which BB&T's bank subsidiaries are subject that are substantially similar to
those requirements established by the Federal Reserve described above. Under
federal banking laws, failure to meet the minimum regulatory capital
requirements could subject a banking institution to a variety of enforcement
remedies available to federal regulatory authorities, including, in the most
severe cases, the termination of deposit insurance by the FDIC and placing the
institution into conservatorship or receivership. The capital ratios of each of
BB&T's bank subsidiaries exceeded all minimum regulatory capital requirements as
of June 30, 1997.
DEPOSIT INSURANCE ASSESSMENTS
The deposits of each of BB&T's bank subsidiaries are insured by the
FDIC up to the limits set forth under applicable law. A majority of the deposits
of the banks are subject to the deposit insurance assessments of the Bank
Insurance Fund ("BIF") of the FDIC. However, approximately 40% of the deposits
of BB&T-NC and BB&T-SC (related to the banks' acquisition of various savings
associations) are subject to assessments imposed by the Savings Association
Insurance Fund ("SAIF") of the FDIC.
Pursuant to budget reconciliation legislation enacted in 1996, the FDIC
imposed a special assessment on SAIF- assessable deposits of 65.7 basis points
per $100 of SAIF-assessable deposits in order to increase the SAIF's net worth
to 1.25 percent of SAIF-insured deposits as of October 1, 1996. This special
assessment was applied by the FDIC to the amount of SAIF-assessable deposits
held by institutions as of March 31, 1995. Certain institutions that engaged in
thrift acquisitions, including BB&T-NC, received a 20 percent discount on the
assessment. As a result, the pre-tax impact of the special assessment on BB&T
was approximately $33 million, and was recorded as an expense as of September
30, 1996.
The FDIC also lowered the assessment rates for SAIF-insured deposits,
effective January 1, 1997, to the same levels as the assessment rates currently
applicable to BIF-insured deposits. Thus, for the semi-annual period beginning
January 1, 1997, the effective rate of assessments imposed on all FDIC deposits
for deposit insurance range from 0 to 27 basis points per $100 of insured
deposits, depending on the institution's capital position and other supervisory
factors, with a statutory minimum of $2,000. However, because the 1996
legislation requires that both SAIF-insured and BIF-insured deposits must pay a
pro rata portion of the interest due on the obligations issued by the Financing
Corporation, the FDIC is assessing BIF-insured deposits an additional 1.30 basis
points per $100 of deposits, and SAIF-insured deposits an additional 6.3 basis
points per $100 of deposits, in each case on an annualized basis, to cover those
obligations.
INFORMATION ABOUT CRAIGIE
GENERAL
Craigie, founded in 1929, is a regional investment banking firm with
headquarters in Richmond, Virginia and offices in Richmond and in Charlotte,
North Carolina. At June 30, 1997 Craigie had assets of $75.59 million and
stockholders' equity of $14.34 million. Craigie is engaged in the underwriting
and trading of municipal securities (both taxable and tax exempt), U.S.
government securities, corporate debt and equity securities and asset-
backed securities. Craigie's investment banking business principally is
focused on debt issuances for municipalities, universities and other public
entities, and small and mid-size businesses, with a lesser emphasis on
underwriting common stock offerings. Craigie had 88 employees at December 31,
1996.
Of Craigie's shareholders at the Record Date, 62 were current employees
of Craigie and two were former employees.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
Craigie has historically funded its assets with equity capital,
liabilities subordinated to the claims of general creditors, repurchase
agreements and short-term bank loans. At December 31, 1996 total stockholders'
equity was $13.81 million or 15.7% of total assets. Craigie's largest liability,
short term bank loans, amounted to $36.51 million, or 41.4% of total assets at
December 31, 1996, an increase of approximately $761,000 from December 31, 1995.
Short-term bank loans are secured by firm-owned securities held in inventory
accounts. Liabilities subordinated to the claims of general creditors consist of
convertible subordinated debentures held by officers of Craigie. The outstanding
balance of such debentures was $4.31 million at December 31, 1996, compared to
$2.06 million at December 31, 1995. The remaining funding was provided primarily
by short-term liabilities arising in the ordinary course of Craigie's business.
Craigie maintains lines of credit from established financial institutions
totaling $77 million, of which $36.51 million was outstanding as of December 31,
1996.
As set forth in the statement of cash flows for the year ended December
31, 1996, cash used in operations was $2.27 million. Cash of $45,000 was
provided by investing activities and $2.62 million was provided by financing
activities, resulting in an increase in cash of approximately $394,000. Of
particular note, was the issuance of subordinated notes which provided cash of
$2.28 million.
During 1996 Craigie's total assets increased by 12.2%
to $88.17 million from $78.57 million, primarily as a result of the
acquisition of the stock of three limited purpose entities (the "Finance
Subsidiaries") from the FDIC. Formerly the Finance Subsidiaries were
subsidiaries of depository institutions in receivership. The assets of
the Finance Subsidiaries consist primarily of mortgage backed securities
with a December 31, 1996 fair value of $10.45 million that collateralize
the Finance Subsidiaries' respective obligations to National Mortgage
Acceptance Corporation ("NMAC"), an affiliate of Craigie.
Craigie is registered with the Securities and Exchange Commission as
a broker dealer. Accordingly it is subject to SEC rules applicable to
broker-dealers and to rules promulgated by securities industry
self-regulatory agencies, such as the National Association of
Security Dealers, Inc. and the Municipal Securities Rulemaking Board.
As a member of the Philadelphia Stock Exchange, Craigie also is
subject to its rules and to a periodic examination of its broker-dealer
operations. Craigie is a member of the Securities Investors
Protection Corporation, which insures customer accounts of member broker-
dealers.
Craigie is subject to the net capital requirements of the Securities and
Exchange Commission, which are designed to measure the general financial
soundness and liquidity of broker-dealers. Craigie has consistently operated
well in excess of the minimum regulatory net capital requirements. At
December 31, 1996 Craigie's net capital $6.90 million exceeded the minimum
requirement by approximately $6.47 million.
Management believes that funds provided by earnings, combined with
its capital base and its present lines of credit will be adequate to meet
Craigie's financing needs for the foreseeable future.
Results of Operations
Introduction
Craigie's business is sensitive to conditions in the financial markets,
including the level of and changes in market interest rates, which affect the
financing and investing needs of Craigie's customers. Craigie's ability to
compete effectively against larger investment firms also requires an in depth
knowledge of its investment banking customer base, as well as purchasers of
debt and equity securities. Many of Craigie's activities have high operating
costs which do not decrease proportionately with reduced levels of activity.
While Craigie attempts to develop revenue sources which are less sensitive to
financial market conditions, its profitability is adversely affected by
sustained periods of reduced transaction volume. Craigie's profitability
is also adversely affected when it is unable to compensate for
increases in fixed costs through increased transaction volume or
the pricing of its services.
The majority of Craigie's revenues consist of investment banking
fees and profits from trading securities. These two categories represented
77.7%, 78.7%, and 81.7% of total revenue in 1996, 1995 and 1994,
respectively. Investment banking fees are generated primarily from new
issue origination of tax-exempt debt securities, financial advisory fees,
private placements of debt and equity securities for corporations and merger
and acquisition advisory services. Investment banking fees, which
totaled $4.79 million in 1994, increased to $6.26 million in 1995 and
$7.55 million in 1996. Such fees can fluctuate significantly from year
to year. Profits from trading securities were more stable in the
three years ended December 31, 1996 ($7.17 million, $6.85 million
and $7.38 million in 1996, 1995 and 1994, respectively), and result primarily
from primary and secondary sales and trading of debt securities.
Other sources of revenue include commissions, which result primarily
from trading fixed income securities for customers, and interest and
dividends on marketable securities. Craigie's interest and dividend income
fluctuates with the amount of marketable securities held in inventory and with
levels of market interest rates.
The largest category of expense is employee compensation and benefits.
Compensation expense totaled $11.52 million in 1996, $10.89 million in 1995 and
$10.04 million in 1994, representing 65.0%, 65.0% and 67.6% of total expenses,
respectively. As Craigie's employees are compensated primarily on the amount and
profitability of business transacted, compensation expense increases and
decreases as total revenue increases and decreases.
Interest expense is Craigie's second largest category of expense,
totaling $1.54 million in 1994, $2.68 million in 1995 and
$2.82 million in 1996. The majority of Craigie's interest expense is
associated with short-term bank borrowings and securities sold under agreements
to repurchase, each of which is a source of funds for Craigie's portfolio
of marketable securities. Such interest expense varies with the size of
Craigie's securities portfolio and the level of market interest rates.
Because of the interdependence of various activities and departments of
Craigie's business, and the arbitrary assumptions which would be involved in
allocated overhead, including administrative, operations, communications and
data processing expenses, it is not appropriate to state a percentage
contribution to net income of each aspect of Craigie's operations.
Six Months Ended June 30, 1997 Compared with Six Months Ended June 30, 1996
Net income for the six months ended June 30, 1997 was $305,000, compared
to a net loss of $371,000 for the same period in 1996. Total revenues increased
modestly to $7.82 million in 1997 from $7.71 million in 1996, an increase of
1.4%. Investment banking revenues increased $529,000, or 21.3%, to $3.01 million
for the six months ended June 30, 1997 from $2.48 million for the same period
in 1996. The increase in investment banking revenues was largely offset by a
$377,000 or 10.9% decrease in profits from trading securities. Commissions
increased $105,000, or 23.1%, while interest and dividends and other revenue
decreased $55,000 and $93,000, respectively, in the six months ended June 30,
1997, compared to the same period in 1996.
The principal reason for the increase in net income was an $820,000
decline in operating expenses, resulting from a $760,000, or 14.0%, decline in
compensation and benefits in the six months ended June 30, 1997, compared to the
same period in 1996. The principal reason for the decline in compensation and
benefits in the six months ended June 30, 1997 was a change in the method of
matching employee contributions to Craigie's 401(k) plan.
Total assets declined to $75.59 million at June 30, 1997, compared to
$89.71 million at June 30, 1996 and $88.17 million at December 31, 1996. The
decline in total assets does not reflect any change in Craigie's business, as
marketable securities and total assets can fluctuate significantly from day to
day, depending on whether customers are net buyers or net sellers of securities.
1996 Compared With 1995
Craigie enjoyed increased revenues and profits in 1996 as a result of
generally favorable debt and equity market conditions, an increase in investment
banking fees and the acquisition of the Finance Subsidiaries. Net income in 1996
was $1.22 million, compared to approximately $108,000 in 1995, as a $2.28
million increase in total revenue more than offset an approximate $955,000
increase in total expense.
Total revenue in 1996 was $18.94 million, a 13.7% increase over $16.66
million for 1995. Revenues increased in each revenue category, led by a $1.29
million, or 20.7%, increase in revenues from investment banking activities. The
$1.29 million increase in revenues from investment banking activities reflected
an increase in the number of private placements of debt and equity securities
and two significant merger advisory fees. Increases in profits from trading
securities and interest and dividend income (approximately $319,000 and $88,000,
respectively) also contributed to Craigie's increased profitability in 1996.
Results of operations in 1996 also benefited from the acquisition of the Finance
Subsidiaries. In connection with the acquisition, approximately $1,047,000 was
recorded as negative goodwill, of which approximately $548,000 was amortized and
included in other revenues in 1996.
1995 Compared With 1994
In 1995 total revenue was $16.66 million, an 11.9% increase over the
$14.89 million recorded in 1994. However, Craigie's net income declined to
approximately $108,000 in 1995 from approximately $470,000 in 1994. In 1995
increases in expenses, primarily compensation expense and interest expense
exceeded the increase in total revenue, resulting in a decrease in net income.
The $1.77 million increase in 1995 revenue, compared to 1994 resulted
primarily from an increase in investment banking fees, which increased from
$4.79 million in 1994 to $6.26 million in 1995, an increase of 30.5%. Profits
from trading securities declined to $6.85 million in 1995 from $7.38 million
in 1994, while interest and dividend income increased to $2.56 million in
1995 from $1.86 million in 1994.
Expenses increased from $14.86 million in 1994 to $16.75 million in
1995, an increase of $1.89 million, or 12.7%, that exceeded the $1.77
million increase in total revenue. The increase in expenses in 1995
resulted from increases in employee compensation and benefits ($853,000)
and interest expense ($1.14 million). The increase in employee compensation
and benefits resulted primarily from hiring additional professional
personnel in the sales and trading and investment banking areas, while
the increase in interest expense resulted primarily from funds borrowed
to finance a $6.97 million repurchase of common stock in 1995.
BUY-SELL AGREEMENT
A buy-sell agreement among Craigie and all of its shareholders provides
that Craigie may redeem the shares of Craigie Common Stock held by any
shareholder who dies or otherwise terminates employment with Craigie at a
price per share equal to 1.15 times the book value per share of Craigie
Common Stock at that time. In addition, any shareholder desiring to transfer
any shares of Craigie Common Stock must first offer them to Craigie, and, if
Craigie does not elect to purchase them, to the other shareholders of Craigie,
for purchase at such price. This buy-sell agreement will terminate at the
Effective Time.
OWNERSHIP OF CRAIGIE COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of the Record Date
regarding the number of shares of Craigie Common Stock beneficially owned by all
directors and by all directors and executive officers as a group. For the
purpose of this table, beneficial ownership has been determined in accordance
with the provisions of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), under which, in general, a person is deemed to be
a beneficial owner of a security if he has or shares the power to vote or direct
the voting of the security
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or the power to dispose or direct the disposition of the security, or if he has
the right to acquire beneficial ownership of the security within 60 days.
<TABLE>
<CAPTION>
Common Stock Percent of
Name Beneficially Owned (1) Class
<S> <C> <C>
Directors
Allen Mead Ferguson 165,461 17.44
John T. West, IV 152,734 16.10
George Pugh 146,878 15.48
John Blair 104,533 11.02
William Reynolds 86,959 9.16
Peter Shea 55,337 5.77
Melvin J. Harley, Jr. 46,551 4.85
John B. Jung, Jr. 40,000 4.17
Bradley Smallwood 35,265 3.68
James Alexander 30,000 3.13
Arnold Brown 26,947 2.76
Joseph M. Lowry, Jr. 26,365 2.75
John Wright 26,334 2.76
John Garth 23,806 2.47
Jonathan Wallace 21,217 2.20
Merlin Grim 17,754 1.84
William T. Clarke, Jr. 16,253 1.69
Directors and Executive Officers as a group (17
persons) 1,021,944 94.11
</TABLE>
(1) Includes shares of Craigie Common Stock that may be acquired upon the
conversion at any time of convertible debentures, as follows: Messrs. Shea,
Harley, Jung, Smallwood, Alexander, Brown and Lowry, 10,455 shares each; Mr.
Wright, 5,227 shares; Messrs. Garth and Wallace, 16,379 shares each; and Mr.
Clarke, 10,492 shares.
DESCRIPTION OF BB&T CAPITAL STOCK
GENERAL
The authorized capital stock of BB&T consists of 300,000,000 shares of
BB&T Common Stock and 5,000,000 shares of preferred stock, par value $5.00 per
share (the "BB&T Preferred Stock"). As of June 30, 1997, there were 135,418,510
shares of BB&T Common Stock issued and outstanding (as restated to reflect the
issuance of shares in the UCB Merger). There were no shares of BB&T Preferred
Stock issued and outstanding as of such date, although 2,000,000 shares of BB&T
Preferred Stock have been designated as Junior Participating Preferred Stock
(the "BB&T Junior Preferred Stock") and are reserved for issuance in connection
with BB&T's shareholder rights plan. See "-- Shareholder Rights Plan." Based on
the number of shares of Craigie Common Stock anticipated to be outstanding at
the Effective Time, if the Closing Value is $51.25, it is estimated that
approximately 450,000 shares of BB&T Common Stock would be issued in the Merger.
BB&T COMMON STOCK
Each share of BB&T Common Stock is entitled to one vote on all matters
submitted to a vote at any meeting of shareholders. Holders of BB&T Common Stock
are entitled to receive dividends when, as, and if declared by the Board of
Directors of BB&T (the "BB&T Board") out of funds legally available therefor
and, upon liquidation, to receive pro rata all assets, if any, of BB&T available
for distribution after the payment of necessary expenses and all prior claims.
Holders of BB&T Common Stock have no preemptive rights to subscribe for any
additional securities of any class that BB&T may issue, nor any conversion,
redemption or sinking fund rights. Holders of BB&T Common Stock have no right to
cumulate votes in the election of directors. The rights and privileges of
holders of BB&T Common Stock are subject to any preferences provided for by
resolution of the BB&T Board for any series of BB&T Preferred
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Stock that BB&T may issue in the future. The terms of the BB&T Junior Preferred
Stock reserved for issuance in connection with the Rights Agreement provide that
holders of such shares shall have rights and privileges that are substantially
identical to those of holders of BB&T Common Stock.
The transfer agent and registrar for BB&T Common Stock is BB&T-NC. BB&T
intends to apply for the listing on the NYSE, subject to official notice of
issuance, of the shares of BB&T Common Stock to be issued in the Merger.
BB&T PREFERRED STOCK
Under the BB&T Articles, BB&T may issue shares of BB&T Preferred Stock
in one or more series as may be determined by the BB&T Board or a duly
authorized committee. The BB&T Board or committee may also establish, from time
to time, the number of shares to be included in each series and may fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof, and may increase or
decrease the number of shares of any series without any further vote or action
by the shareholders. Any BB&T Preferred Stock issued may rank senior to the BB&T
Common Stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up of BB&T, or both. In addition, any shares
of BB&T Preferred Stock may have class or series voting rights. Under certain
circumstances, the issuance of BB&T Preferred Stock or the existence of the
unissued BB&T Preferred Stock may tend to discourage or render more difficult a
merger or other change in control of BB&T. See "--Shareholder Rights Plan."
SHAREHOLDER RIGHTS PLAN
BB&T has adopted a shareholder rights plan pursuant to which holders of
shares of BB&T Common Stock also hold rights to purchase securities or other
property that may be exercised upon the occurrence of certain "triggering
events." Shareholder rights plans such as BB&T's plan are intended to encourage
potential hostile acquirors of a "target" corporation to negotiate with the
board of directors of the target corporation in order to avoid occurrence of the
"triggering events" specified in such plans. Shareholder rights plans are
intended to give the directors of a target corporation the opportunity to assess
the fairness and appropriateness of a proposed transaction in order to determine
whether or not it is in the best interests of the corporation and its
shareholders. Notwithstanding these purposes and intentions of shareholder
rights plans, such plans, including that of BB&T, could have the effect of
discouraging a business combination that shareholders believe to be in their
best interests. The provisions of BB&T's shareholder rights plan are discussed
below.
On December 17, 1996, the BB&T Board declared a dividend distribution
of one right (a "Right," and collectively the "Rights") for each outstanding
share of BB&T Common Stock to shareholders of record at the close of business on
January 17, 1997. One Right will also be distributed for each share of BB&T
Common Stock issued between January 17, 1997 and the occurrence of a
"Distribution Date" (described in the next paragraph). Each Right entitles the
registered holder to purchase from BB&T a unit consisting of one-hundredth of a
share (a "Unit") of BB&T Junior Preferred Stock at a Purchase Price of $145.00
per Unit, subject to adjustment, or, under certain circumstances, other
securities or property. The description and terms of the Rights are set forth in
the Rights Agreement, dated as of December 17, 1996, between BB&T and BB&T-NC in
the capacity of Rights Agent (the "Rights Agreement").
Initially, the Rights will be attached to all BB&T Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. A "Distribution Date" will occur, and the
Rights will separate from shares of BB&T Common Stock, upon the earliest of (a)
10 business days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of BB&T Common Stock (the "Stock Acquisition Date"), (b) 10
business days following the commencement of a tender offer or exchange offer
that would if consummated result in a person or group beneficially owning 20% or
more of such outstanding shares of BB&T Common Stock or (c) 10 business days
after the BB&T Board declares any Person to be an "Adverse Person," as described
in the following paragraph.
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The BB&T Board will declare a person to be an Adverse Person upon its
determinations (a) that such person, alone or together with its affiliates and
associates, has or will become the beneficial owner of 10% or more of the
outstanding shares of BB&T Common Stock (provided that any such determination
will not be effective until such person has in fact become the beneficial owner
of 10% or more of the outstanding shares of BB&T Common Stock) and (b) following
consultation with such persons as the BB&T Board deems appropriate, that (i)
such beneficial ownership by such person is intended to cause, is reasonably
likely to cause or will cause BB&T to repurchase the BB&T Common Stock
beneficially owned by such person or to cause pressure on BB&T to take action or
enter into a transaction or series of transactions intended to provide such
person with short-term financial gain under circumstances where the BB&T Board
determines that the best long-term interests of BB&T and its shareholders would
not be served by taking such action or entering into such transactions or series
of transactions at that time or (ii) such beneficial ownership is causing or is
reasonably likely to cause a material adverse impact (including, but not limited
to, impairment of relationships with customers or impairment of BB&T's ability
to maintain its competitive position) on the business or prospects of BB&T or
(iii) such beneficial ownership otherwise is determined to be not in the best
interests of BB&T and its shareholders, employees, customers and communities in
which BB&T and its subsidiaries do business.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on December 31, 2006, subject to extension by
the BB&T Board, or unless earlier redeemed by BB&T as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of BB&T Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except for certain issuances in
connection with outstanding options and convertible securities and as otherwise
determined by the BB&T Board, only shares of BB&T Common Stock issued prior to
the Distribution Date will be issued with Rights.
In the event that the BB&T Board determines that a person is an Adverse
Person or, at any time following the Distribution Date, a person becomes the
beneficial owner of 25% or more of the then-outstanding shares of BB&T Common
Stock, each holder of a Right will thereafter have the right to receive at the
time specified in the Rights Agreement, (a) upon exercise and payment of the
exercise price, BB&T Common Stock (or, in certain circumstances, cash, property
or other securities of BB&T) having a value equal to two times the exercise
price of the Right or (b) at the discretion of the BB&T Board, upon exercise and
without payment of the exercise price, BB&T Common Stock (or, in certain
circumstances, cash, property or other securities of BB&T) having a value equal
to the difference between the exercise price of the Right and the value of the
consideration that would be payable under clause (a). Notwithstanding any of the
foregoing, following the occurrence of any of the events set forth in this
paragraph, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person or Adverse
Person will be null and void. Rights will not become exercisable following the
occurrence of either of the events set forth above, however, until such time as
the Rights are no longer redeemable by BB&T as set forth below.
For example, at an exercise price of $145.00 per Right, each Right not
owned by an Acquiring Person or an Adverse Person (or by certain related
parties) following an event set forth in the preceding paragraph would entitle
its holder to purchase $290.00 worth of BB&T Common Stock (or other
consideration, as noted above) for $145.00. Assuming that the BB&T Common Stock
had a per share value of $72.50 at such time, the holder of each valid Right
would be entitled to purchase four shares of BB&T Common Stock for $145.00.
Alternatively, at the discretion of the BB&T Board, each Right following an
event set forth in the preceding paragraph, without payment of the exercise
price, would entitle its holder to BB&T Common Stock (or other consideration, as
noted above) worth $145.00.
In the event that, at any time following the Stock Acquisition Date,
(a) BB&T is acquired in a merger, statutory share exchange or other business
combination transaction in which BB&T is not the surviving corporation or (b)
50% or more of BB&T's assets or earning power is sold or transferred, each
holder of a Right (except Rights that previously have been voided as set forth
above) will thereafter have the right to receive, upon exercise, common stock of
the acquiring company having a value equal to two times the exercise price of
the Right. The Purchase Price payable, and the number of Units of BB&T Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution in the
event of certain events.
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In general, BB&T may redeem the Rights in whole, but not in part, at a
price of $0.01 per Right at any time until 10 business days following the
earlier of the Stock Acquisition Date or the effective date of any declaration
by the BB&T Board that any person is an Adverse Person. After the redemption
period has expired, BB&T's right of redemption may be reinstated if an Acquiring
Person or Adverse Person reduces his beneficial ownership to less than 10% of
the outstanding shares of BB&T Common Stock in a transaction or series of
transactions not involving BB&T and if there are no other Acquiring Persons or
Adverse Persons.
Other than those provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
BB&T Board prior to the Distribution Date. After the Distribution Date, the
provisions of the Rights Agreement may be amended by the BB&T Board in order to
cure any ambiguity, to make changes that do not adversely affect the interests
of holders of Rights (excluding the interests of any Acquiring Person or Adverse
Person) or to shorten or lengthen any time period under the Rights Agreement;
provided, however, that no amendment to adjust the time period governing
redemption may be made when the Rights are not redeemable.
The Rights Agreement is filed as an exhibit to a Registration Statement
on Form 8-A dated January 10, 1997 that has been filed by BB&T with the
Commission. Such registration statement and the Rights Agreement are
incorporated by reference in this Prospectus, and reference is made thereto for
the complete terms of the Rights Agreement and the Rights. The foregoing
discussion is qualified in its entirety by reference to the Rights Agreement.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
CERTAIN PROVISIONS OF THE NCBCA, BB&T ARTICLES AND BB&T BYLAWS
Certain provisions of the NCBCA, the BB&T Articles and the BB&T Bylaws
deal with matters of corporate governance and the rights of shareholders.
Certain of these provisions, as well as the ability of the BB&T Board to issue
shares of BB&T Preferred Stock and to set the voting rights, preferences and
other terms thereof, may be deemed to have an anti-takeover effect and may delay
or prevent takeover attempts not first approved by the BB&T Board. These
provisions also could delay or deter the removal of incumbent directors or the
assumption of control by shareholders. BB&T believes that these provisions are
appropriate to protect the interests of BB&T and all of its shareholders. The
following describes the principal provisions of the NCBCA applicable to BB&T,
the BB&T Articles and BB&T Bylaws that may be deemed to have anti-takeover
effects.
CONTROL SHARE ACT
The Control Share Acquisition Act of the NCBCA may make an unsolicited
attempt to gain control of BB&T more difficult by restricting the right of
certain shareholders to vote newly acquired large blocks of stock. For a
description of this statute, see "COMPARISON OF SHAREHOLDERS'
RIGHTS--Anti-takeover Statutes."
PROVISIONS REGARDING THE BB&T BOARD
The provisions of the BB&T Articles and the BB&T Bylaws with respect to
the classification of the BB&T Board and the removal of directors only for cause
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, control of BB&T. For a
description of such provisions, see "COMPARISON OF SHAREHOLDERS'
RIGHTS--Directors."
MEETING OF SHAREHOLDERS; SHAREHOLDERS' NOMINATIONS AND PROPOSALS
Under the BB&T Bylaws, meetings of the shareholders may be called by
the Chief Executive Officer or the BB&T Board. Shareholders of BB&T may not
request that a special meeting of shareholders be called. This provision could
have the effect of delaying until the next annual shareholders' meeting
shareholder actions that are favored by the holders of a majority of the
outstanding voting securities of BB&T.
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Certain procedures governing the submission of nominations for
directors and other proposals by stockholders may have some deterrent on
shareholder actions designed to result in change of control in BB&T. See
"COMPARISON OF SHAREHOLDERS' RIGHTS--Notice of Shareholder Nominations and
Shareholder Proposals."
COMPARISON OF SHAREHOLDERS' RIGHTS
At the Effective Date, holders of Craigie Common Stock (other than
dissenting shareholders) will become shareholders of BB&T. The following is a
summary of material differences between the rights of holders of BB&T Common
Stock and holders of Craigie Common Stock. Since BB&T is organized under the
laws of North Carolina and Craigie is organized under the laws of the
Commonwealth of Virginia, differences in the rights of holders of BB&T Common
Stock and those of holders of Craigie Common Stock arise from differing
provisions of the NCBCA and the VSCA in addition to differing provisions of
their respective articles of incorporation and bylaws.
The following summary does not purport to be a complete statement of
the provisions affecting, and differences between, the rights of holders of BB&T
Common Stock and holders of Craigie Common Stock. The identification of specific
provisions or differences is not meant to indicate that other equally or more
significant differences do not exist. This summary is qualified in its entirety
by reference to the NCBCA and VSCA and the governing corporate instruments of
BB&T and Craigie, to which the shareholders of Craigie are referred.
AUTHORIZED CAPITAL STOCK
BB&T
BB&T's authorized capital stock consists of 300,000,000 shares of BB&T
Common Stock and 5,000,000 shares of BB&T Preferred Stock. The BB&T Articles
authorize the BB&T Board to issue shares of BB&T Preferred Stock in one or more
series and to fix the designation, powers, preferences, and rights of the shares
of BB&T Preferred Stock in each such series. As of June 30, 1997, 135,418,510
shares of BB&T Common Stock were outstanding (as restated to reflect the
issuance of shares in the UCB Merger). No shares of BB&T Preferred Stock were
issued and outstanding as of such date, although 2,000,000 shares of BB&T
Preferred Stock have been designated as BB&T Junior Preferred Stock and are
reserved for issuance in connection with BB&T's shareholder rights plan. See
"DESCRIPTION OF BB&T CAPITAL STOCK--Shareholder Rights Plan."
CRAIGIE
Craigie's authorized capital stock consists of 2,400,000 shares of
Craigie Common Stock. As of the Record Date, 948,933 shares of Craigie Common
Stock and no shares of Craigie Preferred Stock were outstanding. Debentures
convertible into an additional 309,690 shares of Craigie Common Stock were
also outstanding at such time.
DIRECTORS
BB&T
The BB&T Articles and the BB&T Bylaws provide for a board of directors
having not less than three nor more than 30 members as determined from time to
time by vote of a majority of the members of the BB&T Board or by resolution of
the shareholders of BB&T. Currently, the BB&T Board consists of twenty-five
directors. The BB&T Board is divided into three classes, with directors serving
staggered three-year terms. Under the BB&T Articles and the BB&T Bylaws, BB&T
directors may be removed only for cause and only by the vote of a majority of
the outstanding shares entitled to vote in the election of directors. Holders of
BB&T Common Stock do not have cumulative voting rights in the election of
directors.
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CRAIGIE
The Craigie Articles and the Craigie Bylaws provide for a board of
directors of 17 members. Under the VSCA, a Craigie director may be removed by
the shareholders, with or without cause, at a special shareholders' meeting.
Holders of Craigie Common Stock do not have cumulative voting rights in the
election of directors.
DIVIDENDS AND OTHER DISTRIBUTIONS
BB&T
The NCBCA prohibits a North Carolina corporation from making any
distributions to shareholders, including the payment of cash dividends, that
would render it insolvent or unable to meet its obligations as they become due
in the ordinary course of business. BB&T is not subject to other express
regulatory restrictions on payments of dividends and other distributions. The
ability of BB&T to pay distributions to the holders of BB&T Common Stock will
depend, however, to a large extent upon the amount of dividends its bank
subsidiaries, which are subject to restrictions imposed by regulatory
authorities, pay to BB&T. In addition, the Federal Reserve could oppose a
distribution by BB&T if it determined that such a distribution would harm BB&T's
ability to support its bank subsidiaries. There can be no assurances that
dividends will be paid in the future. The declaration, payment and amount of any
such future dividends would depend on business conditions, operating results,
capital, reserve requirements and the consideration of other relevant factors by
the BB&T Board.
CRAIGIE
The VSCA prohibits a Virginia corporation from making any distributions
to shareholders, including the payment of cash dividends, that would render it
insolvent or unable to meet its obligations as they become due in the usual
course of business. Craigie is not subject to other express regulatory
restrictions on payments of dividends and other distributions.
NOTICE OF SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
BB&T
The BB&T Bylaws establish advance notice procedures for shareholder
proposals and the nomination, other than by or at the direction of the BB&T
Board or a committee thereof, of candidates for election as directors. The BB&T
Bylaws provide that a shareholder wishing to nominate a person as a candidate
for election to the BB&T Board must submit such nomination in writing to the
Secretary of BB&T not later than 60 days before one year after the date of the
immediately preceding Annual Meeting of Shareholders, together with biographical
information about the candidate and the shareholder's name and shareholdings.
Nominations not made in accordance with the foregoing provisions may be ruled
out of order by the presiding officer or the chairman of the meeting.
Similarly, a shareholder must notify the Secretary of BB&T in writing
not later than 60 days before one year after the date of the immediately
preceding Annual Meeting of Shareholders of the shareholder's intention to make
a proposal for consideration at the next Annual Meeting. The notice must
contain: (a) a brief description of the proposal, (b) the name and shareholdings
of the shareholder submitting the proposal and (c) any material interest of the
shareholder in such proposal.
CRAIGIE
The Craigie Bylaws do not establish any advance notice procedures for
shareholder proposals or the nomination of directors. Shareholder proposals and
director nominations may be considered as new business at annual shareholders'
meetings.
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EXCULPATION AND INDEMNIFICATION
BB&T
The NCBCA requires that a director of a North Carolina corporation
discharge his duties as a director (a) in good faith, (b) with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances and (c) in a manner he reasonably believes to be in the best
interests of the corporation. The NCBCA expressly provides that a director
facing a change of control situation shall not be subject to any different
duties or a higher standard of care. The BB&T Articles provide that, to the
fullest extent permitted by applicable law, no director of BB&T will have any
personal liability for monetary damage for breach of a duty as a director. The
BB&T Bylaws require BB&T to indemnify its directors and officers against
liabilities arising out of such person's status as such, excluding any liability
relating to activities that were at the time taken known or believed by such
person to be clearly in conflict with the best interests of BB&T.
CRAIGIE
The VSCA requires that a director of a Virginia corporation discharge
his duties as a director in accordance with his good faith business judgment of
the best interests of the corporation. The VSCA permits Virginia corporations to
provide indemnification for directors, officers and agents and also permits
Virginia corporations to eliminate personal liability for directors and officers
for certain actions. The Craigie Articles require Craigie to indemnify its
directors and officers against any liability arising out of such person's status
as such, to the full extent permitted by Virginia law. The VSCA does not permit
indemnity against willful misconduct or a knowing violation of the criminal law.
The Craigie Articles also provide that officers and directors shall not be
liable to Craigie or its shareholders for monetary damages, unless judgment is
entered because of a finding that the act or omission for which the officer or
director is adjudged liable is due to his willful misconduct or a knowing
violation of the criminal law or any federal or state securities law.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
BB&T
The NCBCA generally requires that any merger, share exchange or sale of
substantially all the assets of a corporation not in the ordinary course of
business be approved by the affirmative vote of the majority of the issued and
outstanding shares of each voting group entitled to vote. BB&T is also subject
to certain statutory anti-takeover provisions. See "--Anti-takeover Statutes."
CRAIGIE
The VSCA generally requires that any merger, share exchange or sale of
substantially all of the assets of a corporation not in the ordinary course of
business be approved by at least two-thirds of the votes entitled to be cast by
each voting group entitled to vote, unless the articles of incorporation provide
for a greater or lesser vote (but in no event less than a majority of votes cast
by each such voting group at a meeting at which a quorum of the voting group
exists).
ANTI-TAKEOVER STATUTES
BB&T
The North Carolina Control Share Acquisition Act (the "Control Share
Act") applies to BB&T. The Control Share Act is designed to protect shareholders
of publicly owned North Carolina corporations based within the state against
certain changes in control and to provide shareholders with the opportunity to
vote on whether to afford voting rights to certain shareholders.
The Control Share Act is triggered upon the acquisition by a person of
shares of voting stock of a covered corporation that, when added to all other
shares beneficially owned by the person, would result in that person holding
37
<PAGE>
one-fifth, one-third or a majority of the voting power in the election of
directors. Under the Control Share Act, the shares acquired that result in the
crossing of any of these thresholds ("Control Shares") have no voting rights
until such rights are conferred by the affirmative vote of the holders of a
majority of all outstanding voting shares, excluding those shares held by any
person involved or proposing to be involved in the acquisition of Control
Shares, any officer of the corporation and any employee of such corporation who
is also a director of such corporation. If voting rights are conferred on
Control Shares, all shareholders of such corporation have the right to require
that their shares be redeemed at the highest price paid per share by the
acquiror for any Control Shares.
In accordance with the provisions of such statute, BB&T has elected not
to be governed by the North Carolina Shareholder Protection Act.
CRAIGIE
The VSCA restricts transactions between a publicly-held Virginia
corporation and its affiliates and potential acquirors in certain respects, but
such statutory provisions do not apply to Craigie because it is a privately-held
company.
AMENDMENTS TO ARTICLES OF INCORPORATION AND BYLAWS
BB&T
The NCBCA provides generally that a North Carolina corporation's
articles of incorporation may be amended if the amendment is affirmatively
approved by a majority of the votes cast within each voting group entitled to
vote. The BB&T Articles and BB&T Bylaws also require the affirmative vote of
two-thirds of the outstanding shares entitled to vote to approve an amendment to
the BB&T Articles or BB&T Bylaws amending, altering or repealing the portions of
such articles or bylaws relating to classification and staggered terms of the
board, removal of directors or any requirement for a supermajority vote on such
an amendment. The BB&T Articles authorize the BB&T Board to amend the BB&T
Bylaws.
CRAIGIE
The VSCA generally requires that any amendment to a Virginia
corporation's articles of incorporation be approved by at least two-thirds of
the votes entitled to be cast by each voting group entitled to vote on such
amendment, unless the articles of incorporation provide for a greater or lesser
vote (but in no event less than a majority of all of the votes cast by each such
voting group at a meeting at which a quorum of the voting group exists).
The VSCA provides generally that a Virginia corporation's board of
directors may amend or repeal the corporation's bylaws except to the extent that
(a) such power is reserved to the shareholders by the articles of incorporation
or by law, (b) the shareholders in adopting or amending a particular bylaw
provided expressly that the board of directors could not amend or repeal such
bylaw and (c) the corporation's shareholders may amend or repeal the bylaws even
though the bylaws may be amended or repealed by the board of directors.
SHAREHOLDERS' RIGHTS OF DISSENT AND APPRAISAL
BB&T
Under the NCBCA, a shareholder of a North Carolina corporation is
entitled to dissent from, and obtain payment of the "full value" of his shares
in the event of, any of the following corporate transactions: (a) consummation
of a plan of merger to which the corporation is a party, unless (i) the
corporation is a parent merging with a subsidiary pursuant to a particular NCBCA
provision for such transactions; (ii) the merger is subject to an NCBCA
provision that exempts from the shareholder approval requirement certain mergers
that do not result in a substantial change to the corporation or the rights of
its shareholders; or (iii) the shares in question are then redeemable by the
corporation at a price not greater than the cash to be received for such shares;
(b) consummation of a plan of share exchange to which the corporation is a party
as the corporation whose shares will be acquired, unless such shares are then
redeemable by
38
<PAGE>
the corporation at a price not greater than the cash to be received in exchange
for such shares; (c) consummation of a sale or exchange of all or substantially
all of the property of the corporation other than in the regular course of
business, including a sale in dissolution but not including a sale pursuant to
court order or a sale pursuant to a plan by which all or substantially all of
the net proceeds are to be distributed in cash to shareholders within one year;
(d) an amendment to the articles of incorporation that materially and adversely
affects rights in respect of a dissenter's shares because it (i) alters or
abolishes a preferential right of the shares; (ii) creates, alters or abolishes
a right in respect of redemption, including a provision respecting a sinking
fund for the redemption or repurchase, of the shares; (iii) alters or abolishes
a preemptive right of the holder of the shares to acquire shares or other
securities; (iv) excludes or limits the right of shares to vote on any matter;
(v) reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash; or (vi)
changes the corporation into a nonprofit corporation or cooperative
organization; or (e) any corporation action take pursuant to a shareholder vote
to the extent the articles of incorporation, bylaws or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
A shareholder who has the right to dissent from a transaction and
receive payment of the "fair value" of his shares must follow specific
procedural requirements as set forth in the NCBCA in order to maintain such
right and obtain such payment.
CRAIGIE
Under the VSCA, a shareholder of a Virginia corporation is entitled to
dissent from, and to receive payment of the "fair value" of his shares in the
event of, any of the following corporation transactions: (a) consummation of a
merger to which the corporation is a party, provided that either (i) shareholder
approval is required for the merger pursuant to the VSCA or the corporation's
articles of incorporation and the shareholder is entitled to vote or (ii) the
corporation is a subsidiary being merged with its parent pursuant to a
particular VSCA provision for such transactions; (b) consummation of a plan of
share exchange to which the corporation is a party as the party whose shares
will be acquired, provided that the shareholder is entitled to vote on the plan;
(c) consummation of the sale or exchange of all or substantially all the
property of the corporation, if the shareholder is entitled to vote on the
transaction or the transaction is in furtherance of a dissolution on which the
shareholder is entitled to vote, and provided that the transaction is neither
(i) a transaction pursuant to court order nor (ii) a transaction for cash
pursuant to a plan by which all or substantially all of the net proceeds will be
distributed to shareholders within one year; or (d) any corporate action taken
pursuant to a shareholder vote, to the extent that the articles of
incorporation, the bylaws, or a resolution of the board of directors provides
that voting and nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
With respect to corporations that have a class or series of shares
either listed on a national securities exchange or the Nasdaq market or held by
more than 2,000 record shareholders, dissenters' rights are not available to the
holders of such shares by reason of a merger, share exchange or sale or exchange
of property unless (a) the articles of incorporation of the corporation issuing
such shares provided otherwise; (b) in the case of a merger or share exchange,
the holders of such shares are required to accept anything other than (i) cash,
(ii) shares in another corporation that are either listed on a national
securities exchange or held by more than 2,000 record shareholders or (iii) a
combination of cash and such shares; or (c) the transaction is with a
shareholder who owns more than 10 percent of a class of shares and has not been
approved by a majority of the directors unaffiliated with such shareholder.
A shareholder who has the right to dissent from a transaction and
receive payment of the "fair value" of his shares must follow specific
procedural requirements as set forth in the VSCA in order to maintain such right
and obtain such payment. See "Dissenters' Rights."
39
<PAGE>
LIQUIDATION RIGHTS
BB&T
In the event of the liquidation, dissolution or winding-up of the
affairs of BB&T, holders of outstanding shares of BB&T Common Stock are entitled
to share, in proportion to their respective interests, in BB&T's assets and
funds remaining after payment, or provision for payment, of all debts and other
liabilities of BB&T.
Because BB&T is a bank holding company, its rights, the rights of its
creditors and of its shareholders, including the holders of the shares of any
BB&T Preferred Stock that may be issued, to participate in the assets of any
subsidiary upon the latter's liquidation or recapitalization may be subject to
the prior claims of the subsidiary's creditors except to the extent that BB&T
may itself be a creditor with recognized claims against the subsidiary and any
interests in the liquidation accounts established by savings associations or
savings banks acquired by BB&T for the benefit of eligible account holders in
connection with conversion of such savings associations to stock form.
CRAIGIE
In the event of the liquidation, dissolution or winding up of the
affairs of Craigie, holders of the outstanding shares of Craigie Common Stock
are entitled to share, in proportion to their respective interests, Craigie's
assets and funds remaining after payment, or provision for payment of all
liabilities of Craigie.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon by Womble
Carlyle Sandridge & Rice, PLLC, Charlotte, North Carolina, as counsel to BB&T.
As of the date of this Proxy Statement/Prospectus, certain members of Womble
Carlyle Sandridge & Rice, PLLC owned an aggregate of approximately 22,000 shares
of BB&T Common Stock.
EXPERTS
The consolidated financial statements of BB&T Corporation and its
subsidiaries which are incorporated herein by reference from BB&T Corporation's
Current Report on Form 8-K dated August 15, 1997, which restates the
consolidated financial statements that are incorporated by reference from BB&T
Corporation's Annual Report on Form 10-K for the year ended December 31, 1996 to
reflect the acquisition of United Carolina Bancshares Corporation by BB&T
Corporation during 1997, and incorporated by reference in this Proxy
Statement/Prospectus have been audited by Authur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements and schedules as of December 31, 1996, 1995
and 1994, and for each of the years in the three-year period ended December 31,
1996 of Craigie Incorporated included herein have been audited by KPMG Peat
Marwick LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
40
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(unaudited)
- ----------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 806,512 $ 845,922
Cash segregated under Federal regulations 1,517,640 224,709
Restricted cash and cash equivalents 1,700,031 1,709,159
Receivable from brokers, dealers and clearing organizations 741,541 1,766,117
Receivable from customers 2,632,279 604,795
Securities purchased under agreements to resell 18,768,052 15,892,028
Marketable trading securities, at fair value:
State and municipal bonds 24,728,850 34,245,411
U.S. government and agency obligations 2,496,849 8,586,323
Corporate stocks and bonds 13,507,949 4,230,713
Mortgage backed securities available-for-sale, at fair value 9,246,636 10,447,728
Accrued Interest 461,297 582,669
Cash surrender value of insurance policies, net of policy loans 6,649,676 6,482,393
Property, furniture and fixtures (less accumulated depreciation) 563,205 566,539
Deferred income taxes 39,530 193,153
Other assets 1,803,638 1,793,471
==========================================================================================================
Total assets $ 85,663,685 $ 88,171,130
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------
Short-term bank loans 32,461,000 36,513,632
Payable to brokers, dealers and clearing organizations 1,559,718 888,142
Payable to customers 219,259 742,965
Note payable to affiliate 9,276,324 10,206,206
Securities sold under agreements to repurchase 18,245,875 15,731,289
Securities sold, but not yet purchased, at fair value 1,009,206 105,128
Accounts payable 3,940,176 5,194,162
Income tax liability 0 172,688
- ----------------------------------------------------------------------------------------------------------
Total liabilities 66,711,558 69,554,212
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities subordinated to the claims of general creditors 4,305,000 4,305,000
Negative goodwill 498,391 498,391
Stockholders' equity:
Common stock, no par value. Authorized 2,400,000 shares;
941,674 and 939,862 shares outstanding at June 30, 1997
and December 31, 1996, respectively 500,000 500,000
Retained earnings 13,657,228 13,326,397
Unrealized loss on securities available-for-sale, net of deferred taxes (8,492) (12,870)
- ----------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 14,148,736 13,813,527
- ----------------------------------------------------------------------------------------------------------
Commitments and contingencies
==========================================================================================================
Total liabilities and stockholder's equity $ 85,663,685 $ 88,171,130
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-1
<PAGE>
CRAIGIE INCORPORATED AND
SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(unaudited) (unaudited)
Revenues
<S> <C> <C> <C> <C>
Commissions $ 334,395 $ 174,043 $ 557,993 $ 453,272
Investment Banking 1,993,485 1,114,147 3,010,871 2,482,245
Profits from trading securities 1,556,102 1,229,532 3,096,793 3,473,842
Interest and dividends 902,954 470,363 1,578,921 1,222,304
Other 42,775 55,757 90,444 78,759
--------------- ------------- ------------- -------------
Total Revenues 4,829,711 3,043,842 8,335,022 7,710,422
--------------- ------------- ------------- -------------
Operating Expenses
Compensation and benefits 2,600,620 2,516,282 4,659,954 5,419,888
Communications 285,569 295,630 547,697 569,138
Occupancy & equipment 158,008 175,802 316,032 359,800
Interest 1,038,949 624,621 1,698,746 1,265,407
Floor brokerage, exchange, and
clearing fees 97,826 91,175 201,470 199,560
Other operating expenses 401,057 305,539 647,084 561,427
--------------- ------------- ------------- -------------
Total Operating Expenses 4,582,029 4,009,049 8,070,983 8,375,220
--------------- ------------- ------------- -------------
Income (loss) before income taxes 247,682 (965,207) 264,039 (664,798)
Income tax expense (benefit) 49,373 (371,796) (41,358) (294,258)
--------------- ------------- ------------- -------------
Net income (loss) $ 198,309 $ (593,411) $ 305,397 $ (370,540)
=============== =============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 305,397 $ (370,540)
Adjustments to reconcile net income to cash
provided by operating activities 3,491,794 8,060,514
----------------- -----------------
Net cash provided by operating activities 3,797,191 7,689,974
----------------- -----------------
Cash flows from investing activities:
Purchases of property, furniture and fixtures (47,666) (30,977)
Other 0 12,822
----------------- -----------------
Net cash used by investing activities (47,666) (18,155)
----------------- -----------------
Cash flows from financing activities:
Net change in short-term bank loans (4,052,632) (9,432,023)
Borrowings on life insurance policies 233,885 317,276
Retirement of subordinated notes 0 (25,000)
Issuance of subordinated notes 0 2,275,000
Repayment of notes payable 0 (935,743)
Proceeds from sale of common stock 46,722 50,883
Repurchase of common stock (16,910) (29,416)
----------------- -----------------
Net cash used by financing activities (3,788,935) (7,779,022)
----------------- -----------------
Net decrease in cash (39,410) (107,203)
Cash at beginning of year 845,922 452,308
----------------- -----------------
Cash at end of period $ 806,512 $ 345,105
================= =================
</TABLE>
F-3
<PAGE>
Notes to Consolidated Financial Statements
CRAIGIE INCORPORATED AND SUBSIDIARIES
June 30, 1997
Note A (Unaudited)
These financial statements should be read in conjunction with the financial
statements and notes thereto in Craigie Incorporated and Subsidiaries Annual
Report for the year ended December 31, 1996. The financial statements for the
six months ended June 30, 1997, include all adjustments (consisting only of
normal recurring adjustement) necessary for a fair presentation of the results
of operations, financial position, and cash flows for the interim periods. These
amounts are not necessarily indicative of results for a full year.
F-4
<PAGE>
Independent Auditors' Report
The Board of Directors
Craigie Incorporated:
We have audited the accompanying consolidated statement of financial condition
of Craigie Incorporated and subsidiaries as of December 31, 1996, and the
related consolidated statements of income, changes in stockholders' equity,
changes in subordinated liabilities, and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Craigie Incorporated
and subsidiaries as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The information contained
in Schedules 1 through 3 is presented for purposes of additional analysis and is
not a required part of the basic consolidated financial statements, but is
supplementary information required by Rule 17a-5 of the Securities and Exchange
Commission. Such information has been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.
KPMG Peat Marwick LLP
January 16, 1997
F-5
<PAGE>
<TABLE>
<CAPTION>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Consolidated Statement of Financial Condition
December 31, 1996
- ----------------------------------------------------------------------------------------------------------------
Assets
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Cash (note 7) $ 845,922
Cash segregated under Federal regulations 224,709
Restricted cash and cash equivalents 1,709,159
Receivable from brokers, dealers and clearing organizations 1,766,117
Receivable from customers (note 3) 604,795
Securities purchased under agreements to resell 15,892,028
Marketable trading securities, at fair value (note 7):
State and municipal bonds 34,245,411
U.S. government and agency obligations 8,586,323
Corporate stocks and bonds 4,230,713
Mortgage-backed securities available-for-sale, at fair value (notes 4 and 8) 10,447,728
Accrued interest 582,669
Cash surrender value of insurance policies, net of policy loans of $1,608,838 6,482,393
Property, furniture and fixtures (less accumulated depreciation of $1,968,471) (note 6) 566,539
Deferred income taxes (note 11) 193,153
Other assets 1,793,471
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 88,171,130
- ----------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------
Short-term bank loans (note 7) 36,513,632
Payable to brokers, dealers and clearing organizations 888,142
Payable to customers (note 3) 742,965
Note payable to affiliate (note 8) 10,206,206
Securities sold under agreements to repurchase 15,731,289
Securities sold, but not yet purchased, at fair value (note 5) 105,128
Accounts payable and accrued expenses (note 12) 5,194,162
Income taxes payable (note 11) 172,688
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 69,554,212
- ----------------------------------------------------------------------------------------------------------------
Liabilities subordinated to the claims of general creditors (note 9) 4,305,000
Negative goodwill (note 1) 498,391
Stockholders' equity (notes 8 and 12):
Common stock, no par value. Authorized 2,400,000 shares; issued and outstanding
939,862 shares 500,000
Retained earnings 13,326,397
Unrealized loss on securities available-for-sale, net of deferred taxes (12,870)
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 13,813,527
- ----------------------------------------------------------------------------------------------------------------
Total subordinated liabilities, deferred credits and stockholders' equity 18,616,918
Commitments and contingencies (notes 13, 14, 15, 16 and 17)
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 88,171,130
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Consolidated Statement of Income
Year ended December 31, 1996
- ------------------------------------------------------------------------------------------
<S> <C>
Revenues:
Commissions $ 820,439
Investment banking 7,551,448
Profits from trading securities 7,173,532
Interest and dividends 2,650,922
Other (note 1) 745,905
- ------------------------------------------------------------------------------------------
18,942,246
- ------------------------------------------------------------------------------------------
Expenses:
Employee compensation and benefits 11,515,899
Communications 1,142,692
Interest 2,815,647
Occupancy and equipment 702,911
Brokerage, clearing and exchange fees 382,403
Advertising and sales promotion 586,156
Other operating expenses 564,102
- ------------------------------------------------------------------------------------------
17,709,810
- ------------------------------------------------------------------------------------------
Income before income taxes 1,232,436
Income tax expense (note 11) 10,735
- ------------------------------------------------------------------------------------------
Net income $ 1,221,701
- ------------------------------------------------------------------------------------------
Earnings per share:
Primary $ 1.30
Fully Diluted 1.00
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
Year ended December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized
Common stock loss on securities
------------------------ available-for-
Number Retained sale, net of
of shares Amount earnings deferred taxes Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 939,718 $ 500,000 12,102,855 - $ 12,602,855
Repurchase of common stock (4,022) - (61,948) - (61,948)
Issuance of common stock 4,166 - 63,789 - 63,789
Change in net unrealized loss on
securities available-for-sale - - - (12,870) (12,870)
Net income - - 1,221,701 - 1,221,701
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 939,862 $ 500,000 13,326,397 (12,870) $ 13,813,527
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Consolidated Statement of Changes in Subordinated Liabilities
Year ended December 31, 1996
- --------------------------------------------------------------------------------
Balance, December 31, 1995 $ 2,055,000
Retirement of subordinated notes (25,000)
Issuance of subordinated notes 2,275,000
- --------------------------------------------------------------------------------
Balance, December 31, 1996 $ 4,305,000
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year ended December 31, 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 1,221,701
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 216,328
Amortization of negative goodwill (548,208)
Change in net unrealized loss on mortgage-backed securities available for sale (12,870)
(Increase) decrease in assets net of effects from purchase of finance subsidiaries:
Cash segregated under Federal regulations 625
Restricted cash and cash equivalents (434,973)
Receivable from brokers, dealers and clearing organizations (61,917)
Receivable from customers 483,933
Securities purchased under agreements to resell 5,603,930
Marketable trading securities owned (2,945,609)
Mortgage-backed securities available-for-sale 314,935
Cash surrender value of insurance policies, net (982,152)
Deferred income taxes (88,515)
Other assets (238,559)
Increase (decrease) in liabilities net of effects from purchase of
finance subsidiaries:
Payable to brokers, dealers and clearing organizations (730,282)
Payable to customers 576,402
Securities sold under agreements to repurchase (512,855)
Securities sold, but not yet purchased (4,833,709)
Accounts payable and accrued expenses 532,078
Income taxes payable 172,688
- --------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,267,029)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, furniture and fixtures (65,314)
Other 110,227
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 44,913
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in short-term bank loans 760,609
Borrowings on life insurance policies 539,023
Retirement of subordinated notes (25,000)
Issuance of subordinated notes 2,275,000
Repayment of notes payable (935,743)
Proceeds from sale of common stock 63,789
Repurchase of common stock (61,948)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,615,730
- --------------------------------------------------------------------------------------------------------------------
(Continued)
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Consolidated Statement of Cash Flows, Continued
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Net increase in cash $ 393,614
Cash at beginning of year 452,308
- --------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 845,922
- --------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest payments $ 2,644,865
Income tax payments -
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements.
December 31, 1996
(1) Summary of Significant Accounting Policies
Craigie Incorporated (the Company) is a registered broker-dealer selling
primarily to institutional customers throughout the United States. On
November 12, 1996, the Company purchased all of the outstanding stock of
three limited purpose entities (the Finance Subsidiaries) from the Federal
Deposit Insurance Corporation (FDIC). The Finance Subsidiaries were former
subsidiaries of certain depository institutions under the receivership of
the Resolution Trust Company (RTC). The RTC was succeeded by the FDIC as
receiver on January 1, 1996. The Finance Subsidiaries were originally
formed to facilitate the issuance of collateralized mortgage obligations
(the CMO Bonds) through National Mortgage Acceptance Corporation (NMAC),
an affiliate of the Company (see note 2). A summary of the significant
accounting and reporting policies of the Company and its subsidiaries is
presented below.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned finance subsidiaries. All material intercompany
balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
revenues and expenses. Actual results could differ from those estimates.
Securities Transactions
Securities transactions and related revenues and expenses are recorded on
settlement date, which is not materially different from a trade date
basis.
Investment Banking
Where the Company is the manager or co-manager of a securities offering,
management and underwriting fees are recorded at the time a commitment has
been made. For all other underwritings, fees are recorded when the
underwriting is closed. Sales concessions are recorded on a settlement
date basis.
Marketable Trading Securities and Futures Contracts
Marketable securities are valued at fair value and are generally based on
quoted market prices. The Company may enter into futures contracts from
time to time in order to hedge a portion of marketable securities owned or
securities sold, but not yet purchased. Futures contracts are valued at
fair value with unrealized gains and losses included in profits from
trading securities in the consolidated statement of income.
(Continued)
F-12
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements.
(1) Continued
Mortgage-Backed Securities Available-for-Sale
The Company's wholly-owned Finance Subsidiaries classify their securities
owned as available-for-sale. Available-for-sale securities are recorded at
fair value, generally based on quoted market prices. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and reported as a separate component
of stockholders' equity until realized. A decline in the fair value of
these securities below cost that is deemed other than temporary is charged
to earnings resulting in the establishment of a new cost basis of the
security. Premiums and discounts are amortized or accreted over the life
of the related security as an adjustment to yield using a method which
approximates the effective interest method. Interest income is recognized
when earned. Realized gains and losses for securities are included in
earnings and are derived using the specific identification method for
determining the cost of securities sold.
Repurchase and Resale Agreements
Repurchase and resale agreements are accounted for as financing
transactions and are recorded at the amount for which the securities will
be subsequently reacquired or resold, as specified in the respective
agreements. The Company has procedures in place to periodically monitor
the value of collateral underlying resale agreements.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Property, Furniture and Fixtures
Property, furniture and fixtures are carried at cost less accumulated
depreciation and amortization. Depreciation and amortization is provided
on a straight-line basis over the following estimated useful lives:
Building and improvements 25 years
Leasehold improvements 7 years
Furniture and fixtures 5 years
-----------------------------------------------------
Earnings Per Share
Earnings per share is calculated by dividing net income by the weighted
average shares of common stock outstanding during the period. The Company
does not have any common stock equivalents. The number of shares used in
the earnings per share calculation is 939,924 for the year ended December
31, 1996.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents primarily consist of monthly principal
and interest payments in the amount of $1,608,425 from mortgage backed
securities available-for-sale, reinvested in government securities, in
anticipation of semi-annual payments due on notes payable to the affiliate.
In addition, approximately $91,606 is invested in government securities to
provide a reserve for future expenses. These reserves are distributed to
participants as the respective assets are paid down.
(Continued)
F-13
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements.
(2) Subsidiary Information
The acquisition of the Finance Subsidiaries was accounted for as a
purchase. The fair value of the tangible net assets of the Finance
Subsidiaries at the date of the acquisition was $1,592,732. Negative
goodwill of $1,046,599 was recorded as of the acquisition date and is
being amortized over the estimated remaining life of the CMO Bonds through
the year 2001 based on the present value of the expected future benefits
to be received by the Company. During 1996, $548,208 was amortized and is
included in other revenues in the consolidated statement of income.
The following is a summary of certain financial information of the
Company's consolidated Finance Subsidiaries at December 31, 1996:
Total assets $ 12,944,794
Stockholder's equity 987,020
-----------------------------------------------------------------
The accounts of the Finance Subsidiaries are not included in the
computation of the Company's net capital under the Securities and Exchange
Commission Uniform Net Capital Rule 15c3-1 (Rule 15c3-1). The Company's
Finance Subsidiaries are restricted from paying dividends to the Company
to the extent assets are needed to service notes payable of the Finance
Subsidiaries. At December 31, 1996, $438,812 of the Finance Subsidiaries
stockholder's equity was restricted from paying dividends.
(3) Receivable From and Payable to Customers
The balances represent the net amounts receivable from and payable to
customers in connection with normal cash and margin transactions. The
amounts receivable from customers are generally collateralized by
securities, the value of which is not reflected in the accompanying
consolidated financial statements.
(4) Mortgage-Backed Securities Available-for-Sale
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for mortgage-backed securities
available-for-sale at December 31, 1996 were as follows:
Amortized cost $ 10,460,598
Gross unrealized gains 13,893
Gross unrealized losses (26,763)
-----------------------------------------------------------------
Fair value $ 10,447,728
-----------------------------------------------------------------
(Continued)
F-14
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements.
(5) Securities Sold, But Not Yet Purchased
Securities sold, but not yet purchased are valued at fair value and
consisted of the following at December 31, 1996:
Corporate stocks and bonds $ 81,675
State and municipal obligations 23,453
----------------------------------------------------------------
$ 105,128
----------------------------------------------------------------
(6) Property, Furniture and Fixtures
The components of property, furniture and fixtures at December 31, 1996
are as follows:
Land $ 153,538
Building and improvements 899,652
Leasehold improvements 41,819
Furniture and fixtures 1,440,001
----------------------------------------------------------------
2,535,010
Less: accumulated depreciation and amortization 1,968,471
----------------------------------------------------------------
$ 566,539
----------------------------------------------------------------
The land and building and improvements are currently being held for sale
or lease.
(7) Short-term Bank Loans
The Company maintains lines of credit from established financial
institutions totalling $77 million, of which $36.5 million was
outstanding as of December 31, 1996. Additional bank lines of credit are
available on a short-term basis for the purpose of financing new
underwritings. These loans generally bear interest at the bank's broker
call rates (rates range from 7.1% to 7.4% at December 31, 1996). These
loans are collateralized by the Company's cash balances and marketable
securities with a carrying value totaling $40,566,430 at December 31,
1996.
(8) Note Payable
During 1985, NMAC issued CMO Bonds lending a portion of the proceeds to
the Finance Subsidiaries, which in turn issued a note payable to NMAC. In
addition to certain debt service funds held by the independent trustee
(the Trustee) for the CMO Bonds, the Finance Subsidiaries have pledged
available-for-sale mortgage-backed securities with a fair value of
$10,447,728 at December 31, 1996 to NMAC as collateral for the note
payable. NMAC in turn has pledged the collateral to the Trustee. As
principal and interest from the mortgage-backed securities are received by
the Trustee, the CMO Bonds and the note payable to NMAC are concurrently
reduced as defined in the CMO Bond and note
(Continued)
F-15
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements.
(8) Continued
agreement with NMAC. Principal and interest at an annual rate of 11.25%,
including the effects of prepayments of the underlying collateral, are
payable semi-annually to NMAC. Due to the reduction of the note payable as
a function of payments received from the collateral, the ultimate timing
of the maturity of the note payable is not readily determinable. NMAC has
the option of calling the note payable in full beginning July 1, 2001.
(9) Liabilities Subordinated to the Claims of General Creditors
At December 31, 1996, the Company had outstanding to certain officers of
the Company $4,305,000 of convertible subordinated debentures. Of the
debentures outstanding, $1,175,000 are due on April 1, 1998, $855,000 are
due on July 1, 2000, and $2,275,000 are due on March 8, 2003. At any time
prior to the debentures' maturities, the outstanding debentures may be
converted, by the holder, into one share of common stock for each $9.57,
$16.42, or $16.88, respectively, of principal, or the Company may redeem
the debentures at par plus accrued interest. The subordinated debentures
bear interest at 1% above a commercial bank's prime rate. The rate on
these debentures at December 31, 1996 was 9.25%.
The subordinated debentures due April 1, 1998 and March 8, 2003 have been
approved by the National Association of Securities Dealers, Inc. (NASD)
for inclusion as net capital for purposes of computing net capital under
Rule 15c3-1. Both conversion and early redemption require the prior
written approval of the NASD.
(10) Net Capital Requirements
The Company is subject to the net capital rules of the Securities and
Exchange Commission and elects to compute its net capital requirements in
accordance with the aggregate indebtedness method. Under this method, the
ratio of aggregate indebtedness to net capital, as defined, shall not
exceed 15 to 1. At December 31, 1996, the Company's net capital was
$6,898,873, which was $6,470,453 in excess of the minimum net capital
required. The ratio of aggregate indebtedness to net capital was .93 to 1.
(Continued)
F-16
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements.
(11) Income Taxes
The provision for income tax expense (benefit) consists of the following
for the year ended December 31, 1996:
Current:
Federal $ 101,442
State 11,246
---------------------------------------------------------------
112,688
Deferred (101,953)
---------------------------------------------------------------
Total income tax expense $ 10,735
---------------------------------------------------------------
A reconciliation of the U.S. corporate income tax rate and the effective
tax rate on income before income taxes is as follows:
U.S. corporate tax rate 34.0%
Tax-exempt interest (13.5%)
Amortization of negative goodwill (15.1%)
Other (4.5%)
----------------------------------------------------------------
Effective tax rate .9%
---------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 are presented below.
Deferred tax assets:
Deferred compensation, principally due to
accrual for financial reporting purposes $ 571,927
Alternative minimum taxes 153,812
Other 47,145
-----------------------------------------------------------------
Total gross deferred tax assets 772,884
-----------------------------------------------------------------
Deferred tax liabilities:
Difference between fair value and tax basis
of assets and liabilities of acquired
subsidiaries at date of acquisition 539,158
Other 40,573
-----------------------------------------------------------------
Total gross deferred tax liabilities 579,731
-----------------------------------------------------------------
Net deferred tax asset $ 193,153
-----------------------------------------------------------------
(Continued)
F-17
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements.
(11) Continued
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences.
(12) Deferred Compensation Arrangements
The Company has unfunded deferred compensation arrangements for certain
officers which provide for defined deferred compensation payments
commencing at retirement. The Company accrues the present value of the
expected future benefits over the estimated remaining working lives of the
individuals. The accrued liability for deferred compensation at December
31, 1996 was approximately $1,682,000.
(13) Defined Contribution Benefit Plan
The Company sponsors a 401(k) defined contribution plan that covers all
employees who wish to participate. Employees may contribute the maximum
amount according to IRS regulations and the Company may make matching
contributions at the discretion of the Company's Board of Directors. The
Company's matching contributions totaled approximately $212,000 during
1996.
(14) Stock Buy/Sell Agreements
The Company has entered into agreements with its stockholders whereby the
Company has the right of first refusal to repurchase its stock at 115% of
the book value at death or termination of employment of each stockholder.
The Company may assign its rights under this agreement to any other
stockholder. The agreements also place certain restrictions as to the
sale, donation, assignment or transfer of the Company's stock.
(Continued)
F-18
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements.
(15) Commitments and Contingencies
Leases
The Company leases both its Richmond, Virginia and Charlotte, North
Carolina offices under non-cancelable operating leases. The Richmond
office lease provides for escalating rentals generally based on the
Consumer Price Index.
Minimum future rental commitments under non-cancelable operating leases
are as follows:
Year ending
December 31, Amount
------------------------------------------------------------
1997 $ 418,445
1998 368,840
1999 379,905
2000 391,302
2001 198,542
------------------------------------------------------------
Total future lease payments $ 1,757,034
------------------------------------------------------------
Total rental expense under all operating leases approximated $474,000 in
1996.
Litigation
The Company is a party to several legal actions arising in the normal
course of business. In the opinion of management, such litigation is not
expected to have a material effect on the Company's financial position or
results of operations.
(16) Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Company enters into transactions as
principal, as agent and for its own account. If the securities sold as
principal are not in the possession of the Company, or if agency
transactions do not settle, the Company may incur a loss if the market
value of the security is different from the contract value of the
transaction. The Company may also incur a loss should the market value of
securities sold, not yet purchased, increase prior to the purchase of such
securities. The Company also enters into futures contracts and
underwriting commitments. The Company is at risk in these transactions to
the extent that a counterparty may fail to perform or that market values
fluctuate. At December 31, 1996, the Company had sold municipal interest
rate futures and government interest rate futures contracts with
underlying notional amounts of $4,300,000 and $2,400,000, respectively.
(Continued)
F-19
<PAGE>
CRAIGIE INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements.
(16) Continued
The Company collateralizes borrowings from lending institutions and
repurchase agreements with securities it owns and customer
not-fully-paid-for securities. If the counterparty to these transactions
fails to return the securities, the Company may incur a loss in
discharging the obligation should the underlying security's market value
increase above the value as of the original transaction date.
The Company does not anticipate nonperformance by customers or
counterparties in the above situations. The Company's policy is to monitor
its market exposure and counterparty risk and to review, as necessary, the
credit standing of each counterparty and customer with which it conducts
business.
(17) Concentrations of Credit Risk
Although the Company has a diversified marketable trading security
portfolio, a substantial portion of this portfolio consists of bonds
issued by municipalities located within the Commonwealth of Virginia.
F-20
<PAGE>
<TABLE>
<CAPTION>
CRAIGIE INCORPORATED Schedule 1
Computation of Net Capital Under Rule 15c3-1
December 31, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net capital:
Total stockholders' equity $ 13,813,527
Additions - allowable subordinated liabilities 3,450,000
Deductions - stockholders' equity not allowable for net capital (987,020)
- -------------------------------------------------------------------------------------------------------------------
16,276,507
Other deductions and charges:
Non-allowable assets:
Unsecured and partially secured accounts of
customers and non-customers $ 1,892
Investments not readily marketable 1,582,905
Exchange memberships, at cost 2,893
Property, furniture and fixtures, less accumulated
depreciation 566,539
Other assets 3,616,321
Aged fail-to-deliver 22,203 5,792,753
- -------------------------------------------------------------------------------------------------------------------
Haircuts on firm trading and investment securities 2,805,382
Other deductions and charges 779,499
- -------------------------------------------------------------------------------------------------------------------
Net capital $ 6,898,873
- -------------------------------------------------------------------------------------------------------------------
Aggregate indebtedness:
Items included in statement of financial condition:
Payable to brokers, dealers and clearing organizations 888,142
Payable to customers 742,965
Accrued expenses and other liabilities 4,795,188 6,426,295
- -------------------------------------------------------------------------------------------------------------------
Required net capital $ 428,420
- -------------------------------------------------------------------------------------------------------------------
Excess net capital $ 6,470,453
- -------------------------------------------------------------------------------------------------------------------
Ratio of aggregate indebtedness to net capital .93 to 1
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Note - There are no material differences between this computation and that
filed by the Company on Securities and Exchange Commission Form
X-17A-5 as of December 31, 1996.
See accompanying independent auditors' report.
F-21
<PAGE>
<TABLE>
<CAPTION>
CRAIGIE INCORPORATED Schedule 2
Computation for Determination of the Reserve Requirements Under Rule 15c3-3
December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Credit balances:
Customers, net of amounts related to short positions in customers' accounts offset
by securities owned by the Company $ 742,965
Customers' securities failed to receive (including credit balances in continuous net
settlement accounts) 888,142
Credit balances in firm accounts which are attributable to principal sales to customers 74,250
Market value of stock dividends, splits and similar distributions receivable over
30 calendar days old 12,739
- ----------------------------------------------------------------------------------------------------------------------
Total credits 1,718,096
- ----------------------------------------------------------------------------------------------------------------------
Debit balances:
Debit balances in customers' cash and margin accounts, excluding unsecured and partially
secured accounts and accounts doubtful of collection 572,976
Securities borrowed to effectuate short sales by customers and securities borrowed to
make delivery on customers' securities failed to deliver 164,768
Customers' securities failed to deliver not older than 30 calendar days
(including debit balances in continuous net settlement accounts) 902,514
- ----------------------------------------------------------------------------------------------------------------------
Total debits 1,640,258
- ----------------------------------------------------------------------------------------------------------------------
Excess of total 15c3-3 credits over total debits $ 77,838
- ----------------------------------------------------------------------------------------------------------------------
Amount held on deposit by the Company in reserve bank accounts
as of December 31, 1996 $ 224,709
- ----------------------------------------------------------------------------------------------------------------------
Required deposit $ -
- ----------------------------------------------------------------------------------------------------------------------
Amount deposited on January 3, 1997 $ 77,000
- ----------------------------------------------------------------------------------------------------------------------
Amount held on deposit by the Company in reserve bank accounts as of January 3, 1997 $ 301,709
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note - There are no material differences between this computation and that
filed by the Company on Securities and Exchange Commission Form X-17A-5
as of December 31, 1996.
See accompanying independent auditors' report.
F-22
<PAGE>
<TABLE>
<CAPTION>
CRAIGIE INCORPORATED Schedule 3
Information Relating to the Possession or Control Requirements Under Rule 15c3-3
December 31, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Customers' fully paid securities and excess margin securities not in the
Company's possession or control as of the report date (for which
instructions to reduce to possession or control had been issued as of
the report date) but for which the required action was not taken by
the Company within the time frames specified under Rule 15c3-3. $ -
- -------------------------------------------------------------------------------------------------------------------
A. Number of items -
- -------------------------------------------------------------------------------------------------------------------
2. Customers' fully paid securities and excess margin securities for which
instructions to reduce to possession or control had not been issued as
of the report date, excluding items arising from "temporary lags which
result from normal business operations" as permitted under
Rule 15c3-3. $ -
- -------------------------------------------------------------------------------------------------------------------
A. Number of items -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying independent auditors' report.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON INTERNAL CONTROL STRUCTURE
REQUIRED BY SEC RULE 17a-5
Year ended December 31, 1996
<PAGE>
KPMG Peat Marwick LLP Logo
Suite 1900
1021 East Cary Street
Richmond, VA 23219-4023
Independent Auditors' Report on Internal Control Structure
Required by SEC Rule 17a-5
The Board of Directors
Craigie Incorporated:
In planning and performing our audit of the consolidated financial statements of
Craigie Incorporated and subsidiaries for the year ended December 31, 1996, we
considered its internal control structure, including procedures for safeguarding
securities, in order to determine our auditing procedures for the purpose of
expressing our opinion on the consolidated financial statements and not to
provide assurance on the internal control structure.
Also, as required by rule 17a-5(g)(1) of the Securities and Exchange Commission,
we have made a study of the practices and procedures (including tests of
compliance with such practices and procedures) followed by Craigie Incorporated
that we considered relevant to the objectives stated in rule 17a-5(g), (1) in
making the periodic computations of aggregate indebtedness and net capital under
rule 17a-3(a)(11) and the reserve required by rule l5c3-3(e); (2) in making the
quarterly securities examinations, counts, verifications and comparisons, and
the recordation of differences required by rule 17a-13; (3) in complying with
the requirements for prompt payment for securities under section 8 of Regulation
T of the Board of Governors of the Federal Reserve System; and (4) in obtaining
and maintaining physical possession or control of all fully paid and excess
margin securities of customers as required by rule l5c3-3.
The management of Craigie Incorporated is responsible for establishing and
maintaining an internal control structure and the practices and procedures
referred to in the preceding paragraph. In fulfilling this responsibility,
estimates and judgments by management are required to assess the expected
benefits and related costs of internal control structure policies and procedures
and of the practices and procedures referred to in the preceding paragraph and
to assess whether those practices and procedures can be expected to achieve the
Commission's above mentioned objectives. Two of the objectives of an internal
control structure and the practices and procedures are to provide management
with reasonable, but not absolute, assurance that assets for which the Company
has responsibility are safeguarded against loss from unauthorized use or
disposition and that transactions are executed in accordance with management's
authorization and recorded properly to permit the preparation of consolidated
financial statements in conformity with generally accepted accounting
principles. Rule 17a-5(g) lists additional objectives of the practices and
procedures listed in the preceding paragraph.
F-24
<PAGE>
Because of inherent limitations in any internal control structure or the
practices and procedures referred to above, errors or irregularities may occur
and not be detected. Also, projection of any evaluation of them to future
periods is subject to the risk that they may become inadequate because of
changes in conditions or that the effectiveness of their design and operation
may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above.
We understand that practices and procedures that accomplish the objectives
referred to in the second paragraph of this report are considered by the
Commission to be adequate for its purposes in accordance with the Securities
Exchange Act of 1934 and related regulations and that practices and procedures
that do not accomplish such objectives in all material respects indicate a
material inadequacy for such purposes. Based on this understanding and on our
study, we believe that Craigie Incorporated's practices and procedures were
adequate at December 31, 1996 to meet the Commission's objectives.
This report is intended solely for the use of the board of directors,
management, the National Association for Securities Dealers, Inc., the
Securities and Exchange Commission and other regulatory agencies which rely on
rule 17a-5(g) under the Securities Exchange Act of 1934 and should not be used
for any other purpose.
KPMG Peat Marwick LLP
January 16, 1997
F-25
<PAGE>
KPMG Peat Marwick LLP
Suite 1900
1021 East Cary Street
Richmond VA 23219-4023
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Craigie Incorporated:
We have audited the accompanying statement of financial condition of Craigie
Incorporated as of December 31, 1995, and the related statements of income,
changes in stockholders' equity, changes in subordinated liabilities, and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Craigie Incorporated at
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information contained in Schedules 1
through 3 is presented for purposes of additional analysis and is not a
required part of the basic financial statements, but is supplementary
information required by Rule 17a-5 of the Securities and Exchange Commission.
Such information has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.
KPMG Peat Marwick LLP
January 12, 1996
F-26
<PAGE>
CRAIGIE INCORPORATED
Statement of Financial Condition
December 31, 1995
<TABLE>
<S> <C>
ASSETS
Cash (note 5) $ 452,308
Cash segregated under Federal regulations 225,334
Deposits with clearing organizations 450,915
Receivable from brokers, dealers and clearing organizations 1,253,285
Receivable from customers (note 2) 1,088,728
Securities purchased under agreements to resell 21,495,958
Marketable securities, at market value (note 5):
State and municipal bonds 25,583,648
U.S. government and agency obligations 14,539,525
Corporate stocks and bonds 3,773,708
Accrued interest 750,053
Cash surrender value of insurance policies, net of policy loans of $1,069,815 6,039,264
Property, furniture and fixtures (less accumulated depreciation of
$ 1,765,918) (note 4) 716,600
Refundable income taxes 728,992
Deferred income taxes (note 9) 643,797
Other assets 825,920
Total assets $78,568,035
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term bank loans (note 5) 35,753,023
Payable to brokers, dealers and clearing organizations 1,618,424
Payable to customers (note 2) 166,563
Securities sold under agreements to repurchase 16,244,144
Securities sold, but not yet purchased, at market value (note 3) 4,938,837
Accounts payable and accrued expenses (note 10) 4,253,446
Notes payable (note 6) 935,743
Total liabilities 63,910,180
Liabilities subordinated to the claims of general creditors (note 7) 2,055,000
Stockholders' equity (notes 8 and 12):
Common stock, no par value Authorized 2,400,000 shares; issued
and outstanding 939,718 shares 500,000
Retained earnings 12,102,855
Total stockholders' equity 12,602,855
Total subordinated liabilities and stockholders' equity 14,657,855
Commitments and contingencies (notes 11, 12, 14 and 15)
Total liabilities and stockholders' equity $78,568,035
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
CRAIGIE INCORPORATED
Statement of Income
Year ended December 31, 1995
<TABLE>
<S> <C>
Revenues:
Commissions $ 815,221
Investment banking 6,257,968
Profits from trading securities 6,854,099
Interest and dividend 2,562,651
Other 170,055
16,659,994
Expenses:
Employee compensation and benefits 10,892,973
Communications 970,610
Interest 2,684,547
Occupancy and equipment 737,480
Brokerage, clearing and exchange fees 358,036
Advertising and sales promotion 590,924
Other operating expenses 516,780
16,751,350
Loss before income taxes (91,356)
Income tax benefit (note 9) 198,896
Net income $ 107,540
Earnings per share:
Primary $ 0.11
Fully diluted 0.09
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
CRAIGIE INCORPORATED
Statement of Changes in Stockholders' Equity
Year ended December 31, 1995
<TABLE>
<CAPTION>
Common stock
Number Retained
of shares Amount earnings Total
<S> <C> <C> <C> <C>
Balance, December 31, 1994 1,180,416 $500,000 17,282,308 17,782,308
Repurchase of common stock
(note 7) (367,151) (6,972,174) - (6,972,174)
Issuance of common stock (note 7) 126,453 1,685,181 - 1,685,181
Transfer from retained earnings
(note 12) - 5,286,993 (5,286,993) -
Net income - - 107,540 107,540
Balance, December 31, 1995 939,718 $ 500,000 12,102,855 12,602,855
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
CRAIGIE INCORPORATED
Statement of Changes in Subordinated Liabilities
Year ended December 31, 1995
Balance, December 31, 1994 $ 3,625,000
Retirement of subordinated notes (1,570,000)
Balance December 31, 1995 $ 2,055,000
See accompanying notes to financial statements.
F-30
<PAGE>
CRAIGIE INCORPORATED
Statement of Cash Flows
Year ended December 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 107,540
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 224,061
Deferred income tax expense 214,499
(Increase) decrease in assets:
Cash segregated under Federal regulations 87,098
Deposits with clearing organizations 432,292
Receivable from brokers, dealers and clearing organizations 8,795,385
Receivable from customers 6,121,461
Securities purchased under agreements to resell (19,725,020)
Securities owned and accrued interest 4,320,730
Cash surrender value of insurance policies, net (901,081)
Refundable income taxes (633,547)
Other assets (88,038)
Increase (decrease) in liabilities:
Payable to brokers, dealers and clearing organizations (9,116,440)
Payable to customers (196,869)
Securities sold, but not yet purchased 3,138,672
Accounts payable and accrued expenses 452,261
Securities sold under agreements to repurchase 16,244,144
Net cash provided by operating activities 9,477,148
Cash flows from financing activities:
Net change in short-term bank loans (2,663,977)
Borrowings on life insurance policies 473,773
Retirement of subordinated notes (95,000)
Repayment of notes payable (175,000)
Proceeds from sale of common stock 210,181
Repurchase of common stock (6,972,174)
Net cash used for financing activities (9,222,197)
Cash flows from investing activities - purchases of
property, furniture and fixtures (106,055) (
Net increase in cash 148,896
Cash at beginning of year 303,412
Cash at end of year $ 452,308
Supplemental disclosures of cash flow information:
Interest payments $ 2,684,561
Income tax payments $ 263,538
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
December 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Craigie Incorporated (the Company) is a registered broker-dealer selling
primarily to institutional customers. A summary of the significant accounting
and reporting policies of the Company is presented below.
SECURITIES TRANSACTIONS
Securities transactions and related revenues and expenses are recorded on
settlement date, which is not materially different from a trade date basis,
INVESTMENT BANKING
Where the Company is the manager or co-manager of a securities offering,
management and underwriting fees are recorded at the time a commitment has been
made. For all other underwritings, fees are recorded when the underwriting is
closed. Sales concessions are recorded on a settlement date basis.
MARKETABLE SECURITIES AND FUTURES CONTRACTS
Marketable securities are valued at market value and are generally based on
quoted market prices. The Company may enter into futures contracts from time to
time in order to hedge a portion of marketable securities owned or securities
sold, but not yet purchased. Futures contracts are valued at market value with
unrealized gains and losses included in profits from trading securities in the
statement of income.
REPURCHASE AND RESALE AGREEMENTS
Repurchase and resale agreements are accounted for as financing transactions
and are recorded at the amount for which the securities will be subsequently
reacquired or resold, as specified in the respective agreements. The Company
has procedures in place to periodically monitor the value of collateral
underlying resale agreements.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-32
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
(1) CONTINUED
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Depreciation and amortization on equipment is provided on a straight-line basis
and amortization of leasehold improvements is provided over the lesser of their
useful life or the related lease term.
Building and improvements 25 years
Leasehold improvements 7 years
Furniture and fixtures 5 years
EARNINGS PER SHARE
Earnings per share is calculated by dividing net income by the weighted average
shares of common stock outstanding during the period. The Company does not have
any common stock equivalents. The number of shares used in the earnings per
share calculation is 941,304 for the year ended December 31, 1995.
(2) RECEIVABLE FROM AND PAYABLE TO CUSTOMERS
The balances represent the net amounts receivable from and payable to customers
connection with normal cash and margin transactions. The amounts receivable
customers are generally collateralized by securities, the value of which is not
reflected in the accompanying financial statements.
(3) SECURITIES SOLD, BUT NOT YET PURCHASED
Securities sold, but not yet purchased are valued at market value and consist
of the following:
December 31,
1995
U. S. government and government agency obligations $4,795,952
State and municipal obligations 142,885
$4,938,837
F-33
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
(4) PROPERTY, FURNITURE AND FIXTURES
The components of property, furniture and fixtures are as follows:
December 31,
1995
Land $ 153,538
Building and improvements 899,652
Leasehold improvements 41,819
Furniture and fixtures 1,387,509
2,482,518
Less: accumulated depreciation and amortization 1,765,918
$ 716,600
The land and building and improvements are currently being held for resale or
lease. The Company currently receives lease income of approximately $21,000
annually from this property.
(5) SHORT-TERM BANK LOANS
The Company maintains lines of credit from established financial institutions
totalling $97 million, of which $35.8 million was outstanding at December 31,
1995. Additional bank lines of credit are available on a short-term basis for
the purpose of financing new underwritings. These loans generally bear interest
at the bank's broker call rates (rates range from 5.9% to 6.3% at December 31,
1995). These loans are collateralized by Company cash balances and marketable
securities totaling $39,210,861.
(6) NOTES PAYABLE
In January 1994, the Company issued two promissory notes for the repurchase of
the Company's stock from a former director. These promissory notes bear
interest at 1/2 of 1% above a commercial bank's prime rate. The rate on these
promissory notes at December 31, 1995 was 9.25%. As of December 31, 1995, the
balances of these promissory notes were $629.009 and $306,734. Subsequent to
year end, both notes were settled by the Company.
(Continued)
F-34
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
(7) LIABILITIES SUBORDINATED TO THE CLAIMS OF GENERAL CREDITORS
At December 31, 1995, the Company had outstanding to certain officers of the
Company $2,055,000 of convertible subordinated debentures. Of the debentures
outstanding $1,175,000 are due on April 1, 1998, and $880,000 are due on July
1, 2000. At any time prior to the debentures' maturities, the outstanding
debentures may be converted, by the holder, into one share of common stock for
each $9.57 or $16.42, respectively, of principal, or the Company may redeem
the debentures at par plus any accrued interest. The subordinated debentures
bear interest at 1% above a commercial bank's prime rate. The rate on these
debentures at December 31, 1995 was 9.75%.
During 1995, $95,000 of subordinated debentures were repaid by the Company and
$1,475,000 of subordinated debentures were converted to 189,712 shares of the
Company's common stock.
The subordinated debentures due April 1, 1998 have been approved by the
National Association of Securities Dealers, Inc. (NASD) for inclusion as net
capital for purposes of computing net capital under the Securities and Exchange
Commission Uniform Net Capital Rule 15c3-1. Both conversion and early
redemption require the prior written approval of the NASD.
Subsequent to December 31, 1995, the Company offered to sell up to $2,745,000
of convertible subordinated debentures to certain officers of the Company. The
convertible subordinated debentures offered for sale may be converted to common
stock by the holder, will bear interest at 1% above a commercial bank's prime
rate and will mature 7 years from the date of issuance. The Company intends to
request approval from the NASD to include all debentures issued pursuant to
this offer as regulatory capital.
(8) NET CAPITAL REQUIREMENTS
The Company is subject to the net capital rules of the Securities and Exchange
Commission and elects to compute its net capital requirements in accordance
with the aggregate indebtedness method. Under this method, the ratio of
aggregate indebtedness to net capital, as defined, shall not exceed 15 to 1. At
December 31, 1995, the Company's net capital was $5,148,774, which was
$4,741,388 in excess of the minimum net capital required. The ratio of
aggregate indebtedness to net capital was 1.19 to 1.
(Continued)
F-35
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
(9) INCOME TAXES
The provision for income tax expense (benefit) consists of the following:
December 31,
1995
Current:
Federal $(413,780)
State 385
(413,395)
Deferred 214,499
Total income tax benefit $(198,896)
A reconciliation of the U.S. corporate income tax rate and the effective tax
rate on income before income taxes is as follows:
U.S. corporate tax rate 34.0%
Tax-exempt interest 175.7%
Meals and entertainment (64.8)%
Company life insurance 56.3%
Other 16.5%
Effective tax rate 217.7%
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below.
December 31,
1995
Deferred tax assets:
Deferred compensation, principally due to accrual for financial
reporting purposes $ 561,490
Alternative minimum taxes 50,000
Other 59,175
Total gross deferred tax assets 670,665
Deferred tax liabilities:
Property, furniture and fixtures, principally due to differences
in depreciation and capitalized interest 15,483
Other 11,385
Total gross deferred tax liabilities 26,868
Net deferred tax asset $ 643,797
(Continued)
F-36
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
(9) CONTINUED
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences.
(10) DEFERRED COMPENSATION ARRANGEMENTS
The Company has unfunded deferred compensation arrangements for certain
officers which provide for defined deferred compensation payments commencing at
retirement. The Company is accruing the expected present value of the future
benefits over the expected remaining working lives of the individuals.
(11) DEFINED CONTRIBUTION BENEFIT PLAN
The Company sponsors a 401 (k) defined contribution plan that covers all
employees who wish to participate. Employees may contribute the maximum amount
according to IRS regulations and the Company may make matching contributions at
the discretion of the Company's Board of Directors. The Company's matching
contributions totaled approximately $208,000 during 1995.
(12) STOCK BUY/SELL AGREEMENTS
The Company has entered into agreements with its stockholders whereby the
Company has the right of first refusal to repurchase its stock at 115% of the
book value at death or termination of employment of each stockholder. The
Company may assign its rights under this agreement to any other stockholder.
The agreements also place certain restrictions as to the sale, donation,
assignment, or transfer of the Company's stock.
(Continued)
F-37
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
(13) NATIONAL MORTGAGE ACCEPTANCE CORPORATION
The Company is a stockholder of National Mortgage Acceptance Corporation
(NMAC), a financing conduit which issues mortgage-backed securities. The
Company acts as underwriter for securities sold by NMAC and also receives
annual fees for administrative services provided to NMAC. The Company has
recorded its investment in NMAC on the equity basis. The Company's investment
in NMAC and the results of NMAC's operations were not significant to the
Company's financial statements.
(14) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases both its Richmond, Virginia and Charlotte, North Carolina
offices under noncancelable operating leases. The Richmond office lease
provides for escalating rentals generally based on the Consumer Price Index.
Minimum future rental commitments under non-cancelable operating leases are as
follows:
Year ending
December 31, Amount
1996 $ 387,027
1997 358,097
1998 368,840
1999 379,905
2000 391,302
2001 and thereafter 198,548
Total future lease payments $2,083,719
Total rental expense under operating leases approximated $410,000 in 1995.
LITIGATION
The Company is a party to several legal actions arising in the normal course of
business. In the opinion of management, such litigation is not expected to have
a material effect on the Company's financial position or results of operations.
(Continued)
F-38
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
(15) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Company enters into transactions as
principal, as agent, and for its own account. If the securities sold as
principal are not in the possession of the Company, or if agency transactions
do not settle, the Company may incur a loss if the market value of the security
is different from the contract value of the transaction. The Company may also
incur a loss should the market value of securities sold, not yet purchased,
increase prior to the purchase of such securities. The Company also enters into
futures contracts and underwriting commitments. The Company is at risk in these
transactions to the extent that a counterparty may fail to perform or that
market values fluctuate. At December 31, 1995, the Company had sold municipal
interest rate futures contracts with an underlying amount of $1,700,000 and
purchased government interest rate futures contracts with an underlying amount
of $3,000,000.
The Company collateralizes borrowings from lending institutions and repurchase
agreements with securities it owns and customer not-fully-paid-for securities.
If the counterparty to these transactions fails to return the securities, the
Company may incur a loss in discharging the obligation should the underlying
security's market value increase above the value as of the original transaction
date.
The Company does not anticipate nonperformance by customers or counterparties
in the above situations. The Company's policy is to monitor its market exposure
and counterparty risk and to review, as necessary, the credit standing of each
counterparty and customer with which it conducts business.
F-39
<PAGE>
SCHEDULE I
CRAIGIE INCORPORATED
Computation of Net Capital Under Rule l5c3-1
December 31, l995
<TABLE>
<S> <C> <C>
Net capital:
Total stockholders' equity $12,602,855
Additions - allowable subordinated liabilities 1,175,000
13,777,855
Deductions and other charges:
Non-allowable assets:
Unsecured and partially secured accounts of
customers and non-customers $ 77
Investments not readily marketable 370,192
Exchange memberships, at cost 2,893
Property, furniture and fixtures, less accumulated
depreciation 716,600
Other assets 4,505,411 5,595,173
Haircuts on firm trading and investment securities 2,264,533
Other deductions and charges 769,375
Net capital $ 5,148,774
Aggregate indebtedness:
Items included in statement of financial condition:
Payable to brokers, dealers and clearing organizations 748,256
Payable to customers 166,319
Notes payable 935,743
Accrued expenses and other liabilities 4,260,469 6,110,787
Required net capital 407,386
Excess net capital 4,741,388
Ratio of aggregate indebtedness to net capital 1.19 to 1
</TABLE>
Note - There are no material differences between this computation and that
filed by the Company on Securities and Exchange Commission Form X-17A-5
as of December 31, 1995.
See accompanying independent auditors' report.
F-40
<PAGE>
SCHEDULE 2
CRAIGIE INCORPORATED
Computation for Determination of the Reserve Requirements Under Rule 15c3-3
December 31, 1995
<TABLE>
<S> <C>
Credit balances:
Customers, net of amounts related to short positions in customers'
accounts offset by securities owned by the Company $ 166,319
Customers' securities failed to receive (including credit balances in
continuous net settlement accounts) 1,359,716
Market value of stock dividends, splits and similar distributions
receivable over 30 calendar days old 12,740
Total credits 1,538,775
Debit balances:
Debit balances in customers' cash and margin accounts, excluding
unsecured and partially secured accounts and accounts doubtful
of collection 1,047,194
Securities borrowed to effectuate short sales by customers
and securities borrowed to make delivery on customers' securities
failed to deliver 51,031
Customers' securities failed to deliver not older than 30 calendar
days (including debit balances in continuous net settlement
accounts) 990,820
Total debits 2,089,045
Excess of total l5c3-3 debits over total credits $ 550,270
Amount held on deposit by the Company in reserve bank accounts
as of December 31, 1995 $ 225,334
Required deposit $ -
</TABLE>
Note - There are no material differences between this computation and that
filed by the Company on Securities and Exchange Commission Form
X-17A-5 as of December 31, 1995.
See accompanying independent auditors' report.
F-41
<PAGE>
SCHEDULE 3
CRAIGIE INCORPORATED
Information Relating to the Possession or Control Requirements Under Rule 15c3-3
December 31, 1995
<TABLE>
<S> <C>
1. Customers' fully paid securities and excess margin securities not in the
Company's possession or control as of the report date (for which
instructions to reduce to possession or control had been issued as of
the report date) but for which the required action was not taken by the
Company within the time frames specified under Rule l5c3-3. $ -
A. Number of items -
2. Customers' fully paid securities and excess margin securities for which
instructions to reduce to possession or control had not been issued as
of the report date, excluding items arising from "temporary lags which
result from normal business operations" as permitted under Rule l5c3-3. $ -
A. Number of items -
</TABLE>
See accompanying independent auditors' report.
F-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON INTERNAL CONTROL STRUCTURE
REQUIRED BY SEC RULE 17A-5
YEAR ENDED DECEMBER 31, 1995
<PAGE>
KPMG Peat Marwick LLP
Suite 1900
1021 East Cary Street
Richmond, VA 23219-4023
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL STRUCTURE
REQUIRED BY SEC RULE 17A-5
The Board of Directors Craigie Incorporated:
In planning and performing our audit of the financial statements of Craigie
Incorporated for the year ended December 31, 1995, we considered its internal
control structure, including procedures for safeguarding securities, in order
to determine our auditing procedures for the purpose of expressing our opinion
on the financial statements and not to provide assurance on the internal
control structure.
Also, as required by rule 17a-5(g)(1) of the Securities and Exchange
Commission, we have made a study of the practices and procedures (including
tests of compliance with such practices and procedures) followed by Craigie
Incorporated that we considered relevant to the objectives stated in rule
17a-5(g), (1) in making the periodic computations of aggregate indebtedness and
net capital under rule 17a-3(a)(11) and the reserve required by rule l5c3-3(e);
(2) in making the quarterly securities examinations, counts, verifications and
comparisons, and the recordation of differences required by rule l7a-13; (3) in
complying with the requirements for prompt payment for securities under section
8 of Regulation T of the Board of Governors of the Federal Reserve System; and
(4) in obtaining and maintaining physical possession or control of all fully
paid and excess margin securities of customers as required by rule 15c3-3.
The management of Craigie Incorporated is responsible for establishing and
maintaining an internal control structure and the practices and procedures
referred to in the preceding paragraph. In fulfilling this responsibility,
estimates and judgments by management are required to assess the expected
benefits and related costs of internal control structure policies and
procedures and of the practices and procedures referred to in the preceding
paragraph and to assess whether those practices and procedures can be expected
to achieve the Commission's above mentioned objectives. Two of the objectives
of an internal control structure and the practices and procedures are to
provide management with reasonable, but not absolute, assurance that assets for
which the Company has responsibility are safeguarded against loss from
unauthorized use or disposition and that transactions are executed in
accordance with management's authorization and recorded properly to permit the
preparation of financial statements in conformity with generally accepted
accounting principles. Rule 17a-5(g) lists additional objectives of the
practices and procedures listed in the preceding paragraph.
(Continued)
F-43
Because of inherent limitations in any internal control structure or the
practices and procedures referred to above, errors or irregularities may
occur and not be detected. Also, projection of any evaluation of them to future
periods is subject to the risk that they may become inadequate because of
changes in conditions or that the effectiveness of their design and operation
may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce
to a relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the
normal course of performing their assigned functions. However, we noted no
matters involving the internal control structure, including procedures for
safeguarding securities, that we consider to be material weaknesses as
defined above.
We understand that practices and procedures that accomplish the objectives
referred to in the second paragraph of this report are considered by the
Commission to be adequate for its purposes in accordance with the Securities
Exchange Act of 1934 and related regulations and that practices and
procedures that do not accomplish such objectives in all material respects
indicate a material inadequacy for such purposes. Based on this understanding
and on our study, we believe that Craigie Incorporated's practices and
procedures were adequate at December 31, 1995 to meet the Commission's
objectives.
This report is intended solely for the use of the board of directors,
management, the National Association for Securities Dealers, Inc., the
Securities and Exchange Commission and other regulatory agencies which rely
on rule 17a-5(g) under the Securities Exchange Act of 1934 and should not be
used for any other purpose.
KPMG Peat Marwick LLP
January 12, 1996
F-44
<PAGE>
KPMG Peat Marwick LLP
Suite 1900
1021 East Cary Street
Richmond, VA 23219-4023
Independent Auditors' Report
The Board of Directors
Craigie Incorporated:
We have audited the accompanying statement of financial condition of Craigie
Incorporated as of December 31, 1994, and the related statements of income,
changes in stockholders' equity, changes in subordinated liabilities and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Craigie Incorporated at
December 31, 1994, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information contained in Schedules 1
through 3 is presented for purposes of additional analysis and is not a required
part of the basic financial statements, but is supplementary information
required by Rule 17a-5 of the Securities and Exchange Commission. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
KPMG Peat Marwick LLP
January 13, 1995
F-45
<PAGE>
CRAIGIE INCORPORATED
Statement of Financial Condition
December 31, 1994
Assets
<TABLE>
<CAPTION>
<S> <C>
Cash $ 303,412
Cash segregated under Federal regulations 312,432
Deposits with clearing organizations 883,207
Receivable from brokers, dealers and clearing organizations 10,048,670
Receivable from customers (note 2) 7,210,189
Securities purchased under agreements to resell 1,770,938
Marketable securities, at market value:
State and municipal bonds 37,072,414
U.S. government and agency obligations 9,717,779
Corporate stocks and bonds 1,223,403
Accrued interest 954,068
Cash surrender value of insurance policies, net of policy loans
of $596,042 5,611,956
Property, furniture and fixtures (less accumulated
depreciation of S1,582,721)(note 4) 834,606
Deferred income taxes (note 9) 858,296
Other assets 833,327
-------------
Total assets $ 77,634,697
=============
Liabilities and Stockholders' Equity
Short-term bank loans (note 5) 38,417,000
Payable to brokers, dealers and cleating organizations 10,734,864
Payable to customers (note 2) 363,432
Securities sold, but not yet purchased, at market value (note 3) 1,800,165
Accounts payable and accrued expenses (note 10) 3,801,185
Notes payable (note 6) 1,110,743
-------------
56,227,389
-------------
Liabilities subordinated to the claims of general creditors (note 7) 3,625,000
Stockholders' equity (notes 8 and 11):
Common stock, no par value. Authorized 2,400,000 shares; issued
and outstanding 1,180,416 shares 500,000
Retained earnings 17,282,308
-------------
Total stockholders' equity 17,782,308
-------------
Total subordinated liabilities and stockholders' equity 21,407,308
-------------
Commitments and contingencies (notes 11, 13 and 14)
Total liabilities and stockholders' equity $ 77,634,697
=============
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
CRAIGIE INCORPORATED
Statement of Income
Year ended December 31, 1994
Revenues:
Commissions $ 670,273
Investment banking 4,793,567
Profits from trading securities 7,378,980
Interest and dividends 1,857,176
Other 191,375
-------------
14,891,371
-------------
Expenses:
Employee compensation and benefits 10,039,721
Communications 1,038,699
Interest 1,540,326
Occupancy and equipment 702,831
Brokerage, clearing and exchange fees 334,387
Advertising and sales promotion 591,788
Other operating expenses 612,296
-------------
14,860,048
-------------
Income before income taxes 31,323
Income tax benefit (note 9) 438,285
-------------
Net income $ 469,608
Earnings per share
Primary $ 0.37
Fully diluted 0.30
=============
See accompanying notes to financial statements.
F-47
<PAGE>
CRAIGIE INCORPORATED
Statement of Changes in Stockholders' Equity
Year ended December 31, 1994
<TABLE>
<CAPTION>
Common stock
Number Retained
of shares Amount earnings Total
---------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 1,278,284 $ 500.000 18,444,387 $ 18,944,387
Purchase and retirement of common stock (105,357) (1,899,122) - (1,899,122)
Sale of common stock 7,489 267,435 - 267,435
Transfer from retained earnings - 1,631,687 (1,631,687) -
Net income - - 469,608 469,608
---------- ------------ ------------ -------------
Balance, December 31, 1994 1,180,416 $ 500,000 17,282,308 $ 17,782,308
========== ============ ============ =============
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE>
CRAIGIE INCORPORATED
Statement of Changes in Subordinated Liabilities
Year ended December 31, 1994
Balance, December 31, 1993 $ 3,875,000
Retirement of subordinated notes (250,000)
-----------
Balance, December 31, 1994 $ 3,625,000
===========
See accompanying notes to financial statements.
F-49
<PAGE>
CRAIGIE INCORPORATED
Statement of Cash Flows
Year ended December 31, 1994
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 469,608
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 219,963
Deferred income tax benefit (212,019)
(Increase) decrease in assets:
Cash segregated under Federal regulations (87,250)
Deposits with clearing organizations 86,459
Receivable from brokers, dealers and clearing organizations (8,361,306)
Receivable from customers 540,553
Securities purchased under agreements to resell 11,251,042
Securities owned and accrued interest 5,985,511
Cash surrender value of insurance policies, net (917,008)
Other assets 888,046
Increase (decrease) in liabilities:
Payable to brokers, dealers and clearing organization 8,178,289
Payable to customers (784,825)
Securities sold, but not yet purchased (2,458,176)
Accounts payable and accrued expenses (2,505,245)
Securities sold under agreements to repurchase (11,748,691)
------------
Net cash provided by operating activities 544,951
------------
Cashflows from financing activities:
Net change in short-term bank loans (1,073,000)
Borrowings on life insurance policies 43,355
Retirement of subordinated notes (250,000)
Proceeds from sale of common stock 267,434
Repurchase of common stock (788,378)
------------
Net cash used for financing activities (1,800,589)
------------
Cash flows from investing activities - purchases of
property, furniture and fixtures (55,679)
------------
Net decrease in CASH (1,311,317)
Cash at beginning of year 1,614,729
------------
Cash at end of year $ 303,412
============
Supplemental disclosures of cash flow information:
Interest payments $ 1,548,304
============
Income tax payments $ --
============
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
December 31, 1994
(1) Summary of Significant Accounting Policies
Craigie Incorporated (the Company) is a registered broker-dealer selling
primarily to institutional customers. A summary of the significant
accounting and reporting policies of the Company is presented below.
(a) Securities Transactions
Securities transactions and related revenues and expenses are recorded
on settlement date, which is not materially different from a trade date
basis.
(b) Investment Banking
Where the Company is the manager or co-manager of a securities offering,
management and underwriting fees are recorded at the time a commitment
has been made. For all other underwritings, fees are recorded when the
underwriting is closed. Sales concessions are recorded on a settlement
date basis.
(c) Marketable Securities and Futures Contracts
Marketable securities are valued at market value. The Company may enter
into futures contracts from time to time in order to hedge a portion
of marketable securities owned. Futures contracts are valued at market
value with unrealized gains and losses included in profits from
trading securities in the statement of income.
(d) Repurchase and Resale Agreements
Repurchase and resale agreements are accounted for as financing
transactions and are recorded at the amount for which the securities
will be subsequently reacquired or resold, as specified in the
respective agreements. The Company has procedures in place to
periodically monitor the value of collateral underlying resale
agreements.
(e) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
F-51
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
(f) Equipment Leasehold Improvements
Depreciation and amortization on equipment is provided on a straight-line
basis and amortization of leasehold improvements is provided over the
lesser of their useful life or the related lease term
Building and improvements 25 years
Leasehold improvements 7 years
Furniture and fixtures 5 years
(g) Earnings Per Share
Earnings per share is calculated by dividing net income by the weighted
average shares of common stock outstanding during the period. The Company
does not have any common stock equivalents. The number of shares used in
the earnings per share calculation is 1,256,822 for the year ended December
31, 1994.
(2) Receivable From and Payable to Customers
The balances represent the net amounts receivable from and payable to
customers in connection with normal cash and margin transactions. The
amounts receivable from customers are generally collateralized by
securities, the value of which is not reflected in the accompanying
financial statements.
(3) Securities Sold, But Not Yet Purchased
Securities sold, but not yet purchased are valued at market value and consist
of the following:
December 31,
1994
U. S. government and government
agency obligations $1,766,328
State and municipal obligations 13,613
Corporate stocks 20,224
---------
$1,800,165
===========
(4) Property, Furniture and Fixtures
The components of property, furniture and fixtures are as follows:
December 31,
1994
Land $ 153,538
Building and improvements 899,652
Leasehold improvements 41,819
Furniture and fixtures 1,322,318
---------
2,417,327
Less: accumulated depreciation
and amortization 1,582,721
---------
$ 834,606
==========
The land and building and improvements are currently being held for resale or
lease.
(Continued)
F-52
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
(5) Short-term Bank Loans
The Company has various short-term loan arrangements with banks. These
loans generally bear interest at the bank's broker call rates (rates range
from 6% to 7% at December 31, 1994). These loans are collateralized by
Company cash balances and marketable securities totaling $39,344,857 and
customer not-fully-paid-for marketable securities valued at $6,151,240.
(6) Notes Payable
In January 1994, the Company issued two promissory notes in the amounts of
$629,009 and $481,734 for the repurchase of the Company's stock from a
former director. These promissory notes bear interest at 1/2 of 1% above a
commercial bank's prime rate. The rate on these promissory notes at
December 31, 1994 was 8.25%. The principal amounts of these promissory
notes shall be paid by the Company as follows: $100,000 at January 31,
1995, $100,000 at January 31, 1996 and $910,743 at January 31, 1997.
(7) Liabilities Subordinated to the Claims of General Creditors
At December 31, 1994, the Company had outstanding to certain officers of
the Company $3,625,000 of convertible subordinated debentures. Of the
debentures outstanding, $1,000,000 are due on June 1, 1995, $1,625,000 are
due on April 1, 1998, and $ 1,000,000 are due on July 1, 2000. At any time
prior to the debentures' maturities, the outstanding debentures may be
converted, by the holder, into one share of common stock for each $7.085,
$9.57 or $16.42, respectively, of principal, or the Company may redeem the
debentures at par plus any accrued interest. The subordinated debentures
bear interest at 1% above a commercial bank's prime rate. The rate on these
debentures at December 31, 1994 was 8.75%. Subsequent to December 31, 1994,
$200,000 of the debentures due June 1, 1995 and $300,000 of the debentures
due April 1, 1998 were converted to common stock.
The subordinated debentures due June 1, 1995 and April 1, 1998 have been
approved by the National Association of Securities Dealers, Inc. (NASD) for
inclusion as net capital for purposes of computing net capital under the
Securities and Exchange Commission Uniform Net Capital Rule l5c3-1. Both
conversion and early redemption require the prior written approval of the
NASD.
(8) Net Capital Requirements
The Company is subject to the net capital rules of the Securities and
Exchange Commission and elects to compute its net capital requirements in
accordance with the aggregate indebtedness method. Under this method, the
ratio of aggregate indebtedness to net capital, as defined, shall not
exceed 15 to 1. At December 31, 1994, the Company's net capital was
$10,833,419, which was $10,095,129 in excess of the minimum net capital
required. The ratio of aggregate indebtedness to net capital was 1.02 to 1.
(Continued)
F-53
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
(9) Income Taxes
The provision for income tax expense (benefit) consists of the following:
December 31,
1994
Current:
Federal $ (229,454)
State 3,188
----------
(226,266)
Deferred (212,019)
----------
Total income tax benefit $ (438,285)
===========
A reconciliation of the U.S. corporate income tax rate and the effective tax
rate on income before income taxes is as follows:
U.S. corporate tax rate 34.0%
Tax-exempt interest 773.8%
Meals and entertainment (61.6)%
Company life insurance 274.8%
Other 378.2%
Effective tax rate 1399.2%
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below.
December 31,
1994
Deferred tax assets:
Deferred compensation, principally due to
accrual for financial reporting purposes $ 826,896
Alternative minimum taxes 50,000
Deferred rent, principally due to accrual for
financial reporting purposes 31,599
Other 28,965
------
Total gross deferred tax assets 937,460
---------
Deferred tax liabilities:
Property, furniture and fixtures, principally
due to differences in depreciation and
capitalized interest 67,292
Other 11,872
--------
Total gross deferred tax liabilities 79,164
--------
Net deferred tax asset $ 858,296
=========
(Continued)
F-54
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences.
(10) Deferred Compensation Arrangements
The Company has unfunded deferred compensation arrangements for certain officers
which provide for defined deferred compensation payments commencing at
retirement. The Company is accruing the expected present value of the future
benefits over the remaining working lives of the individuals. For the year ended
December 31, 1994, approximately $180,000 was charged to expense under these
arrangements.
(11) Stock Buy/Sell Agreements
The Company has entered into agreements with its stockholders whereby the
Company has the right of first refusal to repurchase its stock at 115% of the
book value at death or termination of employment of each stockholder. The
Company may assign its rights under this agreement to any other stockholder. The
agreements also place certain restrictions as to the sale, donation, assignment,
or transfer of the Company's stock. Subsequent to December 31, 1994, stock with
a redemption value of approximately $2,070,000 became eligible for redemption by
the Company.
(12) National Mortgage Acceptance Corporation
The Company is a stockholder of National Mortgage Acceptance Corporation (NMAC),
a financing conduit which issues mortgage-backed securities. The Company acts as
underwriter for securities sold by NMAC and also receives annual fees for
administrative services provided to NMAC. The Company has recorded its
investment in NMAC on the equity basis. The Company's investment in NMAC and the
results of NMAC's operations were not significant to the Company's financial
statements.
(13) Commitments and Contingencies
(a) Leases
The Company leases both its Richmond, Virginia and Charlotte, North Carolina
offices under noncancelable operating leases. The Richmond office lease provides
for escalating rentals generally based on the Consumer Price Index.
(Continued)
F-55
<PAGE>
CRAIGIE INCORPORATED
Notes to Financial Statements
Minimum future rental commitments under non-cancelable operating leases are as
follows:
Year ending
December 31. Amount
1995 $ 376,901
1996 387,027
1997 358,097
1998 368,840
1999 379,905
2000 and thereafter 389,844
-----------
Total future lease payments $ 2,260,614
===========
Total rental expense under operating leases approximated $396,000 in
1994.
(b) Litigation
The Company is a party to several legal actions arising in the normal course
of business. In the opinion of management, such litigation is not expected to
have a material effect on the Company's financial position.
(14) Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Company enters into transactions as
principal, as agent, and for its own account. If the securities sold as
principal are not in the possession of the Company, or if agency transactions do
not settle, the Company may incur a loss if the market value of the security is
different from the contract value of the transaction. The Company may also incur
a loss should the market value of securities sold, not yet purchased, increase
prior to the purchase of such securities. The Company also enters into futures
contracts and underwriting commitments. The Company is at risk in these
transactions to the extent that a counterparty may fail to perform or that
market values fluctuate. At December 31, 1994, the Company had sold municipal
and government interest rate futures contracts with underlying amounts of
$6,800,000 and $5,500,000, respectively.
The Company collateralizes borrowings from lending institutions and repurchase
agreements with securities it owns and customer not-fully-paid-for securities.
If the counterparty to these transactions fails to return the securities, the
Company may incur a loss in discharging the obligation should the underlying
security's market value increase above the value as of the original transaction
date.
The Company does not anticipate nonperformance by customers or counterparties in
the above situations. The Company's policy is to monitor its market exposure and
counterparty risk and to review, as necessary, the credit standing of each
counterparty and customer with which it conducts business.
F-56
<PAGE>
Schedule 1
CRAIGIE INCORPORATED
Computation of Net Capital Under Rule l5c3-1
December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Net capital
Total stockholders' equity $ 17,782,308
Additions - allowable subordinated
liabilities 2,625,000
---------
20,407,308
Non-allowable assets:
Unsecured and partially secured accounts of
customers and non-customers 598
Investments not readily marketable 381,272
Exchange memberships, at cost 2,893
Property, furniture and fixtures,
less accumulated depreciation 834,606
Other assets 3,707,552 4,926,921
=========
Haircuts on firm trading and investment securities 2,891,408
Other deductions and charges 1,755,560
-----------
Net capital 10,833,419
Aggregate indebtedness: ===========
Items included in statement of financial condition:
Short-term bank loans 5,067,132
Payable to brokers or dealers and
clearing organizations 733,052 362,241
Payable to customers 362,241
Notes payable 1,110,743
Accrued expenses and other liabilities 3,801,185 11,074,353
--------- ===========
738,290
Required net capital ===========
Excess net capital 10,095,129
===========
Ratio of aggregate indebtedness to net capital 1.02 to 1
===========
</TABLE>
Note - There are no material differences between this computation and that
filed by the Company on Securities and Exchange Commission Form X-17A-5
as of December 31, 1994.
See accompanying independent auditors' report
F-57
<PAGE>
Schedule 2
CRAIGIE INCORPORATED
Computation for Determination of the Reserve
Requirements Under Rule 15c3-3
December 31, 1994
<TABLE>
<S> <C>
Credit balances:
Customers, net of amounts related to short positions in customers' accounts
offset by securities owned by the Company $ 362,241
Monies borrowed collateralized by customer securities 6,151,240
Customers' securities failed to receive (including credit balances
continuous net settlement accounts) 10,645,135
Market value of stock dividends, splits and similar distributions
receivable over 30 calendar days old 12,641
Market value of securities in transfer in excess of 40 calendar days and
not confirmed to be in transfer during the 40 days 331
----------
Total credits 17,171,588
----------
Debit balances:
Debit balances in customers' cash and margin accounts, excluding unsecured
and partially secured accounts and accounts doubtful of collection 7,125,587
Securities borrowed to effectuate short sales by customers and securities
borrowed to make delivery on customers' securities failed to deliver 28,301
Customers' securities failed to deliver not older than 30 calendar days
(including debit balances in continuous net settlement accounts) 9,998,864
---------
Total debits 17,152,752
==========
Excess of total l5c3-3 credits over total debits $ 18,836
===========
Amount held on deposit by the Company in Reserve Bank Accounts
as of December 31, 1994 $ 312,432
===========
Required deposit $ -
===========
</TABLE>
Note - There are no material differences between this computation and that
filed by the Company on Securities and Exchange Commission Form
X-17A-5 as of December 31, 1994.
See accompanying independent auditors' report.
F-58
<PAGE>
Schedule 3
CRAIGIE INCORPORATED
Information Relating to the Possession or
Control Requirements Under Rule l5c3-3
December 31, 1994
<TABLE>
<S> <C>
1. Customers' fully paid securities and excess margin securities not in
the Company's possession or control as of the report date (for which
instructions to reduce to possession or control had been issued as of
the report date) but for which the required action was not taken by the
Company within the time frames specified under Rule l5c3-3. $ -
=======
A. Number of items -
=======
2. Customers' fully paid securities and excess margin securities for which
instructions to reduce to possession or control had not been issued as
of the report date, excluding items arising from "temporary lags which
result from normal business operations" as permitted under Rule l5c3-3. $ -
=======
A. Number of items -
=======
</TABLE>
See accompanying independent auditors' report.
F-59
<PAGE>
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL STRUCTURE
REQUIRED BY SEC RULE 17a-5
Year ended December 31, 1994
KPMG Peat Marwick LLP
Suite 1900
1021 East Cary Street
Richmond. VA 23219-4023
Independent Auditors' Report on Internal Control Structure
Required by SEC Rule 17a-5
The Board of Directors
Craigie Incorporated:
In planning and performing our audit of the financial statements of Craigie
Incorporated for the year ended December 31, 1994, we considered its internal
control structure, including procedures for safeguarding securities, in order
to determine our auditing procedures for the purpose of expressing our opinion
on the financial statements and not to provide assurance on the internal
control structure.
Also, as required by rule 17a-5(g)(1) of the Securities and Exchange
Commission, we have made a study of the practices and procedures (including
tests of compliance with such practices and procedures) followed by Craigie
Incorporated that we considered relevant to the objectives stated in rule
17a-5(g), (1) in making the periodic computations of aggregate indebtedness and
net capital under rule 17a-3(a)(11) and the reserve required by rule l5c3-3(e);
(2) in making the quarterly securities examinations, counts, verifications and
comparisons, and the recordation of differences required by rule 17a-13; (3) in
complying with the requirements for prompt payment for securities under section
8 of Regulation T of the Board of Governors of the Federal Reserve System; and
(4) in obtaining and maintaining physical possession or control of all fully
paid and excess margin securities of customers as required by rule l5c3-3.
The management of Craigie Incorporated is responsible for establishing and
maintaining an internal control structure and the practices and procedures
referred to in the preceding paragraph. In fulfilling this responsibility,
estimates and judgments by management are required to assess the expected
benefits and related costs of internal control structure policies and
procedures and of the practices and procedures referred to in the preceding
paragraph and to assess whether those practices and procedures can be expected
to achieve the Commission's above mentioned objectives. Two of the objectives
of an internal control structure and the practices and procedures are to
provide management with reasonable, but not absolute, assurance that assets for
which the Company has responsibility are safeguarded against loss from
unauthorized use or disposition and that transactions are executed in
accordance with management's authorization and recorded properly to permit the
preparation of financial statements in conformity with generally accepted
accounting principles. Rule 17a-5(g) lists additional objectives of the
practices and procedures listed in the preceding paragraph.
F-60
<PAGE>
Because of inherent limitations in any internal control structure or the
practices and procedures referred to above, errors or irregularities may occur
and not be detected. Also, projection of any evaluation of them to future
periods is subject to the risk that they may become inadequate because of
changes in conditions or that the effectiveness of their design and operation
may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce
to a relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above.
We understand that practices and procedures that accomplish the objectives
referred to in the second paragraph of this report are considered by the
Commission to be adequate for its purposes in accordance with the Securities
Exchange Act of 1934 and related regulations and that practices and procedures
that do not accomplish such objectives in all material respects indicate a
material inadequacy for such purposes. Based on this understanding and on our
study, we believe that Craigie Incorporated's practices and procedures were
adequate at December 31, 1994 to meet the Commission's objectives.
This report is intended solely for the use of the board of directors,
management, the National Association for Securities Dealers, Inc., the
Securities and Exchange Commission and other regulatory agencies which rely on
rule 17a-5(g) under the Securities Exchange Act of 1934 and should not be used
for any other purpose.
KPMG Peat Marwick LLP
January 13, 1995
F-61
<PAGE>
APPENDIX I
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
SOUTHERN NATIONAL CORPORATION
(NOW BB&T CORPORATION)
AND
CRAIGIE INCORPORATED
MARCH 7, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I.........................................................................................................1
The Merger...............................................................................................1
1.1 Merger..........................................................................................1
1.2 Filing; Plan of Merger..........................................................................2
1.3 Effective Time..................................................................................2
1.4 Closing.........................................................................................2
1.5 Effect of Merger................................................................................2
1.6 Further Assurances..............................................................................3
1.7 Merger Consideration............................................................................3
1.8 Conversion of Shares; Payment of Merger Consideration; Surrendering Procedure
...............................................................................................7
1.9 Dissenting Shares...............................................................................8
ARTICLE II
Representations and Warranties of Craigie................................................................8
2.1 Organization and Good Standing..................................................................8
2.2 Authority.......................................................................................9
2.3 Capitalization..................................................................................9
2.4 No Conflict.....................................................................................9
2.5 Required Consents...............................................................................9
2.6 Subsidiaries and Investments...................................................................10
2.7 Material Contracts.............................................................................10
2.8 Minute and Stock Transfer Books................................................................10
2.9 Financial Statements...........................................................................10
2.10 Absence of Certain Changes.....................................................................11
2.11 Undisclosed Liabilities; Hedges and Derivatives................................................11
2.12 Title to and Sufficiency of Assets.............................................................12
2.13 Securities.....................................................................................12
2.14 Receivables....................................................................................12
2.15 Insurance......................................................................................13
2.16 Licenses and Permits...........................................................................13
2.17 Litigation and Compliance......................................................................13
2.18 Tax Matters....................................................................................14
2.19 Environmental Matters..........................................................................15
2.20 Intangible Rights..............................................................................15
2.21 Employees; Compensation; Benefit Plans.........................................................16
2.22 Labor Matters..................................................................................19
2.23 Contracts with Affiliates......................................................................19
2.24 Accuracy of Information........................................................................20
2.25 Brokers........................................................................................20
2.26 Investment Advisers Act Matters................................................................20
i
<PAGE>
ARTICLE III......................................................................................................20
Representations and Warranties of SNC...................................................................20
3.1 Capital Structure of SNC.......................................................................20
3.2 Organization, Standing and Authority of SNC....................................................20
3.3 Organization, Standing and Authority of BB&T Acquisition.......................................21
3.4 Authorized and Effective Agreement.............................................................21
3.5 Securities Documents...........................................................................21
3.6 Financial Statements...........................................................................21
3.7 Material Adverse Change........................................................................21
3.8 Legal Proceedings; Regulatory Approvals........................................................21
3.9 Absence of Undisclosed Liabilities.............................................................22
3.10 Allowance for Loan Losses......................................................................22
3.11 Tax Matters....................................................................................22
3.12 Compliance with Laws...........................................................................22
ARTICLE IV
Covenants...............................................................................................23
4.1 Shareholders' Meeting..........................................................................23
4.2 Plan of Merger; Reservation of Shares..........................................................23
4.3 Additional Acts................................................................................24
4.4 Best Efforts...................................................................................24
4.5 Certain Accounting Matters.....................................................................24
4.6 Access to Information..........................................................................24
4.7 Press Releases.................................................................................25
4.8 Forbearances of Craigie........................................................................25
4.9 Employment and Noncompetition Agreements.......................................................27
4.10 Affiliates.....................................................................................27
4.12 Craigie Stock Rights...........................................................................27
4.13 Shareholder Agreements.........................................................................28
4.14 Off-Balance Sheet Positions....................................................................28
4.15 Bonus Program..................................................................................28
4.16 Escrow Agreement...............................................................................28
ARTICLE V
Conditions Precedent to SNC's Obligations..............................................................29
5.1 Representations and Warranties.................................................................29
5.2 Performance by Craigie.........................................................................29
5.3 Compliance Certificate.........................................................................29
5.4 Approvals; No Restraint on Transactions........................................................29
5.5 No Material Adverse Change.....................................................................29
5.6 Third Party Consents...........................................................................29
5.7 Employees......................................................................................30
5.8 Tax Opinion....................................................................................30
5.9 Legal Opinions.................................................................................30
ii
<PAGE>
5.10 Dissenters.....................................................................................30
ARTICLE VI
Conditions Precedent to Craigie's Obligations...........................................................30
6.1 Representations and Warranties.................................................................30
6.2 Performance by SNC.............................................................................30
6.3 Compliance Certificate.........................................................................30
6.4 Approvals; No Restraint on Transactions........................................................30
6.5 Tax Opinion....................................................................................31
6.6 Legal Opinion..................................................................................31
ARTICLE VII
Closing.................................................................................................31
7.1 Deliveries By Craigie..........................................................................31
7.2 Deliveries By SNC..............................................................................32
7.3 Delivery of Escrow Agreement...................................................................32
ARTICLE VIII.....................................................................................................32
Indemnification.........................................................................................32
8.1 Indemnification by Director/Shareholders.......................................................32
8.2 Indemnification by Craigie.....................................................................33
8.3 Indemnification by SNC.........................................................................33
8.4 Notice of Claim................................................................................33
8.5 Defense........................................................................................34
8.6 Other Remedies.................................................................................34
8.7 Maximum Indemnity Amount.......................................................................34
8.8 Time Limitations...............................................................................34
8.9 Shareholders' Representatives..................................................................34
ARTICLE IX
Termination.............................................................................................35
9.1 Termination....................................................................................35
9.2 Effect on Obligations..........................................................................36
9.3 Waiver.........................................................................................36
9.4 Amendment or Supplement........................................................................36
ARTICLE X
Miscellaneous...........................................................................................37
10.1 Survival.......................................................................................37
10.2 Notices........................................................................................37
10.3 Predecessor Agreement; Complete Agreement......................................................38
10.4 Further Assurances.............................................................................38
iii
<PAGE>
10.5 Expenses.......................................................................................38
10.6 Governing Law..................................................................................39
10.7 Binding Effect.................................................................................39
10.8 Severability...................................................................................39
10.9 Counterparts...................................................................................39
10.10 Captions.......................................................................................39
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
This Amended and Restated Agreement and Plan of
Reorganization, dated as of March 7, 1997 (the "Agreement"), is by and between
SOUTHERN NATIONAL CORPORATION, a North Carolina Corporation with its principal
office in Winston-Salem, North Carolina ("SNC"), and CRAIGIE INCORPORATED, a
Virginia corporation ("Craigie");
STATEMENT OF PURPOSE
The parties desire that SNC shall incorporate BB&T
Acquisition, Inc. ("BB&T Acquisition") under the laws of the Commonwealth of
Virginia as a wholly-owned subsidiary, to be merged with and into Craigie (said
transaction being hereinafter referred to as the "Merger") pursuant to a plan of
merger in the form set forth in the Articles of Merger attached hereto as
Exhibit A ("Plan of Merger"), and the parties desire to provide for certain
undertakings, conditions, representations, warranties and covenants in
connection with the transactions contemplated hereby.
To accomplish such purposes and in consideration of the
premises and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
The Merger
1.1 Merger. BB&T Acquisition and Craigie are constituent
corporations to the Merger as contemplated by the Virginia Stock Corporation Act
(the "VASCA"). From and after the Effective Time (as defined in Section 1.3):
(a) BB&T Acquisition shall be merged with and into
Craigie in accordance with the applicable provisions of the
VASCA, with Craigie remaining as the surviving corporate
entity (hereinafter sometimes referred to as the "Surviving
Corporation").
(b) The separate existence of BB&T Acquisition shall
cease and the Merger shall in all respects have the effect
provided for in Section 1.5.
(c) The Articles of Incorporation of Craigie shall
continue in effect as the Articles of Incorporation of the
Surviving Corporation at the Effective Time.
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(d) The Bylaws of Craigie as presently constituted
shall become the Bylaws of the Surviving Corporation at the
Effective Time.
1.2 Filing; Plan of Merger. The Merger shall not become
effective unless and until this Agreement is duly approved by shareholders
holding a majority of the shares of each of BB&T Acquisition and Craigie. Upon
fulfillment or waiver of the conditions specified in Articles V and VI, and
provided that this Agreement has not been terminated pursuant to Article IX, the
Constituent Corporations will cause Articles of Merger in substantially the form
of Exhibit A (attached hereto) (the "Articles of Merger") to be executed and
filed with the Secretary of State of Virginia. The Plan of Merger, which is a
part of the Articles of Merger, is incorporated herein by reference, and
adoption of this Agreement by the Boards of Directors of the Constituent
Corporations and approval by the shareholders of the Constituent Corporations
shall constitute adoption and approval of the Plan of Merger.
1.3 Effective Time. The Merger shall be effective at the day
and hour on the Closing Date specified in the Articles of Merger filed with the
Secretary of State of Virginia (hereinafter sometimes referred to as the
"Effective Time").
1.4 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Womble Carlyle
Sandridge & Rice, PLLC, 1600 BB&T Financial Center, 200 West Second Street,
Winston-Salem, North Carolina, at 11:00 a.m. not later than the tenth business
day following the satisfaction of the conditions to Closing set forth in
Articles V and VI (the "Closing Date") unless the parties hereto agree in
writing upon a different time, date or place. The Closing shall not be deemed to
have occurred until all actions necessary to complete the Closing have occurred.
1.5 Effect of Merger. From and after the Effective Time, the
separate existence of BB&T Acquisition shall cease, and the Surviving
Corporation shall thereupon and thereafter, to the extent consistent with its
Articles of Incorporation, possess all the rights, privileges, immunities, and
franchises, of a public as well as of a private nature, of each of the
Constituent Corporations; and all property, real, personal and mixed, and all
debts due on whatever account, and all other chooses in action, and all and
every other interest, of or belonging to or due to each of the Constituent
Corporations shall be taken and deemed to be transferred to and vested in the
Surviving Corporation without further act or deed; and the title to any real
estate or any interest therein, vested in either of the Constituent
Corporations, shall not revert or be in any way impaired by reason of the
Merger. The Surviving Corporation shall thenceforth be responsible and liable
for all of the liabilities, obligations and penalties of each of the Constituent
Corporations; and any claim existing or action or proceeding, civil or criminal,
pending by or against either of the Constituent Corporations may be prosecuted
as if the Merger had not taken place, or the Surviving Corporation may be
substituted in its place; and any judgment rendered against either of the
Constituent Corporations may be enforced against the Surviving Corporation.
Neither the rights of creditors nor any liens upon the property of either of the
Constituent Corporations shall be impaired by reason of the Merger.
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1.6 Further Assurances. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any further
deeds, assignments or assurances in law or any other actions are necessary,
desirable or proper to vest, perfect or confirm of record or otherwise, in the
Surviving Corporation, the title to any property or rights of the Constituent
Corporations acquired or to be acquired by reason of, or as a result of, the
Merger, the Constituent Corporations agree that such Constituent Corporations
and their proper officers and directors shall and will execute and deliver all
such proper deeds, assignments and assurances in law and do all things
necessary, desirable or proper to vest, perfect or confirm title to such
property or rights in the Surviving Corporation and otherwise to carry out the
purpose of this Agreement, and that the proper officers and directors of the
Surviving Corporation are fully authorized and directed in the name of the
Constituent Corporations or otherwise to take any and all such actions.
1.7 Merger Consideration.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) Average Market Value. "Average Market Value" per
share or per unit shall mean, with respect to each security
held by Craigie, the highest offer received by Craigie to
purchase such security, determined by application of the
following procedure: Craigie shall, on the date next preceding
the date as of which Average Market Value is being determined,
solicit from reputable purchasers reasonably acceptable to SNC
three current bids to purchase each security for normal
delivery. The highest of such bids for each market security
shall be deemed to be the Average Market Value.
(ii) Closing Value. "Closing Value" shall mean, with
respect to SNC common stock, the average closing price per
share of SNC common stock on the New York Stock Exchange for
the twenty trading days immediately preceding the tenth
calendar day prior to the Closing Date, as reported in THE
WALL STREET JOURNAL.
(iii) Considered Earnings Per Share. "Considered
Earnings per Share" shall mean, with respect to Craigie, an
amount per share of Craigie common stock determined by
dividing the number of shares of Craigie common stock issued
and outstanding at the Effective Time into the lesser of the
following: (A) actual net earnings after tax of Craigie for
the period beginning on January 1, 1997 and ending on and
including the Closing Date, determined in accordance with
generally accepted accounting principles consistently applied,
or (B) $1.435 million multiplied by a fraction, the numerator
of which is the number of days in 1997 ending on and including
the Closing Date, and the denominator of which is 365.
(iv) Tangible Book Value. "Tangible Book Value" shall
mean, with respect to Craigie, the shareholders' equity of
Craigie determined as of the applicable date in accordance
with generally accepted accounting principles consistently
applied, adjusted (A) to include any unrealized gains or
losses on marketable securities held by Craigie at the Average
Market Value per share or per unit, (B) to eliminate
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goodwill and other intangible assets, and (C) to treat the
principal amount of the convertible subordinated debt
described in Section 4.12, if any, of Craigie as if it were
equity.
(v) Tangible Book Value Per Share. "Tangible Book
Value per Share" shall mean, with respect to Craigie, an
amount per share of Craigie common stock determined by
dividing the Tangible Book Value of Craigie as of the date as
of which Tangible Book Value per Share is being determined by
the number of shares of Craigie common stock issued and
outstanding at the Effective Time.
(vi) Options. For the purpose of determining the
number of shares of Craigie common stock issued and
outstanding at the Effective Time, any options to acquire
shares of Craigie common stock previously granted and
outstanding at the Effective Time shall be deemed to have been
exercised immediately preceding the Effective Time.
(b) The consideration to be exchanged in the Merger for each
share of Craigie common stock outstanding at the Effective Time (the
"Merger Consideration") shall be determined as provided in (i) and (ii)
of this Section 1.7(b), and shall consist of that number of shares of
SNC common stock (rounded to the nearest one-hundredth of a share)
equal to the lesser of: (x) 1.20 multiplied by the sum of (A) Tangible
Book Value per Share determined as of December 31, 1996, plus (B) the
Considered Earnings per Share, which product shall be divided by the
Closing Value; or (y) 1.20 multiplied by the Tangible Book Value per
Share as of the Closing Date, divided by the Closing Value.
Notwithstanding the foregoing, if the Closing Value is more than $49.03
and not more than $52.00, the Merger Consideration shall be determined
as if the Closing Value were $49.03; and if the Closing Value is more
than $52.00, the Merger Consideration shall be determined as if the
Closing Value were the sum of $49.03 plus the amount by which the
Closing Value exceeds $52.00; and if the Closing Value is less than
$29.43, SNC may terminate this Agreement or enter into negotiations
with Craigie to decrease the Merger Consideration. The Merger
Consideration shall be determined and distributed as follows:
(i) Closing Merger Consideration. The Closing Merger
Consideration, defined below, shall be distributed to or for
the benefit of the holders of record of Craigie common stock
at the Effective Time who are not Dissenting Shareholders
defined in Section 1.9 (the "Closing Shareholders") as soon as
practicable following the Effective Time in accordance with
Section 1.8(d). For this purpose, the "Closing Merger
Consideration" shall equal 90% of the approximate Merger
Consideration determined as provided in the foregoing
provisions of this Section 1.7(b) except that (x) and (y)
shall, to the extent dependent on Closing Date financial
statements of Craigie, be determined from the unaudited
financial statements of Craigie as of the Closing Date.
Notwithstanding the foregoing, an amount equal to 5% of the
aggregate Closing Merger Consideration shall be distributed to
the Escrow Agent named in the Escrow Agreement, to be
administered pursuant to the terms of the Escrow Agreement.
The amount of such distribution to the Escrow Agent shall be
allocated solely to the Closing Shareholders who were members
of the Board of Directors of Craigie on March 7, 1997 (the
"Director/Shareholders"), in the proportion that the Closing
Merger Consideration otherwise distributable to each
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Director/Shareholder bears to the Closing Merger Consideration
otherwise distributable to all Director/Shareholders. Any
fractional share of SNC common stock allocable to any Closing
Shareholder or to the Escrow Agent pursuant to this
subparagraph shall not be distributed.
(ii) Determination of Post-Closing Merger
Consideration. An amount equal to the difference between the
Merger Consideration and the Closing Merger Consideration (the
"Post-Closing Merger Consideration") shall be distributed to
or for the benefit of the Closing Shareholders in accordance
with Sections 1.7(b)(iii) and 1.8(d). The Merger Consideration
from which the Post-Closing Merger Consideration shall be
derived shall be determined by the following procedure:
(A) Closing Financial Statements. Promptly
following the Closing, SNC shall cause to be prepared
a balance sheet and income statement (the "Closing
Financial Statements") showing Craigie's Tangible
Book Value as of the Closing Date and Considered
Earnings per Share. The Closing Financial Statements
shall be prepared in accordance with generally
accepted accounting principles consistently applied
with prior periods, except for adjustments for
determining Tangible Book Value.
(B) Audit. The Closing Financial Statements
and related footnotes (if any) shall be audited and
reported on by Arthur Andersen & Co., L.L.P. ("Arthur
Andersen"). The report of Arthur Andersen shall be
unqualified except as necessary to reflect
adjustments in determining Tangible Book Value as
required herein. Prior to the Closing, SNC shall
cause Arthur Andersen to review Craigie's accounting
procedures and its audited 1996 Financial Statements
and work papers in preparation for auditing the
Closing Financial Statements. SNC shall exercise its
reasonable best efforts to cause the Closing
Financial Statements, together with the report of
Arthur Andersen thereon, to be delivered to the
Closing Shareholders as soon as practicable, but no
later than the sixtieth day after the Closing Date,
subject to the provisions of subsection (C) hereof.
Such delivery shall be made to the Shareholder
Representatives as provided in Section 8.9. SNC and
Craigie shall, and shall cause their respective
employees and agents to, fully cooperate in all
respects in the audit and review process and take
such actions and make such undertakings as are
customary in connection therewith.
(C) Review. Following delivery of the
Closing Financial Statements to the Shareholders'
Representatives, SNC shall cause Arthur Andersen to
provide the Shareholders' Representatives with an
opportunity to observe all aspects of the audit and
to review Arthur Andersen's work papers, and to
discuss the same with Arthur Andersen
representatives. SNC shall be responsible for the
fees and expenses of Arthur Andersen to the extent
allowed under Rev. Rul. 73-54, 1973-1C.B. 187. The
Shareholders' Representatives shall have 30 days to
review the Closing Financial Statements and to give
notice to SNC that they have a disagreement with
Arthur
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Andersen regarding the Closing Financial Statements
(an "Objection Notice"). Failing such Objection
Notice, the Closing Financial Statements as delivered
to the Shareholders' Representatives shall be final
and binding on the parties hereto.
(D) Objection Period. If the Shareholders'
Representatives give an Objection Notice in a timely
manner, but SNC and the Shareholders' Representatives
are able to resolve such objections, the Closing
Financial Statements, as modified to resolve such
objections, shall be binding on the parties hereto.
If SNC and the Shareholders' Representatives are
unable to reach agreement as to all differences
within 15 days after SNC's receipt of the
Shareholders' Representatives' Objection Notice, then
the unresolved differences shall be submitted to
arbitration to resolve the dispute and make a
determination which shall be binding on the parties
to this Agreement. Such arbitration shall be
conducted by arbitrators experienced in the matters
at issue and selected in accordance with the then
current Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"). The
arbitration shall be held in Winston-Salem, North
Carolina and shall be conducted in accordance with
the Rules. The decision of the arbitrator(s) shall be
final and binding as to any matters submitted to
arbitration; provided that, if necessary, such
decision may be enforced by either SNC or the
Shareholders' Representatives in any court having
competent jurisdiction. After delivery of the
arbitrator's decision, the Closing Financial
Statements, modified as appropriate to reflect the
arbitrator's decision, shall be final and binding.
The determination of which party (or combination
thereof) bears the costs and expenses incurred in
connection with any such arbitration proceedings
shall be determined by the arbitrator.
(iii) Distribution of Post-Closing Merger
Consideration. The Post-Closing Merger Consideration shall be
distributed as soon as practicable following the close of the
30-day period described in 1.7(b)(ii)(C) if an Objection
Notice has not been timely filed. If an Objection Notice is
timely filed, the portion of the Post-Closing Merger
Consideration which SNC and Craigie agree is distributable
shall be distributed (disregarding any fractional share of SNC
common stock) as soon as practicable following the close of
such 30-day period, and the remainder of the Post- Closing
Merger Consideration, if any, shall be distributed as soon as
practicable following final resolution of all objections in
the Objection Notice. Distributions of the Post-Closing Merger
Consideration shall be as follows:
(A) An amount equal to 5% of the aggregate
Post-Closing Merger Consideration shall be
distributed to the Escrow Agent. The amount of such
distribution to the Escrow Agent shall be allocated
solely to the Director/Shareholders in the proportion
that the Post-Closing Merger Consideration otherwise
distributable to each Director/Shareholder bears to
the Post-Closing Merger Consideration otherwise
distributable to all
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Director-Shareholders. Any fractional share allocable
to the Escrow Agent pursuant to this subparagraph
shall not be distributed.
(B) Following the distribution to the Escrow Agent
described in (A) immediately preceding, the remainder
of the Post-Closing Merger Consideration (including
fractional shares) shall be distributed to the
Closing Shareholders.
The Escrow Agent shall determine the percentage (to
the nearest one-hundredth of a share) of the total
shares of SNC common stock held by it for each
Director/ Shareholder as of the Effective Time. All
distributions from the escrow, if any, and all
dividends payable on shares of SNC common stock held
in escrow on the record date, shall be charged or
allocated among all of the Director/Shareholders in
proportion to their respective percentages in the
escrow fund. To the extent any amounts are
distributable to the Director/Shareholders upon
termination of the escrow, such distributions shall
be made in shares of common stock of SNC except that
the value of any fractional share shall be paid in
cash. The cash payable for such fractional shares
shall, if necessary, be provided by SNC.
(c) The amount of cash payable to a Closing Shareholder with
respect to any fractional share of SNC common stock shall be determined
by multiplying the fractional part of such share by the closing price
per share on the New York Stock Exchange of the last trade of SNC
common stock on the day next preceding the date of distribution, as
reported in THE WALL STREET JOURNAL.
(d) By executing this Agreement, each Director/Shareholder
consents to the foregoing provisions of this Section 1.7 providing for
distribution to the Escrow Agent of a portion of the Merger
Consideration otherwise distributable to each Director/Shareholder, to
be held and administered pursuant to the terms of the Escrow Agreement,
and agrees that he will not transfer any of his shares of Craigie from
and after the date of this Agreement, except pursuant to this Agreement
or with the prior written consent of SNC.
1.8 Conversion of Shares; Payment of Merger Consideration;
Surrendering Procedure.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of Craigie or the Closing Shareholders, all
shares of Craigie's common stock (the "Shares") issued and outstanding
immediately prior to the Effective Time shall be converted into and
shall represent the right to receive, upon receipt by the Surviving
Corporation of the Instruction Letter and other documents described in
paragraph (d) below, the Merger Consideration in accordance with
Section 1.7.
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(b) Each share of the common stock of BB&T Acquisition issued
and outstanding immediately prior to the Effective Time shall be
converted into one share of the Surviving Corporation's common stock.
(c) Each ownership right which prior to the Effective Time
represented one or more Shares shall be deemed upon the Effective Time
for all purposes to represent only the right to receive the Merger
Consideration as described in Section 1.7. No interest will be paid or
accrued on the Merger Consideration. After the Effective Time, no
transfer of Shares shall be made on the stock transfer books of the
Surviving Corporation.
(d) Prior to the Effective Time, the Surviving Corporation
shall cause to be delivered or mailed to each Closing Shareholder a
form of letter of instruction (the "Instruction Letter") for use in
effecting the surrender of ownership of the Shares, in exchange for the
Closing Merger Consideration. Upon delivery of the Instruction Letter,
duly executed and completed in accordance with the instructions
thereto, and such other documents as may be reasonably requested, the
Surviving Corporation shall promptly cause the Closing Merger
Consideration to be transferred as provided in Section 1.7 to the
persons entitled thereto. Thereafter, the Surviving Corporation shall
cause the Post-Closing Merger Consideration, if any, to be payable as
provided in Section 1.7.
1.9 Dissenting Shares. Any Closing Shareholder who shall have
lawfully dissented from the Merger in accordance with the VASCA and who has
properly exercised rights to demand payment of the value of the Closing
Shareholder's Shares (the "Dissenting Shares") as provided by the VASCA (the
"Dissenting Shareholder") shall thereafter have only such rights as are provided
a Dissenting Shareholder in accordance with the VASCA and shall have no rights
under Sections 1.7 and 1.8; provided, however, that if a holder of Dissenting
Shares shall withdraw (in accordance with applicable law) the demand for such
appraisal or shall become ineligible for such appraisal, then such holder's
Dissenting Shares automatically shall cease to be Dissenting Shares and shall be
converted into and represent only the right to receive from the Surviving
Corporation the Merger Consideration, without interest thereon, upon delivery of
the Instruction Letter and other documents described in Section 1.8(d) with
respect to such Dissenting Shares.
ARTICLE II
Representations and Warranties of Craigie
Craigie represents and warrants to SNC as follows
(all references herein to matters within the knowledge of or known to Craigie
shall mean matters within the actual knowledge of one or more of Allen Mead
Ferguson, John W. Wright, George B. Pugh, John T. West, IV, Jonathan Wallace and
John B. Jung, Jr.):
2.1 Organization and Good Standing. Craigie is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia with full corporate power and authority to own, lease
and operate its properties and assets, and to carry on its business as now
conducted and as presently proposed to be conducted, and is duly qualified to do
business in the states of the United States where its ownership or leasing of
property or the
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conduct of its business requires such qualification and where failure so to
qualify would have a material adverse effect on the financial condition, results
of operations or business of Craigie.
2.2 Authority. Craigie has all requisite corporate power and
authority to enter into and to perform all of its obligations under this
Agreement. The execution, delivery and performance of this Agreement by Craigie
have been duly and validly authorized by all necessary corporate and shareholder
action. This Agreement, including the Plan of Merger, constitutes the legal,
valid and binding obligation of Craigie, and is enforceable against Craigie in
accordance with its terms, subject to (i) bankruptcy, insolvency, moratorium,
reorganization, conservatorship, receivership, or similar laws affecting the
rights of creditors, and (ii) general principles of equity.
2.3 Capitalization. The entire authorized capital stock of
Craigie consists of 2,400,000 shares of common stock, without par value, of
which 940,599.8964 Shares are issued and outstanding and are owned of record and
beneficially by shareholders in the amounts listed on Exhibit B. The Shares have
been duly authorized and are validly issued, fully paid and non-assessable, with
no liability attaching to the ownership thereof. Except as provided in Schedule
2.3, there are no authorized, outstanding or existing (a) voting trusts or other
agreements or understandings with respect to the voting of Craigie's common
stock to Craigie's knowledge; (b) control agreements executed by Craigie at the
direction of any registered owner, transferring control of any securities from
the registered owner; (c) securities convertible into or exchangeable for voting
common stock; (d) restrictions on the transfer of shares; (e) options, warrants
or other rights (including, without limitation, preemptive rights) to purchase,
repurchase or subscribe for any of Craigie's common stock; (f) agreements of any
kind relating to the issuance of common stock of Craigie, any other type or form
of securities or any options, warrants or rights; or (g) agreements of any kind
which may obligate Craigie to issue or purchase any of its securities. None of
the Shares has been issued in violation of any preemptive or other rights of
shareholders.
2.4 No Conflict. Except as provided in Schedule 2.4, neither
the execution and delivery by Craigie of this Agreement, nor the performance of
any other obligation of Craigie under this Agreement, conflicts with, will
result in the breach of, or constitutes a default under, the terms of the
Articles of Incorporation or Bylaws of Craigie, any Material Contract (as
defined in Section 2.7), any indenture or other instrument or agreement to which
Craigie is a party or by which any of the assets of Craigie may be bound or
affected, or any statute, ordinance, judgment, order, decree, regulation or rule
of any court or governmental body affecting or relating to Craigie or its
assets, or will result in the creation of any lien upon any assets of Craigie,
or will result in any loss by Craigie of any membership in or seat on any
securities or commodities exchange (an "Exchange"), the National Association of
Securities Dealers, Inc. (the "NASD") or other self-regulatory organization.
2.5 Required Consents. Schedule 2.5 describes each notice to
consent, waiver, approval, or authorization from, and registration or filing
with any federal, state or local judicial or governmental authority or agency or
any other third party (collectively, the "Required Consents") that is required
in order (a) for Craigie to execute, deliver and perform this Agreement or to
consummate the transactions contemplated hereby or (b) for Craigie to maintain
in full force and effect, upon the consummation of the transactions contemplated
hereby, the Material Contracts (as defined in Section 2.7) and the approvals,
authorizations, consents, licenses, orders, permits, Intangible Rights and other
rights of Craigie existing and in effect immediately prior to the Closing.
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2.6 Subsidiaries and Investments. Except as set forth in
Schedule 2.6, Craigie has no subsidiary or direct or indirect interest in any
partnership, joint venture, corporation, or other business, except for
marketable securities held as inventory for sale in the ordinary course of
business, and except for a minority investment in National Mortgage Acceptance
Corporation (the investment in which and the results of operations of which do
not have a material effect on the financial condition or operations of Craigie).
2.7 Material Contracts. Schedule 2.7 sets forth a true,
complete and correct list of all Material Contracts. For the purpose of this
Agreement, a "Material Contract" means any written or oral contract, agreement,
undertaking or commitment relating to Craigie with or to any person or entity
whatsoever, other than one which (a) may be terminated on not more than thirty
days notice without liability to Craigie, or (b) involves payments in the
aggregate of less than $50,000, or (c) relates to orders or obligations for
purchases or sales of securities entered into in the ordinary course of business
of Craigie. Except as set forth in Schedule 2.7, all of the Material Contracts
are valid and in full force and effect, and there are no existing or, to
Craigie's knowledge, claimed defaults by any party thereunder and no event, act
or omission has occurred which (with or without notice, lapse of time or the
happening or occurrence of any other event) would result in a default under any
Material Contract. Craigie has performed in all material respects all the
obligations required to be performed by each under the Material Contracts.
2.8 Minute and Stock Transfer Books. The minute books of
Craigie are true, correct, complete and current in all material respects and
contain records of all material actions taken by its shareholders and Board of
Directors, and all signatures contained therein are the true signatures of the
persons whose signatures they purport to be. The stock ledger of Craigie is
true, correct, complete and current in all respects. Schedule 2.8 hereto sets
forth a true, correct and complete list of the names and titles of all officers
and directors of Craigie.
2.9 Financial Statements. Craigie has previously delivered to
Buyer true and complete copies of (i) the audited balance sheets of Craigie as
of December 31, 1996, 1995 and 1994 and the related statements of operations,
stockholders' equity and cash flows for the fiscal years then ended, including
the footnotes thereto, additional or supplemental information supplied therewith
and the report prepared in connection therewith by the independent certified
public accountants auditing such financial statements; and (ii) the interim
monthly unaudited financial report for January, 1997. The documents described in
clauses (i) and (ii) (collectively, the "Financial Statements"):
(a) are true, complete and correct;
(b) are in accordance with the books and records of
Craigie;
(c) present fairly the assets, liabilities and
financial condition of Craigie as of the respective dates
thereof, and the results of operations for the periods then
ending; and
(d) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
throughout the periods
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involved, except for year-end adjustments and the absence of
footnotes with respect to the documents described in 2.9(ii).
Craigie has no liability or obligation, whether accrued, absolute, or
contingent, that is not reflected or reserved against in the Financial
Statements, except for those that are not required by generally accepted
accounting principles to be included therein. Any items of income or expense
which are unusual or of a nonrecurring nature are separately disclosed in the
Financial Statements.
2.10 Absence of Certain Changes. Except as described
in Schedule 2.10, following December 31, 1996 (the "Last
Audit Date") Craigie has conducted its operations and
business only in the ordinary course, and has not:
(a) Suffered any damage, destruction or loss to any
material asset, whether or not covered by insurance;
(b) Sold, transferred, distributed or otherwise
disposed of any material asset;
(c) Made or entered into any general wage or salary
increase for its employees as a group, except in the ordinary
course of business consistent with past practices;
(d) Amended or terminated any contract, lease,
license or commitment;
(e) Incurred any obligation or liability (whether
absolute, accrued, contingent or otherwise and whether due or
to become due) except normal trade or business obligations
incurred in the ordinary course of business;
(f) Introduced any new method of management,
operations or accounting;
(g) Suffered any adverse change in the condition
(financial or otherwise), results of operations or business,
or any other event or condition of any character that might
reasonably be expected to have an adverse effect on its
operations or its assets; or
(h) Agreed, whether in writing or otherwise, to take
any action described in this Section 2.10.
2.11 Undisclosed Liabilities; Hedges and Derivatives. Craigie
has no indebtedness, liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, other than (a) those reflected in the
Financial Statements and not heretofore paid or discharged (and in the actual
amounts so reflected); and (b) those incurred during the period from the Last
Audit Date to the date of this Agreement in the ordinary course of business,
none of which is material and adverse to Craigie. Except as provided above in
this Section 2.11, Craigie will have no liability or obligation
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under any contract (including any off-balance sheet hedge or derivative)
accruing with respect to any period prior to the Closing Date, or attributable
to any actual or alleged breach thereof or nonperformance thereunder prior to
the Closing Date.
2.12 Title to and Sufficiency of Assets.
(a) Craigie has good and marketable title to all of
its properties and assets (real, personal and mixed, tangible
and intangible), free and clear of all liens, claims and
encumbrances, except as set forth in Schedule 2.12(a). The
properties and assets owned or leased by Craigie constitute
all the assets necessary to operate the business as now
conducted by Craigie. All of the physical assets are in good
operational condition and repair, normal wear and tear
excepted.
(b) The leases for all assets, real and personal,
leased by Craigie are valid and in full force and effect; no
default or event of default, or event which, with the giving
of notice or passage of time or both would constitute a
default or event of default by Craigie, or to Craigie's
knowledge by any other party thereto, under any of such leases
has occurred and is continuing; and, except as set forth in
Schedule 2.12(b), none of such leases is terminable as a
result of the transactions contemplated by this Agreement.
(c) Schedule 2.12(c) sets forth a true, correct and
complete list and summary description of all real property,
interests in real property and tangible personal property
(including, without limitation, machinery, equipment, vehicles
and inventory) owned or leased by Craigie, indicating whether
such property is owned or leased or otherwise used in
connection with the business of Craigie, the location of such
property and, in the case of leased property, the commencement
date, expiration date and annual rental payable under the
lease.
2.13 Securities. The securities designated on the balance
sheets of Craigie as marketable securities are in the aggregate convertible
within a reasonable period of time into cash without material loss of value, are
saleable in secondary markets having ability to absorb positions of the size
held by Craigie without excessive price volatility, and are traded in secondary
markets characterized by multiple bona fide bids and offers, reasonable trading
volume in light of the size of the holdings by Craigie, and prompt and orderly
settlement of transactions. Craigie has no other securities except for debt
obligations under agreements to resell which are fully collateralized. All
securities are carried on the books of Craigie at current market value. Craigie
has no hedging or derivatives transactions which are not fully reflected and
accounted for in the Financial Statements.
2.14 Receivables. All accounts receivable and trade accounts
("Receivables") reflected on the Financial Statements (less any such receivables
collected since the date thereof) and all Receivables presently owing and to be
owing at the Effective Time are, and at the Closing Date will be, legal, valid
and binding obligations, and are collectible in full at face value (net of the
reserves established and reflected in the Financial Statements, as such reserves
are adjusted for the
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passage of time through the Closing Date in accordance with the past practice of
Craigie). Except as provided in Schedule 2.14, Receivables were created in the
ordinary course of business of Craigie. There are no set-offs, counterclaims or
disputes asserted with respect to any Receivable, and no discount or allowance
from any Receivable has been made or agreed to. The reserves established for
doubtful or uncollected accounts as shown on the Financial Statements, as
adjusted for the passage of time through the Closing Date in accordance with the
past practice of Craigie, are consistent in amount to those historically
established with respect to the accounts receivable.
2.15 Insurance. Schedule 2.15 contains a true, correct and
complete list of all policies of fire and casualty, property, product and other
liability, worker's compensation and other forms of insurance maintained by or
with respect to Craigie or its properties. All premiums due and payable under
such policies have been paid, subject to no readjustment of any nature
whatsoever; all such policies are in full force and effect in accordance with
their respective terms; and such policies are sufficient for compliance with all
requirements of law and agreements by which Craigie or its assets are bound,
affected or subject. Except for amounts deductible under policies of insurance
and as described in Schedule 2.15, Craigie is not subject to liability as a
self-insurer. Except as set forth in Schedule 2.15, there are no claims pending
or threatened under any of such policies and there are no disputes between
Craigie and any of the underwriters of said policies.
2.16 Licenses and Permits. Craigie is a member in good
standing of the following organizations: Securities Industry Association,
Securities Insurance Protection Corporation, National Association of Securities
Dealers, Public Securities Association and the Municipal Securities Rulemaking
Board. Craigie has a seat on the Philadelphia-Baltimore-Washington Stock
Exchange. Each Associated Person as defined in Article I(q) of the By-Laws of
the NASD ("Associated Person") of Craigie who is engaged in activities requiring
registration with the NASD, is properly registered with the NASD as a principal
(including, if applicable, a government securities principal) or representative
(including, if applicable, a government securities representative or an
assistant representative) of Craigie. Schedule 2.16 identifies each Associated
Person of Craigie who is a registered principal or representative, including the
category of registration appropriate to the function performed, and contains a
true, correct and complete list of the government or self-regulatory
organization, permits, licenses, registrations and consents which Craigie or any
of its employees has obtained in connection with Craigie's assets or operations,
including without limitation registrations or licenses in each state in which
the conduct of Craigie's investment banking or securities business requires such
registration or licensing by Craigie or any of its employees. No other
memberships, permits, licenses, registrations or other governmental or
self-regulatory organization consents are required in order for Craigie or any
of its employees to conduct Craigie's business. All such permits, licenses,
registrations and consents are in full force and effect, and the continued
validity thereof shall not be adversely affected by this Agreement or the
consummation of the transactions contemplated hereby. Craigie has not received
any notice of any claim of revocation of any such permit, license, registration
or other consent, nor does Craigie have knowledge of any event which might
reasonably be expected to give rise to such a claim.
2.17 Litigation and Compliance. Except as set forth in
Schedule 2.17, there are no actions, suits, claims, proceedings or governmental
or administrative investigations pending or, to Craigie's knowledge, threatened
against Craigie or any of its assets. None of the claims or proceedings set
forth on Schedule 2.17, if determined adversely against Craigie, would
materially
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and adversely affect Craigie, its operations or assets, and except as set forth
in Section 2.17, all of such claims and proceedings are adequately covered by
insurance. Craigie and its personnel have complied in all material respects with
and are not in default or violation in any material respect under any applicable
law, ordinance, requirement, regulation, policy, guideline, decree or order
(including the rules of the NASD identified in Article I(s) of the By-Laws of
the NASD and the rules of conduct of any Exchange of which Craigie is a member)
affecting Craigie or its personnel. Craigie has not received, since December 31,
1993, any notice of any claimed default or violation with respect to any such
law, ordinance, requirement, regulation, policy, guideline, decree or order.
Craigie is not subject to any judgment, order or decree entered in any action or
proceeding which has or may reasonably be expected to have a material adverse
effect upon Craigie or any of its assets. There are no disciplinary proceedings
or investigations by the NASD or any Exchange, and there are no complaints filed
with any District Business Conduct Committee or similar committee of the NASD or
any Exchange, pending against Craigie or any of its Associated Persons. Craigie
has duly filed all reports and returns required to be filed by it with
governmental authorities relating to Craigie, including without limitation
reports required to be filed with the Securities and Exchange Commission (the
"Commission"), the NASD and any Exchange of which it is a member, and each such
report at the time of filing complied in all material respects with the rules
and regulations of the Commission, the NASD and any such Exchange, as the case
may be. Craigie has paid when due all required premiums to the Securities
Investor Protection Corporation. Craigie is in compliance in all material
respects with the rules and regulations of all federal and state governmental
authorities and agencies and self-regulatory organizations governing Craigie's
securities activities, including but not limited to rules and regulations
relating to Craigie's capital and reserves promulgated by the Commission, the
NASD and state governmental agencies.
2.18 Tax Matters. Craigie has properly completed, duly and
timely filed in correct form with the appropriate United States, state and local
governmental agencies and with the appropriate foreign countries and political
subdivisions thereof, all tax returns, reports and declarations of estimated tax
(the "Tax Returns") required to be filed. All Tax Returns are accurate, complete
and correct in all material respects as filed, and Craigie has paid in full or
made adequate provision in its financial statements for all amounts shown to be
due thereon. All United States, state and local income, profits, franchise,
sales, use, occupancy, property, severance, excise, value added, withholding and
other taxes, and all taxes owing to any foreign countries and political
subdivisions thereof (including interest, penalties and any additions to tax)
(the "Taxes") due from or claimed to be due by each taxing authority in respect
of Craigie or its operations or assets, for all periods through the date of this
Agreement, have been, and for all periods through the Effective Time will be,
fully paid or adequately provided for in the financial statements of Craigie.
Craigie has timely made and will timely make all withholdings of tax required to
be made under all applicable United States, state and local tax regulations, and
such withholdings have either been paid or will be paid to the respective
governmental agencies or set aside in accounts for such purpose or accrued,
reserved against and entered upon the books of Craigie. All estimated income
taxes which are not yet due to be paid to the Internal Revenue Service or any
state or local taxing authority have been properly accrued, reserved against and
entered upon the books of Craigie. All Tax Returns required to be filed after
the date hereof by Craigie shall, in each case, be prepared and filed by Craigie
in a manner consistent in all respects (including elections and accounting
methods and conventions) with such Tax Return most recently filed by Craigie in
the relevant jurisdiction prior to the date hereof, except as otherwise required
by law or regulation or agreed to by SNC. All deficiencies asserted
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as a result of any examinations of the Tax Returns have been paid or adequately
provided for in the Financial Statements, and no issue has been raised by a
taxing authority in any such examination which, if raised with regard to any
other period not so examined, would be expected to result in a proposed
deficiency for any other period not so examined. Craigie will not have any
liability, either in its own right or as a transferee, for Taxes or estimated
income taxes in excess of the amount paid or reserved for any period prior to
the Effective Time. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Return, or the period for
assessment or collection of any Taxes. Craigie is not a party to any pending
action or proceeding, nor to Craigie's knowledge is there threatened any action
or proceeding, by any governmental authority for assessment or collection of
taxes, and Craigie has not been notified by any governmental authority that an
audit or review of any tax matter is contemplated. Craigie will realize the
entire portion of the deferred tax assets reflected in the Financial Statements.
2.19 Environmental Matters. Craigie is not in violation of,
and has not violated any applicable federal, state, county or local statutes,
laws, regulations, rules, ordinances, codes, licenses or permits of any
governmental authorities relating to environmental matters, including by way of
illustration and not by way of limitation the Comprehensive Environmental
Response, Compensation and Liability Act as amended, the Resource Conservation
Recovery Act as amended, the Clean Air Act, the Clean Water Act, the
Occupational Safety and Health Act, the Toxic Substances Control Act, any
"Superfund" or "Superlien" law, or any other federal, state or local statute,
law, ordinance, code, rule, regulation, order, decree or guideline (whether
published or unpublished) regulating, relating to or imposing liability or
standards of conduct concerning any petroleum, petroleum by-product (including
but not limited to crude oil, diesel oil, fuel oil, gasoline, lubrication oil,
oil refuse, oil mixed with other waste, oil sludge, and all other liquid
hydrocarbons, regardless of specific gravity), natural or synthetic gas,
hazardous substance or materials, toxic or dangerous waste, substance or
material, pollutant or contaminant (collectively "Environmental Laws").
Specifically, but not in limitation of the foregoing:
(a) No real estate owned or leased by Craigie has
been used at any time by any person as a landfill or a waste
disposal site.
(b) There is no electrical equipment, including
transformers, containing PCBs included in the assets of
Craigie.
(c) There are no underground or aboveground tanks
situated on any real property owned or leased by Craigie.
(d) There are no liens on any real property owned or
leased by Craigie resulting from any cleanup or proposed
cleanup under the Environmental Laws.
(e) No notices of any violation, inquiries or
requests for information relating to any of the foregoing have
been received by Craigie.
2.20 Intangible Rights. Craigie owns or possesses the
right to use the patents, trademarks, service marks, trade names, brands,
copyrights, licenses and designs and rights and/or
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applications with respect to the foregoing ("Intangible Rights") listed in
Schedule 2.20, and the Intangible Rights so listed are all that are required for
the conduct of the business of Craigie as now being conducted. There are no
assignments, licenses or sublicenses with respect to any of the Intangible
Rights, except as set forth in Schedule 2.20. There are no pending or, to
Craigie's knowledge, threatened claims by any person to the use of any of the
Intangible Rights and, to Craigie's knowledge, none of the Intangible Rights
infringes on the rights of any person and no valid basis exists for any such
claim. Schedule 2.20 sets forth a true and correct list of all corporate,
partnership and trade names under which Craigie has conducted its businesses
within the past ten years.
2.21 Employees; Compensation; Benefit Plans.
(a) Compensation. Craigie has previously given to SNC
a complete and correct list as of the date hereof of the name,
age, position, rate of compensation and any incentive
compensation arrangements, bonuses or commissions or fringe or
other benefits, whether payable in cash or in kind, of each
current employee and director of Craigie, and a list of each
other person to whom Craigie pays or provides, or has an
obligation, agreement (written or unwritten), policy or
practice of paying or providing, retirement, health, welfare
or other benefits of any kind or description whatsoever.
(b) Employee Benefit Plans.
(i) Schedule 2.21 contains an accurate and
complete list of all Plans, as defined below,
contributed to, maintained or sponsored by Craigie,
to which Craigie is obligated to contribute or with
respect to which Craigie has any liability or
potential liability, whether direct or indirect. For
purposes of this Agreement, the term "Plan" shall
mean a plan, arrangement, agreement or program
described in the foregoing provisions of this Section
2.21(b)(i) and which is: (A) an employee benefit plan
as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"),
whether or not funded and whether or not terminated,
(B) an employment agreement, or (C) a personnel
policy or fringe benefit plan, policy, program or
arrangement, whether or not subject to ERISA, whether
or not funded, and whether or not terminated,
including without limitation, any stock bonus,
deferred compensation, pension, severance, bonus,
vacation, travel, incentive, health, disability or
other pension or welfare plan.
(ii) Except as disclosed in Schedule 2.21,
Craigie does not contribute to, does not have an
obligation to contribute to or otherwise have any
liability or potential liability with respect to (A)
any Multiemployer Plan (as such
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term is defined in Section 3(37) of ERISA), (B) any
Plan of the type described in Sections 4063 and 4064
of ERISA or in Section 413 of the Internal Revenue
Code of 1986, as amended (the "Code") (and
regulations promulgated thereunder), or (C) any plan
which provides health, life insurance, accident or
other "welfare-type" benefits to current or future
retirees or former employees, their spouses or
dependents, other than in accordance with Section
4980B of the Code or applicable state continuation
coverage law.
(iii) Except as disclosed in Schedule 2.21,
none of the Plans obligates Craigie to pay
separation, severance, termination or similar-type
benefits solely as a result of any transaction
contemplated by this Agreement or solely as a result
of a "change in control," as such term is used in
Section 280G of the Code (and regulations promulgated
thereunder).
(iv) Except as disclosed in Schedule 2.21,
each Plan and all related trusts, insurance
contracts, and funds have been maintained, funded and
administered in compliance in all respects with all
applicable laws and regulations, including but not
limited to ERISA and the Code. None of Craigie, any
trustee or administrator of any Plan, or any other
person has engaged in any transaction with respect to
any Plan which could subject Craigie, or any trustee
or administrator of any Plan, or any party dealing
with any Plan, or SNC to any tax or penalty imposed
by ERISA or the Code. No actions, suits, claims,
complaints, charges, proceedings, hearings,
investigations, or demands with respect to the Plans
(other than routine claims for benefits) are pending
or threatened, and Craigie has no knowledge of any
facts which could give rise to or be expected to give
rise to any actions, suits, claims, complaints,
charges, proceedings, hearings, investigations, or
demands. No Plan that is subject to the funding
requirements of Section 412 of the Code or Section
302 of ERISA has incurred any "accumulated funding
deficiency" as such term is defined in such Sections
of ERISA and the Code, whether or not waived. No
liability to the Pension Benefit Guaranty Corporation
("PBGC") (except for routine payment of premiums) has
been or is expected to be incurred with respect to
any Plan that is subject to Title IV of ERISA, no
reportable event (as such term is defined in Section
4043 of ERISA) has occurred with respect to any such
Plan, and the PBGC has not commenced or threatened
the termination of any Plan. None of the assets of
Craigie is the
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subject of any lien arising under Section 302(f) of
ERISA or Section 412(n) of the Code, Craigie has not
been required to post any security pursuant to
Section 307 of ERISA or Section 401(a)(29) of the
Code, and neither Craigie, nor any officer or
director of Craigie has knowledge of any facts which
could be expected to give rise to such lien or such
posting of security.
(v) Each Plan that is intended to be
qualified under Section 401(a) of the Code, and each
trust (if any) forming a part thereof, has received a
favorable determination letter from the Internal
Revenue Service as to the qualification under the
Code of such Plan and the tax exempt status of such
related trust, and nothing has occurred since the
date of such determination letter that could
disqualify such Plan or terminate the tax exempt
status of such related trust.
(vi) No underfunded "defined benefit plan"
(as such term is defined in Section 3(35) of ERISA)
has been, during the five years preceding the Closing
Date, transferred out of the controlled group of
companies (within the meaning of Sections 414(b),
(c), (m) and (o) of the Code) of which Craigie is a
member or was a member during such five-year period.
(vii) As of the Closing Date, the fair
market value of the assets of each Plan that is a
defined benefit pension plan equals or exceeds the
present value of all vested and non-vested
liabilities thereunder determined in accordance with
applicable PBGC methods, factors and assumptions
applicable to a defined benefit pension plan
terminating on such date. With respect to each Plan
that is subject to the funding requirements of
Section 412 of the Code and Section 302 of ERISA, all
required or recommended contributions for all periods
ending prior to or as of the Closing Date (including
periods from the first day of the then-current plan
year to the Closing Date and including all quarterly
contributions required in accordance with Section
412(m) of the Code) shall have been made. With
respect to each other Plan, all required or
recommended payments, premiums, contributions,
reimbursements or accruals for all periods ending
prior to or as of the Closing Date shall have been
made. No Plan has any material unfunded liabilities.
(viii) Except as set forth in Schedule 2.21,
the Board of Directors of Craigie, or a committee or
officer authorized
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by such Board, has authority to amend or terminate
the Plans at any time without limitation, and neither
the consideration or implementation of the
transactions contemplated under this Agreement nor
the amendment or termination of any or all of the
Plans on or after the date of this Agreement will
increase (A) Craigie's obligation to make
contributions or any other payments to fund benefits
accrued under the Plans as of the date of this
Agreement or (B) the benefits accrued or payable with
respect to any participant under the Plans (except to
the extent vesting may be accelerated if SNC elects
to terminate or discontinue any Plan).
(ix) With respect to each Plan, Craigie has
provided SNC with true, complete and correct copies,
to the extent applicable, of (A) all documents
pursuant to which the Plans are maintained, funded
and administered, (B) the two most recent annual
reports (Form 5500 series) filed with the Internal
Revenue Service (with attachments), (C) the two most
recent actuarial reports, (D) the two most recent
financial statements, (E) all governmental rulings,
determinations, and opinions (and pending requests
for governmental rulings, determinations, and
opinions), and (F) the most recent valuation (but in
any case at least one that has been completed within
the last calendar year) of the present and future
obligations under each Plan that provides
post-retirement or post-employment health, life
insurance, accident or other "welfare-type" benefits.
2.22 Labor Matters. Craigie is in compliance in all material
respects with all federal, state and local laws affecting employment and
employment practices, including terms and conditions of employment, wages and
hours, and is not engaged in any unfair labor practice. There are no complaints
against Craigie pending or, to Craigie's knowledge, threatened with respect to
employees of Craigie before the National Labor Relations Board. There are no
labor strikes, slowdowns or stoppages pending or, to Craigie's knowledge,
threatened by or with respect to employees of Craigie. To Craigie's knowledge,
no union organizational effort is presently ongoing with respect to the
employees of Craigie; there are no grievances asserted which might have a
material adverse effect upon Craigie, and Craigie has not experienced any labor
strikes, slowdowns or work stoppages. There are no collective bargaining
agreements now or previously in effect. All pending and, to Craigie's knowledge,
threatened worker's compensation claims against Craigie are adequately covered
by insurance.
2.23 Contracts with Affiliates. Except as set forth in
Schedule 2.23, none of the Material Contracts nor any other transaction to which
Craigie has been a party during the past three years: (a) involves as a party
(i) any officer, director or shareholder of Craigie, (ii) a relative (by blood
or marriage) of any of the persons referred to in (i), or (iii) any entity which
any person or entity referred to in (i) or (ii) controls or in which any such
person or entity has a substantial
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interest, direct or indirect, or is a director, officer, partner or trustee; or
(b) requires or required or is or was contingent upon the payment by or on
behalf of Craigie of commissions or compensation to any person not a party to
such agreement, document or instrument.
2.24 Accuracy of Information. All representations, warranties
and certifications of Craigie contained in this Agreement or in any document,
exhibit, schedule or certificate furnished or to be furnished pursuant hereto or
in connection herewith to SNC by Craigie, or on its behalf, are true, correct
and complete and do not contain any statement which is false or misleading with
respect to a material fact, and do not omit to state a material fact necessary
in order to make the statements herein and therein not false or misleading.
2.25 Brokers. No finder, broker, agent or other intermediary
has acted for or on behalf of Craigie in connection with the negotiation or
consummation of this Agreement, and there are no claims for any brokerage
commission, finder's fee or similar payment due from Craigie.
2.26 Investment Advisers Act Matters. Craigie's business
activities do not require Craigie to register as an investment adviser under
the Investment Advisers Act of 1940.
ARTICLE III
Representations and Warranties of SNC
SNC hereby represents and warrants to Craigie as follows:
3.1 Capital Structure of SNC. The authorized capital stock of
SNC consists of (i) 5,000,000 shares of preferred stock, par value $5.00 per
share, of which no shares are issued and outstanding, and (ii) 300,000,000
shares of SNC common stock (with contingent rights to acquire 2,000,000 shares
of Series B Junior Participating Preferred Stock), of which 103,430,150 shares
were issued and outstanding on June 30, 1996. All outstanding shares of SNC
common stock have been duly authorized and are validly issued, fully paid and
nonassessable. The shares of SNC common stock reserved as provided in Section
4.2 are free of any liens, claims or encumbrances and have not been reserved for
any other purpose, and such shares are available for issuance as provided
pursuant to the Plan of Merger. Such shares, when issued as provided herein,
will be validly issued, fully paid and nonassessable, and shall have been issued
pursuant to a registration statement filed under federal securities laws (and
any applicable state securities laws shall have been complied with).
Holders of SNC common stock do not have preemptive rights.
3.2 Organization, Standing and Authority of SNC. SNC is a
corporation duly organized, validly existing and in good standing under the laws
of the state of North Carolina, with full corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as now
conducted, and is duly qualified to do business in the states of the United
States where its ownership or leasing of property or the conduct of its business
requires such qualification and where failure to qualify would have a material
adverse effect on the financial condition, results of operations, or business of
SNC on a consolidated basis. SNC is registered as a bank holding company under
the Bank Holding Company Act.
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3.3 Organization, Standing and Authority of BB&T Acquisition.
BB&T Acquisition shall at the Effective Time be a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Virginia, shall be a wholly-owned subsidiary of SNC, and shall have full
corporate power to consummate the transactions herein contemplated.
3.4 Authorized and Effective Agreement.
(a) SNC has all requisite corporate power and
authority to enter into and perform all of its obligations
under this Agreement. The execution, delivery and performance
of this Agreement have been duly and validly authorized by all
necessary corporate action on the part of SNC. This Agreement,
including the Plan of Merger, constitutes the legal, valid and
binding obligation of SNC, and is enforceable against SNC in
accordance with its terms subject to (i) bankruptcy,
insolvency, moratorium, reorganization, conservatorship,
receivership or similar laws in effect from time to time
relating to or affecting the enforcement of the rights of
creditors (including without limitation with respect to SNC,
creditors; and (ii) general principles of equity.
(b) Neither the execution and delivery by SNC of this
Agreement, nor the performance of any other obligation of SNC
under this Agreement, conflicts with, will result in the
breach of, or constitutes a default under, the terms of their
respective Articles of Incorporation or Bylaws, any indenture
or other instrument or agreement to which either is a party or
by which any of the assets of either may be bound or affected,
or any statute, ordinance, judgment, order, decree, regulation
or rule of any court or governmental body affecting or
relating to either or its assets, or will result in the
creation of any lien upon any assets of either.
3.5 Securities Documents. SNC has timely filed all documents
required by applicable securities laws and regulations to be filed ("Securities
Filings") since December 31, 1993, and the Securities Filings have complied in
all material respects with all applicable legal requirements therefor at the
times of such filings.
3.6 Financial Statements. The consolidated financial
statements of SNC set forth in the Securities Filings fairly present the
consolidated financial position of SNC and it subsidiaries as of the dates
indicated and the consolidated results of operations, changes in shareholders'
equity and changes in cash flows for the applicable periods in conformity with
generally accepted accounting principles applicable to banks and bank holding
companies.
3.7 Material Adverse Change. SNC has not, on a
consolidated basis, suffered any material adverse change in its business,
financial condition, results of operations or prospects since December 31, 1996.
3.8 Legal Proceedings; Regulatory Approvals. There are no
judgments, orders or decrees entered in any action or proceeding that, and no
actions, suits, claims, proceedings or
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governmental or administrative investigations pending or, to the best knowledge
of SNC, threatened against SNC or any of its subsidiaries or against any assets
of SNC or any of its subsidiaries that, if decided adversely, might reasonably
be expected to have a material adverse effect on the financial condition,
results of operations, business or prospects of SNC on a consolidated basis. To
the best knowledge of SNC, (i) there are no actual or threatened actions, suits
or proceedings which present a claim to restrain or prohibit the transactions
contemplated herein or in the Plan of Merger; and (ii) no fact or condition
relating to SNC or any of its subsidiaries exists that would prevent SNC from
obtaining all of the federal and state regulatory approvals contemplated herein.
3.9 Absence of Undisclosed Liabilities. Neither SNC nor any
of its subsidiaries has any liability (contingent or otherwise) that is material
to SNC on a consolidated basis or that, when combined with all similar
liabilities, would be material to SNC on a consolidated basis, except as
disclosed in the Securities Filings and except for liabilities incurred in the
ordinary course of its business since the date as of which SNC's most recent
Securities Filing was made.
3.10 Allowance for Loan Losses. The allowance for loan losses
reflected on the consolidated balance sheet included in each Securities Filing
was reasonably adequate, in all material respects as of its date, and under the
requirements of generally accepted accounting principles applicable to banks and
bank holding companies, to provide for reasonably anticipated losses on
outstanding loans net of recoveries.
3.11 Tax Matters.
(a) SNC has timely filed all federal, state and local
(and, if applicable, foreign) tax returns required by
applicable law to be filed by it (including, without
limitation, estimated tax returns, income tax returns,
information returns, and withholding and employment tax
returns) and has paid, or has set up an adequate reserve or
accrual for the payment of, all taxes required to be paid as
shown on such returns and, as of the Effective Time, will have
paid, or where payment is not required to have been made, will
have set up an adequate reserve or accrual for the payment of,
all taxes for any subsequent periods ending on or prior to the
Effective Time.
(b) All federal, state and local (and, if applicable,
foreign) tax returns filed by SNC are complete and accurate in
all material respects. SNC is not delinquent in the payment of
any tax, assessment or governmental charge, and has not failed
to file any tax return which is currently past due. No
deficiencies for any tax, assessment or governmental charge
have been proposed, asserted or assessed (tentatively or
otherwise) against SNC which have not been settled and paid.
There currently are no agreements in effect with respect to
SNC to extend the period of limitations for the assessment or
collection of any tax.
3.12 Compliance with Laws. SNC and each of its subsidiaries
is and has been operated in compliance with all statutes and regulations
applicable and material to the conduct of its business (except for any
violations not material to the business, operations or financial condition of
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SNC and the subsidiaries taken as a whole), and neither SNC nor any of its
subsidiaries has received notification that has not lapsed, or been withdrawn or
abandoned, from any agency or department of federal, state or local government
(i) asserting a violation or possible violation of any such statute or
regulation, and which violations would be likely to have a material adverse
effect on the business, operations or financial condition of SNC and the
subsidiaries taken as a whole, (ii) threatening to revoke any license,
franchise, permit or government authorization, or (iii) restricting or in any
way limiting its operations. Neither SNC nor any of its subsidiaries is subject
to any regulatory or supervisory cease and desist order, agreement, directive or
memorandum of understanding, and none of them has received any communication
requesting that they enter into any of the foregoing.
ARTICLE IV
Covenants
4.1 Shareholders' Meeting. Craigie shall submit this
Reorganization Agreement and the Plan of Merger to its shareholders for approval
at a special meeting to be held as soon as practicable, and by approving
execution of this Agreement the Board of Directors of Craigie agrees that it
shall unanimously recommend that the shareholders vote for such approval;
provided, that the Board of Directors of Craigie may withdraw or refuse to make
such recommendation if and only if, in good faith reliance on written advice of
its financial and legal advisors, the Board of Directors shall determine that
such recommendation would violate its fiduciary duty to shareholders of Craigie.
Notwithstanding the foregoing, each of Allen Mead Ferguson, John W. Wright,
George B. Pugh, John T. West, IV, Jonathan Wallace and John B. Jung, Jr., as a
shareholder of Craigie, agrees by executing this Agreement (i) that he will vote
all shares of Craigie owned by him in favor of the Plan of Merger, and that he
will not transfer any of his shares of Craigie from and after the date hereof,
except pursuant to this Agreement or with the prior written consent of SNC. Each
of Allen Mead Ferguson, John W. Wright and John T. West, IV agrees by executing
this Agreement that he will act as a Shareholder Representative as provided in
Section 8.9.
4.2 Plan of Merger; Reservation of Shares.
(a) At the Effective Time, the Merger shall be
effected in accordance with the Plan of Merger substantially
in the form attached hereto as Exhibit A. Subject to the
provisions of Article IX, SNC undertakes and agrees to effect
the Merger and (i) to cause BB&T Acquisition to adopt the Plan
of Merger; and (ii) to vote the shares of BB&T Acquisition
common stock for approval of the Plan of Merger.
(b) SNC has reserved for issuance such number of
shares of SNC common stock estimated to be necessary to pay
the Merger Consideration as contemplated in Section 1.7, and
SNC undertakes and agrees to pay the Merger Consideration when
due. If at any time the aggregate number of shares of SNC
common stock reserved for issuance hereunder shall not be
sufficient to effect the Merger, SNC shall take all
appropriate action as may be required to increase the number
of shares of SNC common stock reserved for such purpose.
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4.3 Additional Acts.
(a) Craigie agrees to approve, execute and deliver
any amendment to this Agreement and the Plan of Merger and any
additional plans and agreements requested by SNC to modify the
structure of, or to substitute parties to, the transactions
contemplated hereby, provided that such modifications do not
adversely affect the economic benefits of such transactions to
shareholders of Craigie or otherwise abrogate the covenants
and other agreements contained in this Agreement.
(b) As promptly as practicable after the date hereof,
SNC shall submit notice or applications for prior approval of
the transactions contemplated herein to the Board of Governors
of the Federal Reserve and any other federal, state or local
government agency, department or body to which notice is
required or from which approval is required for consummation
of the Merger and the other transactions contemplated hereby.
Craigie shall provide information required for such filings
promptly upon the request of SNC, and shall be given
reasonable opportunity to review in advance of filing all such
notices and applications. Craigie represents and warrants that
all information concerning it and its directors, officers and
shareholders submitted for inclusion in any such application
shall be true, correct and complete in all material respects
as of the date presented.
4.4 Best Efforts. SNC and Craigie shall each use its best
efforts in good faith to (i) furnish such information as may be required in
connection with, and otherwise cooperate in, the preparation and filing of the
documents referred to in Section 4.3 and elsewhere herein, and (ii) take or
cause to be taken all action necessary or desirable on its part to fulfill the
conditions in Article V and Article VI and to consummate the transactions herein
contemplated at the earliest possible date. Neither SNC nor Craigie shall take,
or cause, or to the best of its ability permit to be taken, any action that
would substantially delay or impair the prospects of completing the Merger
pursuant to this Agreement and the Plan of Merger.
4.5 Certain Accounting Matters. Craigie shall cooperate with
SNC concerning accounting and financial matters necessary or appropriate to
facilitate the Merger (taking into account SNC's policies, practices and
procedures).
4.6 Access to Information. Craigie will keep SNC advised of
all material developments relevant to its business and to consummation of the
Merger, and SNC will advise Craigie of any public disclosures by SNC of material
adverse changes in its financial condition or operations. Upon reasonable
notice, Craigie shall afford to representatives of SNC access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
shall make available to representatives of SNC all information concerning its
business as SNC may reasonably request. No investigation pursuant to this
Section 4.6 or otherwise in this Agreement shall affect or be deemed to modify
any representation or warranty made by Craigie, or the conditions to any of its
obligations hereunder.
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4.7 Press Releases. SNC and Craigie shall agree with each
other as to the time of issuance, form and substance of any press release or
other public statement or disclosure related to this Agreement and the Plan of
Merger or the transactions contemplated hereby and thereby; provided, that
nothing contained herein shall prohibit either party, following notification to
the other party, from making any disclosure which in the opinion of its counsel
is required by law.
4.8 Forbearances of Craigie. Except with the prior written
consent of SNC, or as disclosed on Schedule 4.8, between the date hereof and the
Effective Time Craigie shall not:
(a) carry on its business other than in the usual,
regular and ordinary course in substantially the same manner
as heretofore conducted, or establish or acquire any
subsidiary, or engage in any new type of business endeavor;
(b) declare, set aside, make or pay any dividend or
other distribution in respect of its capital stock, other than
regularly scheduled dividends payable on record dates and in
amounts consistent with past practices, or permit or accept
any contributions to capital or other increases in equity
(except for increases resulting from retained earnings and
from the conversion of presently outstanding convertible
subordinated debt to capital stock as provided in Section
4.12); provided, that SNC hereby consents to the distribution
by Craigie of any net income, after taxes, for 1997 in excess
of the fraction of $1.435 million determined pursuant to
Section 1.7(a)(iii)(B).
(c) issue any shares of its capital stock, pursuant
to conversion rights or otherwise (except as permitted in (b)
immediately preceding); issue, grant or authorize any rights
to acquire its capital stock (including without limitation any
convertible debt in excess of the current amount outstanding
of $4,305,000); or effect any recapitalization,
reclassification, stock dividend, stock split or like change
in capitalization;
(d) amend its Articles of Incorporation or Bylaws;
(e) impose or permit imposition of any lien, charge
or encumbrance on any of its assets, or permit any such lien,
charge or encumbrance to exist, except for liens incurred to
procure financing to acquire securities inventory in the
ordinary course of business;
(f) merge with any other entity or permit any other
entity to merge into it, or consolidate with any other entity;
acquire control over any other entity; or liquidate, sell or
otherwise dispose of any assets or acquire any assets, other
than in the ordinary course of its business; or waive or
release any material right or cancel or compromise any debt or
claim other than in the ordinary course of business;
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(g) fail to comply with any laws, regulations,
ordinances or governmental actions (including rules of
self-regulatory organizations) applicable to it and to the
conduct of its business;
(h) increase the rate of compensation of any of its
directors, officers or employees, or pay or agree to pay any
bonus to, or provide any other employee benefit or incentive
to, any of its directors, officers or employees, except in the
ordinary course of business consistent with past practices, or
change the commission payout schedule for its registered
representatives;
(i) enter into or substantially modify (except as may
be required by applicable law or regulation) any pension,
retirement, stock option, stock purchase, stock appreciation
right, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any
trust agreement related thereto, in respect of any of its
directors, officers or other employees;
(j) solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or
participate in any negotiations or discussions concerning, any
acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, Craigie, or
any business combination with Craigie other than as
contemplated by this Agreement (except where the failure to
furnish such information or participate in such negotiations
or discussions would, pursuant to a written opinion of its
legal counsel, constitute a breach of the fiduciary or legal
obligations of Craigie's Board of Directors to its
shareholders); or authorize any officer, director, agent or
affiliate of Craigie to do any of the above; or fail to notify
SNC immediately if any such inquiries or proposals are
received, any such information is requested or required, or
any such negotiations or discussions are sought to be
initiated;
(k) enter into (i) any material agreement,
arrangement or commitment not made in the ordinary course of
business, including, without limitation, agreements or
memoranda of understanding with regulatory authorities, (ii)
any agreement, indenture or other instrument not made in the
ordinary course of business relating to the borrowing of money
by Craigie or guarantee by Craigie of any obligation, (iii)
any agreement, arrangement or commitment relating to the
employment or severance of a consultant or the employment,
severance, election or retention in office of any present or
former director, officer or employee except for payments
pursuant to standard severance practices; or (iv) any
contract, agreement or understanding with a labor union;
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(l) change its underwriting, trading, investment
banking, sales, investment or asset liability management
policies in any material respect, except as may be required by
applicable law, regulation, or directives;
(m) change its method of accounting as in effect at
December 31, 1996, except as required by changes in generally
accepted accounting principles concurred in by SNC, which
concurrence shall not be unreasonably withheld, or change any
of its methods of reporting income and deductions for federal
income tax purposes from those employed in the preparation of
its federal income tax returns for the year ended December 31,
1996, except as required by changes in law or regulation;
(n) incur any capital expenditures or obligation to
make capital expenditures in excess of $50,000 for any one
expenditure or $250,000 in the aggregate;
(o) incur any indebtedness, liabilities or
obligations other than in the ordinary course of business;
(p) take any action which would or might be expected
to (i) cause the business combination contemplated hereby not
to constitute a reorganization under Section 368 of the Code
as determined by SNC, (ii) result in any representation or
warranty herein to be untrue in any material respect, or (iii)
cause any of the conditions precedent to the transactions
contemplated by this Agreement to fail to be satisfied;
(q) agree to do any of the foregoing.
4.9 Employment and Noncompetition Agreements. Craigie shall
enter into Employment and Noncompetition Agreements with Allen M. Ferguson, John
W. Wright, George B. Pugh and John T. West, IV substantially in the form of
Exhibits C, D, E and F, respectively, and by their signatures hereto each of
Allen Mead Ferguson, John W. Wright, George B. Pugh and John T. West, IV agrees
to execute such agreement applicable to him.
4.10 Affiliates. Craigie shall cause all persons who are
"affiliates" of Craigie, within the meaning of Rule 145 promulgated by the
Commission to deliver to SNC prior to the Effective Time a written agreement
providing that such person will not dispose of SNC common stock received in the
Merger except in compliance with the requirements of applicable securities laws.
4.11 Confidentiality. In recognition of the confidential
nature of certain of the information which will be provided by one or more
parties to other parties hereunder, each of SNC and Craigie agrees to retain in
confidence, and to require its directors, officers, employees, consultants,
professional representatives and agents (collectively, its "Representatives") to
retain in confidence, all information transmitted or disclosed to it by the
other, and further agrees that it will not use for its own benefit and will not
use or disclose to any third party, or permit the use or
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disclosure to any third party of, any information obtained from or revealed by
another party, except that each of SNC and Craigie may disclose the information
to those of its Representatives who need the information for the proper
performance of their assigned duties with respect to the consummation of the
transactions contemplated hereby. In making such information available to its
Representatives, each of SNC and Craigie shall take any and all precautions
necessary to ensure that its Representatives use the information only as
permitted hereby. Notwithstanding anything to the contrary in the foregoing
provisions, such information may be disclosed (a) where it is necessary to any
regulatory authorities or governmental agencies, (b) if it is required by court
order or decree or applicable law, (c) if it is ascertainable or obtained from
public or published information, (d) if it is received from a third party not
known to the recipient to be under an obligation to keep such information
confidential, or (e) if the recipient can demonstrate that such information was
in its possession prior to disclosure thereof in connection with this Agreement.
If any party shall be required to make disclosure of any such information by
operation of law, such disclosing party shall give the other parties prior
notice of the making of such disclosure and shall use all reasonable efforts to
afford such other party an opportunity to contest the making of such disclosure.
In the event that the Closing shall not occur, each of SNC and Craigie shall
upon request immediately deliver, or cause to be delivered, to the appropriate
party (without retaining any copies thereof) any and all documents, statements
or other written information obtained from such party that contain confidential
information.
4.12 Craigie Stock Rights. Immediately prior to the Closing,
Craigie shall cause the principal amount of the convertible subordinated debt
which it presently has outstanding (in the aggregate amount of $4,305,000) to be
converted into capital stock of Craigie. At the time of the Closing, no options
to acquire shares of the capital stock of Craigie shall be outstanding.
4.13 Shareholder Agreements. Craigie shall cause to be
canceled prior to the Closing all shareholder agreements between or among
Craigie and any of its shareholders relating to the common stock of Craigie.
4.14 Off-Balance Sheet Positions. As promptly as practicable,
and in any event not later than 30 days after the date of this Agreement,
Craigie shall notify SNC of all of its off- balance sheet hedges and
derivatives. Thereafter, the parties shall use their best efforts to develop and
complete prior to the Closing Date a hedging strategy or strategies relating to
the different classes of securities forming part of Craigie's inventories.
4.15 Bonus Program. Following the Closing, SNC shall cause
Craigie to adopt a Performance Incentive Program for Craigie's employees
substantially in the form of Exhibit G hereto.
4.16 Escrow Agreement. SNC and the Shareholders'
Representatives shall execute and deliver the Escrow Agreement substantially in
the form of Exhibit H hereto, and shall cause Branch Banking and Trust Company,
as Escrow Agent, to execute and deliver the Escrow Agreement.
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ARTICLE V
Conditions Precedent to SNC's Obligations
All obligations of SNC under this Agreement are subject to the
fulfillment of each of the following conditions prior to or at the Closing,
unless waived by SNC:
5.1 Representations and Warranties. All of the
representations, warranties and certifications of Craigie contained in this
Agreement shall be true, correct and complete in all material respects at the
Effective Time as though all such representations, warranties and certifications
were made and given on and as of the Effective Time.
5.2 Performance by Craigie. Craigie shall have performed and
complied with all covenants, agreements and conditions required to be performed
or complied with by it pursuant to this Agreement prior to or at the Effective
Time, and all corporate action necessary to authorize the execution, delivery
and performance of this Agreement and consummation of the transactions
contemplated hereby shall have been duly and validly taken, including without
limitation the approval of the shareholders of Craigie of the Merger.
5.3 Compliance Certificate. SNC shall have received a
compliance certificate, in form and substance reasonably satisfactory to SNC and
duly executed by an authorized officer of Craigie, with respect to the matters
set forth in Sections 5.1 and 5.2.
5.4 Approvals; No Restraint on Transactions. The parties shall
have received all regulatory approvals required in connection with the
transactions contemplated by this Agreement, all notice periods and waiting
periods required after the granting of any such approvals shall have passed, and
all such approvals shall be in effect. There shall be no effective injunction,
judgment, decree, restraining order or order of any nature issued against
Craigie or SNC by a court or government agency of competent jurisdiction which
shall direct that this Agreement or any of the transactions contemplated by this
Agreement not be consummated as herein provided, nor shall any litigation or
other proceeding seeking to enjoin the Closing or any of the transactions
contemplated hereby have been instituted or threatened by any federal, state or
local governmental agency or department or any other party. SNC shall have
determined in good faith that neither the staff nor the Board of Governors of
the Federal Reserve System shall have material objections to the Merger or to
the conduct by Craigie of its business following the Merger in substantially the
same manner as it is previously being conducted. No request for voluntary
postponement of the Closing Date shall have been received by any party to this
Agreement from any federal, state or local governmental agency or department.
5.5 No Material Adverse Change. Since the Last Audit Date
described in Section 2.10, there shall not have been any material adverse change
in the financial condition, results of operations, prospects, assets or
liabilities of Craigie, except such change as may have occurred as a result of
general market conditions affecting the value of inventory held by Craigie.
5.6 Third Party Consents. All Required Consents described in
Schedule 2.5 shall have been made or obtained or shall have occurred.
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5.7 Employees. Pursuant to Section 4.9, Allen Mead Ferguson,
John W. Wright, George B. Pugh and John T. West, IV shall have executed
Employment and Noncompetition Agreements with Craigie.
5.8 Tax Opinion. Craigie and SNC shall have received an
opinion of SNC's legal counsel, in form and substance satisfactory to Craigie
and SNC, substantially to the effect that the Merger will constitute a
reorganization under Section 368 of the Code and that the Shareholders of
Craigie will not recognize any gain or loss to the extent that such Shareholders
exchange shares of Craigie common stock for shares of SNC common stock.
5.9 Legal Opinions. SNC shall have received the legal opinion
of Williams Mullen Christian & Dobbins, counsel to Craigie, in form and
substance reasonably acceptable to SNC.
5.10 Dissenters. The holders of no more than 10% of the shares
of Craigie common stock shall have given written notice of their intent to
demand payment for their shares and shall not have voted for the Merger,
pursuant to Article 15 of the VASCA.
ARTICLE VI
Conditions Precedent to Craigie's Obligations
All obligations of Craigie under this Agreement are subject to
the fulfillment of each of the following conditions prior to or at the Closing,
unless waived by Craigie:
6.1 Representations and Warranties. All of the representations
and warranties of SNC contained in this Agreement shall be true, correct and
complete in all material respects at the Effective Time as though all such
representations and warranties were made and given on and as of the Effective
Time.
6.2 Performance by SNC. SNC shall have performed and complied
with all covenants, agreements and conditions required to be performed or
complied with by SNC pursuant to this Agreement prior to or at the Closing.
6.3 Compliance Certificate. Craigie shall have received a
compliance certificate, in form and substance reasonably satisfactory to it and
duly executed by SNC, with respect to the matters set forth in Sections 6.1 and
6.2.
6.4 Approvals; No Restraint on Transactions. The parties shall
have received all regulatory approvals required in connection with the
transactions contemplated by this Agreement, all notice periods and waiting
periods required after the granting of any such approvals shall have passed, and
all such approvals shall be in effect. There shall be no effective injunction,
judgment, decree, restraining order or order of any nature issued against
Craigie or SNC by a court or government agency of competent jurisdiction which
shall direct that this Agreement or any of the transactions contemplated by this
Agreement not be consummated as herein provided, nor shall any litigation or
other proceeding seeking to enjoin the Closing or any of the transactions
contemplated hereby have been instituted or threatened by any federal, state or
local governmental agency or department or any other party. No request for
voluntary postponement of the Effective Time shall
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have been received by any party to this Agreement from any federal, state or
local governmental agency or department.
6.5 Tax Opinion. Craigie and SNC shall have received an
opinion of SNC's legal counsel, in form and substance satisfactory to Craigie
and SNC, substantially to the effect that the Merger will constitute a
reorganization under Section 368 of the Code and that the Shareholders of
Craigie will not recognize any gain or loss to the extent that such Shareholders
exchange shares of Craigie common stock for shares of SNC common stock.
6.6 Legal Opinion. Craigie shall have received the legal
opinion of Womble Carlyle Sandridge & Rice, PLLC, counsel to SNC, in form and
substance reasonably acceptable to Craigie.
ARTICLE VII
Closing
7.1 Deliveries By Craigie. At the Closing, Craigie shall
deliver, or cause to be delivered, to SNC the following:
(a) Evidence that all Required Consents have been
obtained or satisfied;
(b) The legal opinion described in Section 5.9, dated
the Closing Date;
(c) Corporate resolutions duly adopted by the Board
of Directors and shareholders of Craigie, authorizing the
execution, delivery and performance of this Agreement, duly
certified by the Secretary of Craigie, and an incumbency
certificate certifying the names and true signatures of the
officers of Craigie executing and delivering this Agreement;
(d) A copy of the Articles of Incorporation of
Craigie, certified as of a date not more than ten days prior
to the Closing Date by the Secretary of State of the
Commonwealth of Virginia;
(e) A certificate of good standing or corporate
existence for Craigie, issued as of a date not more than ten
days prior to the Closing Date by the Secretary of State of
the Commonwealth of Virginia and a certificate from the
Department of Revenue or Taxation of the Commonwealth of
Virginia stating that all required taxes have been paid in
full by Craigie;
(f) The compliance certificate required pursuant to
Section 5.3;
(g) The agreements with key employees described in
Section 5.8; and
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(h) Such other documents as shall reasonably be
requested by SNC in order effectively to carry out the
transactions contemplated by this Agreement, duly executed by
Craigie.
7.2 Deliveries By SNC. At the Closing, SNC shall
deliver, or cause to be delivered, to Craigie the following:
(a) The legal opinions described in Section 6.5 and
6.6, dated the Closing Date;
(b) Corporate resolutions duly adopted by the Boards
of Directors of SNC and BB&T Acquisition, and by SNC as sole
shareholder of BB&T Acquisition, authorizing the execution,
delivery and performance of this Agreement, duly certified by
the Secretary of each, and an incumbency certificate
certifying the names and true signatures of the officers of
each such corporation executing and delivering this Agreement;
(c) The compliance certificate required pursuant to
Section 6.3; and
(d) Such other documents as shall reasonably be
requested by Craigie in order to effectively carry out the
transactions contemplated by this Agreement, duly executed by
SNC where appropriate.
7.3 Delivery of Escrow Agreement. At the Closing, SNC and the
Shareholders' Representatives shall execute and deliver, or cause to be executed
and delivered, the Escrow Agreement.
ARTICLE VIII
Indemnification
8.1 Indemnification by Director/Shareholders. Subject to
Sections 8.7 and 8.8, the Director/Shareholders shall indemnify, defend and hold
harmless SNC from, against, and with respect to any and all actions or causes of
action, losses, damages (including without limitation all foreseeable and
unforeseeable consequential damages), claims, obligations, liabilities,
penalties, fines, costs and expenses (including without limitation reasonable
attorneys' and consultants' fees and costs and expenses incurred in
investigating, preparing, defending against or prosecuting any litigation,
claim, proceeding, demand or request for action by any governmental or
administrative entity), of any kind or character (a "Loss") arising out of or in
connection with any of the following:
(a) any breach of any of the representations or warranties
of Craigie contained in or made pursuant to this
Agreement; or
(b) any failure by Craigie to perform or observe, or to have
performed or observed, in full, any covenant, agreement
or condition to be performed or observed by Craigie
pursuant to this Agreement; or
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(c) the matter disclosed at the asterisk in Schedule
2.21b, and disclosure of such matter by Craigie in Schedule
2.21b shall not be a defense if SNC shall incur a Loss with
respect to such matter; or
(d) the Confederation Life Insurance Company (U.S.)
in Rehabilitation policies held by Craigie insuring the lives
of certain present and former key employees of Craigie, and
having a value on Craigie's books on December 31, 1996 of
$2,731,440. For this purpose, a Loss shall be deemed to occur
if the cash surrender value of any such policy on the Policy
Valuation Date (as defined below) shall exceed the actual cash
surrender value on the date of the determination of the Loss,
and the amount of such Loss shall equal 120% of such excess.
For this purpose, the Policy Valuation Date shall mean
December 31, 1996 or the Closing Date, whichever is applicable
in determining the Merger Consideration pursuant to Section
1.7(b). Notwithstanding the foregoing, if any of the policies
shall be assumed by a solvent life insurance company, the
indemnification obligation hereunder shall cease at the time
of such assumption, except to the extent of 120% of the
excess, if any, of the cash surrender value on the Policy
Valuation Date over the cash surrender value immediately
following such assumption; or
(e) any other matter contained in the Escrow
Agreement with respect to which the Director/Shareholders have
agreed to indemnify SNC.
8.2 Indemnification by Craigie. Craigie shall indemnify,
defend and hold harmless SNC from, against and with respect to any and all Loss
arising out of or in connection with any act or omission by Craigie or a
Shareholder of Craigie resulting in termination of this Agreement by SNC
pursuant to Section 9.1(c).
8.3 Indemnification by SNC. SNC shall indemnify, defend and
hold harmless Craigie from, against and with respect to any Loss arising out of
or in connection with any of the following:
(a) any breach of any of the representations and
warranties of SNC contained in or made pursuant to this
Agreement; or
(b) any failure by SNC to perform or observe, or to
have performed or observed, in full, any covenant, agreement
or condition to be performed or observed by it pursuant to
this Agreement.
8.4 Notice of Claim. Any party seeking to be indemnified
hereunder (the "Indemnified Party") shall notify the party from whom indemnity
is sought (the "Indemnity Obligor"), and the Escrow Agent named in the Escrow
Agreement, of any claim for recovery, specifying in reasonable detail the nature
of the Loss and the amount of the liability estimated to arise therefrom. The
Indemnified Party shall provide to the Indemnity Obligor and the Escrow Agent as
promptly as practicable thereafter all information and documentation reasonably
requested by the Indemnity Obligor to verify the claim asserted. Notice to the
Director/Shareholders shall be delivered to the Shareholders' Representatives.
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8.5 Defense. If the facts pertaining to a Loss arise out of
the claim of any third party, or if there is any claim against a third party
available by virtue of the circumstances of the Loss, the Indemnity Obligor may,
by giving written notice to the Indemnified Party within 30 days following its
receipt of the notice of such claim, elect to assume the defense or the
prosecution thereof, including the employment of counsel or accountants at its
cost and expense; provided, however, that during the interim the Indemnified
Party shall use its best efforts to take all action (not including settlement)
reasonably necessary to protect against further damage or loss with respect to
the Loss. The Indemnified Party shall have the right to employ counsel separate
from counsel employed by the Indemnity Obligor in any such action and to
participate therein, but the fees and expenses of such counsel shall be at the
Indemnified Party's own expense. Whether or not the Indemnity Obligor chooses so
to defend or prosecute such claim, all the parties hereto shall cooperate in the
defense or prosecution thereof and shall furnish such records, information and
testimony and shall attend such conferences, discovery proceedings and trials as
may be reasonably requested in connection therewith. The Indemnity Obligor shall
not be liable for any settlement of any such claim effected without its prior
written consent, which shall not be unreasonably withheld.
8.6 Other Remedies. The foregoing indemnification provisions
are in addition to, and not in derogation or limitation of, any statutory,
equitable or common law remedy any party may have as a result of a Loss.
8.7 Maximum Indemnity Amount. Notwithstanding any other
provision hereof, an Indemnified Party may recover the amount of any Loss from
the Indemnity Obligator only if and to the extent that the amount of the Loss,
when added to all other Losses incurred by the Indemnified Party, shall exceed
$100,000. The liabilities of each Director/Shareholder hereunder as an Indemnity
Obligor shall further be limited to that portion of the Merger Consideration
distributable to such Director/Shareholder that is held in escrow for such
Director/Shareholder pursuant to the terms of the Escrow Agreement. In the event
that SNC shall suffer a Loss subject to indemnity hereunder by the
Director/Shareholders, and SNC shall deliver a notice thereof as provided in
Section 8.4 to the Director/Shareholders and the Escrow Agent, SNC shall be
entitled to recover up to the full amount of such Loss from the amounts held
pursuant to the Escrow Agreement, subject to the terms thereof.
8.8 Time Limitations. Any claim asserted pursuant to Section
8.1, 8.2 or 8.3 must be submitted to the Indemnity Obligor pursuant to Section
8.4 within two years after the Closing Date in order for there to be any
obligation of the Indemnity Obligor to indemnify with respect to any such claim.
8.9 Shareholders' Representatives. Craigie hereby appoints
Allen Mead Ferguson, John W. Wright and John T. West, IV (the "Shareholders'
Representatives") to act on behalf of the Director/Shareholders with respect to
any Loss for which SNC claims to be indemnified by the Director/Shareholders
pursuant to this Article VIII, or with respect to any other matter specified
herein. Allen Mead Ferguson is hereby appointed as the agent of the
Shareholders' Representatives (the "Agent"). Upon prior written notice to SNC
and the Escrow Agent, the Shareholders' Representatives may substitute any other
of its members as the Agent. The Agent shall receive and make all notices and
communications of the Shareholders' Representatives in connection with this
Agreement and the Escrow Agreement and shall have the authority, acting upon
approval of a majority vote of the Shareholders' Representatives, to settle,
defend, challenge or compromise any or all claims of Loss to be satisfied from
the Escrow Fund. SNC and the Escrow Agent shall be entitled to rely, and shall
be fully protected in so relying, upon any instrument or document
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<PAGE>
executed, or any notice, communication, decision or action made by, the Agent,
and the Director/Shareholders and their respective heirs, successors and assigns
shall be fully bound thereby.
ARTICLE IX
Termination
9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) By the mutual written consent of Craigie and SNC;
(b) By Craigie in writing (if Craigie is not then in
breach of any term of this Agreement), if SNC shall (i) fail
to perform in any material respect its covenants or agreements
contained herein required to be performed on or prior to the
Closing Date, or (ii) materially breach any of its
representations or warranties contained herein, which failure
or breach is not cured within ten days after Craigie has
notified SNC of its intent to terminate this Agreement
pursuant to this subparagraph;
(c) By SNC in writing (if SNC is not then in breach
of any term of this Agreement), if Craigie or any Shareholder
of Craigie who is a party hereto shall (i) fail to perform in
any material respect its or his covenants or agreements
contained herein required to be performed on or prior to the
Closing Date, or (ii) materially breach any of its or his
representations or warranties contained herein, which failure
or breach is not cured within ten days after SNC has notified
Craigie or any such Shareholder of its intent to terminate
this Agreement pursuant to this subparagraph;
(d) By either Craigie or SNC if there shall be any
order, writ, injunction or decree of any court or governmental
or regulatory agency binding on Craigie or SNC which prohibits
or restrains Craigie or SNC from consummating the transactions
contemplated hereby;
(e) By either Craigie or SNC, (i) if the Closing has
not occurred by October 1, 1997, for any reason other than
delay or nonperformance of the party seeking such termination,
or other than failure to receive approval by the Board of
Governors of the Federal Reserve System of Craigie as a
subsidiary of SNC as described in Section 20 of the
Glass-Steagall Act, or (ii) if the Closing has not occurred by
December 31, 1997 for any reason other than delay or
nonperformance of the party seeking such termination;
(f) By either Craigie or SNC in writing, if any of
the applications for prior approval referred to in Section 5.4
or 6.4 are denied, and the time period for appeals and
requests for reconsideration has run;
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(g) At any time, by either Craigie or SNC in writing,
if the shareholders of Craigie do not approve the transactions
contemplated herein; or
(h) At any time prior to 11:59 p.m. on the sixtieth
day following the date hereof by SNC in writing, if SNC
determines in its sole good faith judgment, through the
performance of its due diligence or otherwise, that the
financial condition, business or prospects of Craigie are
materially adversely different from what was reasonably
expected by SNC; provided that SNC shall inform Craigie upon
such termination as to the reasons for SNC's determination;
and, provided further, that this Section 9.1(h) shall not
limit in any way the due diligence investigation of Craigie
which SNC may perform.
(i) By SNC prior to the Effective Time
acting pursuant to the first paragraph of Section 1.7(b) of
this Agreement.
9.2 Effect on Obligations. Termination of this Agreement
pursuant to this Article IX shall terminate all obligations of the parties
hereunder, except for the obligations under Sections 10.5 (with respect to
expenses) and 4.11 (with respect to confidentiality); provided, however, that
termination pursuant to (b) or (c) of Section 9.1 shall not relieve the
defaulting or breaching party from any liability to any other party hereto, and
the nondefaulting party or parties shall be entitled to any remedies allowed by
applicable law. In the event of termination under (c) of Section 9.1, SNC shall
have the rights and remedies with respect to specific performance as set forth
in Section 10.11, in addition to any other remedies that may be available at law
or in equity.
9.3 Waiver. Except with respect to any required regulatory
approval, each corporate party hereto, by written instrument signed by an
executive officer of such corporate party, may at any time (whether before or
after approval of the Agreement and the Plan of Merger by the Shareholders of
Craigie) extend the time for the performance of any of the obligations or other
acts of any other party hereto and may waive (i) any inaccuracies of another
party in the representations or warranties contained in this Agreement or any
document delivered pursuant hereto, (ii) compliance with any of the covenants,
undertakings or agreements of another party, or satisfaction of any of the
conditions precedent to its obligations, contained herein or in the Plan of
Merger, or (iii) the performance by another party of any of its obligations set
out herein; provided that no such extension or waiver, or amendment or
supplement pursuant to Section 9.4 executed after approval by the Shareholders
of Craigie of this Agreement and the Plan of Merger shall reduce either the
number of shares of SNC common stock into which each share of Craigie common
stock shall be converted in the Merger or the payment terms for fractional
interests.
9.4 Amendment or Supplement. This Agreement and the Plan of
Merger may be amended or supplemented at any time in writing by mutual agreement
of SNC and Craigie, subject to the proviso in Section 9.3.
ARTICLE X
Miscellaneous
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10.1 Survival. Subject to Section 8.8, all covenants,
agreements, statements, certifications, indemnifications, representations and
warranties made by Craigie or SNC in this Agreement or in any document, exhibit,
schedule or certificate furnished pursuant hereto or in connection herewith,
shall survive the Closing until the second anniversary of the Closing, at which
time they shall expire. The right to indemnification, payment of damages or
other remedy based on the representations and warranties in Article II and on
covenants, agreements and obligations herein of Craigie or of any of the
Director/Shareholders will not be affected by any investigation conducted by SNC
with respect to, or any knowledge acquired (or capable of being acquired) at any
time by SNC, whether before or after the execution and delivery of this
Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or
compliance with, any such representation, warranty, covenant, agreement or
obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant, agreement or obligation, or any extension granted with respect
thereto, will not affect the right to indemnification, payment of damages or
other remedy based on such representation, warranty, covenant, agreement or
obligation.
10.2 Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been given (a) when received, if delivered in
person, (b) when sent, if sent by facsimile transmission, or (c) the day
following the date deposited with a nationally recognized overnight courier
(with charges prepaid), in any such case as follows:
If to Craigie, to:
Allen Mead Ferguson
823 East Main Street
Richmond, Virginia 23219
804-649-3933
with a copy (which shall not constitute notice) to:
Theodore L. Chandler, Esquire
Williams Mullen Christian & Dobbins
Post Office Box 1320
Richmond, Virginia 23218-1320
Fax No.: 804-783-6507
If to the Closing Shareholders, to:
Allen Mead Ferguson
823 East Main Street
Richmond, Virginia 23219
804-649-3933
with a copy (which shall not constitute notice) to:
Theodore L. Chandler, Esquire
Williams Mullen Christian & Dobbins
Post Office Box 1320
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<PAGE>
Richmond, Virginia 23218-1320
Fax No.: 804-783-6507
If to SNC, to:
Southern National Corporation
200 West Second Street
Winston-Salem, North Carolina 27101
Attention: Scott E. Reed
Fax No.: 910-733-0340
with a copy (which shall not constitute notice) to:
William A. Davis, II
Womble Carlyle Sandridge & Rice, PLLC
Post Office Drawer 84
Winston-Salem, NC 27102
Fax No.: 910-733-8364
or at such other address or addresses as any party
may have advised the other in the manner provided in this
Section 10.2.
10.3 Predecessor Agreement; Complete Agreement. On March 7,
1997, the parties hereto executed Agreement and Plan of Reorganization (the
"Predecessor Agreement"). Following execution of the Predecessor Agreement, the
parties have agreed to certain changes, all of which are reflected in this
Amended and Restated Agreement. This Amended and Restated Agreement amends and
supersedes the Predecessor Agreement in its entirety from the date of its
execution, and the Predecessor Agreement shall have no further force and effect.
This Agreement further supersedes all other prior agreements, contracts,
promises, representations, warranties, statements, arrangements and
understandings, if any, among the parties hereto or their representatives, and
together with its exhibits and schedules sets forth the entire agreement of the
parties with respect to the subject matter hereof. No waiver, modification or
amendment of any provision, term or condition hereof shall be valid unless in
writing and signed by the party to be charged therewith, and any such waiver,
modification or amendment shall be valid only to the extent therein set forth.
10.4 Further Assurances. Each of the parties hereto shall,
from time to time after the Closing, upon the request of the other party hereto
and at the expense of such requesting party, duly execute, acknowledge and
deliver or cause to be duly executed, acknowledged and delivered, all such
further instruments and documents reasonably requested by the other party to
further effectuate the intent and purposes of this Agreement. Without limiting
the foregoing, SNC guarantees the obligations of Craigie under the Performance
Incentive Program described in Section 4.15, and agrees to reserve and make
available to Craigie any shares of SNC common stock required to be distributed
to Craigie employees under such Program.
10.5 Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, each of Craigie and SNC shall pay its own
expenses (including, without limitation, attorneys' and accountants' fees and
disbursements) incident to this Agreement and the transactions contemplated
hereby.
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<PAGE>
10.6 Governing Law. The validity, performance, construction
and effect of this Agreement shall be governed by the substantive laws of the
Commonwealth of Virginia, without regard to the provisions for choice of law
thereunder.
10.7 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
10.8 Severability. Any provision of this Agreement which may
be determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
10.9 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
taken together shall constitute a single agreement.
10.10 Captions. The captions appearing in this Agreement are
inserted only as a matter of convenience and for reference and shall in no way
affect the interpretation or construction of this Agreement or any of the
provisions hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date first above written.
SOUTHERN NATIONAL CORPORATION
By:
Title:
CRAIGIE INCORPORATED
By:
Title:
The undersigned, being Shareholders of Craigie Incorporated on
the date hereof, hereby consent to the provisions of the foregoing Agreement and
Plan of Reorganization as applicable to them, including without limitation the
provisions of Section 1.7 relating to the Escrow Agreement; Section 4.1
obligating them to vote in favor of the Merger, restricting rights to transfer
shares of Craigie, and obligating Messrs. Ferguson, Wright and West to serve as
Shareholders' Representatives; Section 4.8(j) relating to exclusive dealings;
and Article IX relating to termination of the Agreement and Plan of
Reorganization. Each of Messrs. Ferguson, Wright, Pugh and West further agrees
to execute the Employment and Noncompetition Agreement with respect to him
attached as Exhibits C, D, E and F, respectively.
As of the 7th day of March, 1997.
______________________________
Allen Mead Ferguson
______________________________
John W. Wright
______________________________
George B. Pugh
______________________________
John T. West, IV
______________________________
Jonathan Wallace
______________________________
John B. Jung, Jr.
The undersigned, being Shareholders of Craigie Incorporated on the date
hereof, hereby consent to the provisions of the foregoing Agreement and Plan of
Reorganization as applicable to them, including without limitation the
provisions of Section 1.7 relating to the Escrow Agreement.
As of the 7th day of March, 1997.
______________________________________________
James Alexander
______________________________________________
John Blair
______________________________________________
Arnold Brown
______________________________________________
William T. Clarke, Jr.
______________________________________________
John Garth
______________________________________________
Merlin Grim
______________________________________________
Melvin J. Harley, Jr.
______________________________________________
Joseph M. Lowry, Jr.
______________________________________________
William Reynolds
______________________________________________
Peter Shea
______________________________________________
Bradley Smallwood
<PAGE>
EXHIBIT A
ARTICLES OF MERGER
OF
BB&T ACQUISITION, INC.
WITH AND INTO
CRAIGIE INCORPORATED
The undersigned corporations, pursuant to Section 13.1-720 of the
Virginia Stock Corporation Act, hereby execute the following Articles of Merger.
ONE
The merger of BB&T Acquisition, Inc., a Virginia corporation ("BB&T
Acquisition"), with and into Craigie Incorporated ("Craigie"), shall be in
accordance with the Plan of Merger attached hereto as Annex A (the "Plan of
Merger").
TWO
The Plan of Merger was submitted to the shareholders of each of BB&T
Acquisition and Craigie by its Board of Directors in accordance with the
provisions of Section 13.1-718 of the Virginia Stock Corporation Act:
A. The number of outstanding shares of common stock, without par value,
of Craigie (the only voting group entitled to vote on the Plan of Merger)
entitled to be cast and number of undisputed votes cast for the Plan of Merger
were:
Outstanding Shares Undisputed Votes Cast for the Plan
940,599.8964 ______________________
The number of undisputed votes cast for the Plan of Merger was
sufficient for approval of the Plan of Merger.
B. The Plan of Merger was adopted by unanimous consent of the
shareholders of BB&T Acquisition.
THREE
The articles of merger shall become effective at ______ __.m. on
_________________, 1997.
The undersigned, [Title] of each of BB&T Acquisition and Craigie
declares that the facts herein stated are true as of __________________, 1997.
<PAGE>
BB&T ACQUISITION, INC.
By:_____________________________________________
Name:___________________________________________
Title:____________________________________________
CRAIGIE INCORPORATED
By:_____________________________________________
Name:___________________________________________
Title:____________________________________________
<PAGE>
ANNEX A
PLAN OF MERGER
OF
BB&T ACQUISITION, INC.
WITH AND INTO
CRAIGIE INCORPORATED
Section 1. Corporations Proposing to Merge and Surviving Corporation.
BB&T Acquisition, Inc., a Virginia corporation ("BB&T Acquisition"), shall be
merged (the "Merger") with and into Craigie Incorporated, a Virginia corporation
("Craigie"), pursuant to the terms and conditions of this Plan of Merger (the
"Plan of Merger") and of the Amended and Restated Agreement and Plan of
Reorganization, dated as of March 7, 1997 (the "Agreement"), by and between
Craigie and Southern National Corporation (the name of which was subsequently
changed to BB&T Corporation), a North Carolina corporation and parent
corporation of BB&T Acquisition ("BB&T"). The effective time for the Merger (the
"Effective Time") shall be set forth in the Articles of Merger to be filed with
the Clerk of the State Corporation Commission of Virginia. Craigie shall
continue as the surviving corporation (the "Surviving Corporation") in the
Merger and the separate corporate existence of BB&T Acquisition shall cease.
Section 2. Effects of the Merger. The Merger shall have the effects set
forth in Section 13.1-721 of the Virginia Stock Corporation Act (the "VSCA").
Section 3. Articles of Incorporation and Bylaws. The Articles of
Incorporation and the Bylaws of Craigie as in effect immediately prior to the
Effective Time shall remain in effect as the Articles of Incorporation and
Bylaws of the Surviving Corporation following the Effective Time until changed
in accordance with their terms and the VSCA.
Section 4. Conversion of Shares.
(a) At the Effective Time, each share of common stock, without par
value, of Craigie ("Craigie Common Stock") outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and become the right to receive shares
of common stock, $5.00 par value per share, of BB&T ("BB&T Common Stock") as
described in Section 5.
(b) At the Effective Time, each share of the common stock of BB&T
Acquisition issued and outstanding immediately prior to the Effective Time shall
be converted into one share of the Surviving Corporation's common stock.
Section 5. Merger Consideration.
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(a) As used in this Plan of Merger, the following terms shall
have the following meanings:
(i) Average Market Value. "Average Market Value" per
share or per unit shall mean, with respect to each security
held by Craigie, the highest offer received by Craigie to
purchase such security, determined by application of the
following procedure: Craigie shall, on the date next preceding
the date as of which Average Market Value is being determined,
solicit from reputable purchasers reasonably acceptable to
BB&T three current bids to purchase each security for normal
delivery. The highest of such bids for each market security
shall be deemed to be the Average Market Value.
(ii) Closing Value. "Closing Value" shall mean, with
respect to BB&T Common Stock, the average closing price per
share of BB&T Common Stock on the New York Stock Exchange for
the twenty trading days immediately preceding the tenth
calendar day prior to the Closing Date (as defined in Section
1.4 of the Agreement), as reported in THE WALL STREET JOURNAL.
(iii) Considered Earnings Per Share. "Considered
Earnings per Share" shall mean, with respect to Craigie, an
amount per share of Craigie Common Stock determined by
dividing the number of shares of Craigie Common Stock issued
and outstanding at the Effective Time into the lesser of the
following: (A) actual net earnings after tax of Craigie for
the period beginning on January 1, 1997 and ending on and
including the Closing Date, determined in accordance with
generally accepted accounting principles consistently applied,
or (B) $1.435 million multiplied by a fraction, the numerator
of which is the number of days in 1997 ending on and including
the Closing Date, and the denominator of which is 365.
(iv) Tangible Book Value. "Tangible Book Value" shall
mean, with respect to Craigie, the shareholders' equity of
Craigie determined as of the applicable date in accordance
with generally accepted accounting principles consistently
applied, adjusted (A) to include any unrealized gains or
losses on marketable securities held by Craigie at the Average
Market Value per share or per unit, (B) to eliminate goodwill
and other intangible assets, and (C) to treat the principal
amount of the convertible subordinated debt described in
Section 4.12 of the Agreement, if any, of Craigie as if it
were equity.
(v) Tangible Book Value Per Share. "Tangible Book
Value per Share" shall mean, with respect to Craigie, an
amount per share of Craigie Common Stock determined by
dividing the Tangible Book Value of Craigie as of the date as
of which Tangible Book Value per Share is being determined by
the number of shares of Craigie Common Stock issued and
outstanding at the Effective Time.
(vi) Options. For the purpose of determining the
number of shares of Craigie Common Stock issued and
outstanding at the Effective Time, any options to acquire
shares of Craigie Common Stock previously granted and
outstanding at the Effective Time shall be deemed to have been
exercised immediately preceding the Effective Time.
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(b) The consideration to be exchanged in the Merger for each
share of Craigie Common Stock outstanding at the Effective Time (the
"Merger Consideration") shall be determined as provided in (i) and (ii)
of this Section 5(b), and shall consist of that number of shares of
BB&T Common Stock (rounded to the nearest one-hundredth of a share)
equal to the lesser of: (x) 1.20 multiplied by the sum of (A) Tangible
Book Value per Share determined as of December 31, 1996, plus (B) the
Considered Earnings per Share, which product shall be divided by the
Closing Value; or (y) 1.20 multiplied by the Tangible Book Value per
Share as of the Closing Date, divided by the Closing Value.
Notwithstanding the foregoing, if the Closing Value is more than
$49.03 and not more than $52.00, the Merger Consideration shall be
determined as if the Closing Value were $49.03; and if the Closing
Value is more than $52.00, the Merger Consideration shall be determined
as if the Closing Value were the sum of $49.03 plus the amount by which
the Closing Value exceeds $52.00; and if the Closing Value is less than
$29.43, BB&T may terminate the Agreement or enter into negotiations
with Craigie to decrease the Merger Consideration. The Merger
Consideration shall be determined and distributed as follows:
(i) Closing Merger Consideration. The Closing Merger
Consideration, defined below, shall be distributed to or for
the benefit of the holders of record of Craigie Common Stock
at the Effective Time who are not Dissenting Shareholders
defined in Section 1.9 (the "Closing Shareholders") as soon as
practicable following the Effective Time in accordance with
Section 1.8(d). For this purpose, the "Closing Merger
Consideration" shall equal 90% of the approximate Merger
Consideration determined as provided in the foregoing
provisions of this Section 5(b) except that (x) and (y) shall,
to the extent dependent on Closing Date financial statements
of Craigie, be determined from the unaudited financial
statements of Craigie as of the Closing Date. Notwithstanding
the foregoing, an amount equal to 5% of the aggregate Closing
Merger Consideration shall be distributed to the Escrow Agent
named in the Escrow Agreement, to be administered pursuant to
the terms of the Escrow Agreement. The amount of such
distribution to the Escrow Agent shall be allocated solely to
the Closing Shareholders who were members of the Board of
Directors of Craigie on March 7, 1997 (the "Director/
Shareholders"), in the proportion that the Closing Merger
Consideration otherwise distributable to each
Director/Shareholder bears to the Closing Merger Consideration
otherwise distributable to all Director/Shareholders. Any
fractional share of BB&T Common Stock allocable to any Closing
Shareholder or to the Escrow Agent pursuant to this
subparagraph shall not be distributed.
(ii) Determination of Post-Closing Merger
Consideration. An amount equal to the difference between the
Merger Consideration and the Closing Merger Consideration (the
"Post-Closing Merger Consideration") shall be distributed to
or for the benefit of the Closing Shareholders in accordance
with Section 5(b)(iii) of this Plan of Merger and 1.8(d) of
the Agreement. The Merger Consideration from which the
Post-Closing Merger Consideration shall be derived shall be
determined by the following procedure:
(A) Closing Financial Statements. Promptly
following the Closing (as defined in Section 1.4 of
the Agreement), BB&T shall cause to be prepared a
balance sheet and income statement (the "Closing
Financial Statements") showing Craigie's Tangible
Book Value as of the Closing Date and Considered
Earnings per Share. The Closing Financial Statements
shall be prepared in accordance with generally
accepted accounting principles consistently applied
with prior periods, except for adjustments for
determining Tangible Book Value.
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(B) Audit. The Closing Financial Statements
and related footnotes (if any) shall be audited and
reported on by Arthur Andersen & Co., L.L.P. ("Arthur
Andersen"). The report of Arthur Andersen shall be
unqualified except as necessary to reflect
adjustments in determining Tangible Book Value as
required herein. Prior to the Closing, BB&T shall
cause Arthur Andersen to review Craigie's accounting
procedures and its audited 1996 Financial Statements
and work papers in preparation for auditing the
Closing Financial Statements. BB&T shall exercise its
reasonable best efforts to cause the Closing
Financial Statements, together with the report of
Arthur Andersen thereon, to be delivered to the
Closing Shareholders as soon as practicable, but no
later than the sixtieth day after the Closing Date,
subject to the provisions of subsection (C) hereof.
Such delivery shall be made to the Shareholder
Representatives as provided in Section 8.9 of the
Agreement. BB&T and Craigie shall, and shall cause
their respective employees and agents to, fully
cooperate in all respects in the audit and review
process and take such actions and make such
undertakings as are customary in connection
therewith.
(C) Review. Following delivery of the
Closing Financial Statements to the Shareholders'
Representatives, BB&T shall cause Arthur Andersen to
provide the Shareholders' Representatives with an
opportunity to observe all aspects of the audit and
to review Arthur Andersen's work papers, and to
discuss the same with Arthur Andersen
representatives. BB&T shall be responsible for the
fees and expenses of Arthur Andersen to the extent
allowed under Rev. Rul. 73-54, 1973-1C.B. 187. The
Shareholders' Representatives shall have 30 days to
review the Closing Financial Statements and to give
notice to BB&T that they have a disagreement with
Arthur Andersen regarding the Closing Financial
Statements (an "Objection Notice"). Failing such
Objection Notice, the Closing Financial Statements as
delivered to the Shareholders' Representatives shall
be final and binding on the parties hereto.
(D) Objection Period. If the Shareholders'
Representatives give an Objection Notice in a timely
manner, but BB&T and the Shareholders'
Representatives are able to resolve such objections,
the Closing Financial Statements, as modified to
resolve such objections, shall be binding on the
parties hereto. If BB&T and the Shareholders'
Representatives are unable to reach agreement as to
all differences within 15 days after BB&T's receipt
of the Shareholders' Representatives' Objection
Notice, then the unresolved differences shall be
submitted to arbitration to resolve the dispute and
make a determination which shall be binding on the
parties to the Agreement. Such arbitration shall be
conducted by arbitrators experienced in the matters
at issue and selected in accordance with the then
current Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"). The
arbitration shall be held in Winston- Salem, North
Carolina and shall be conducted in accordance with
the Rules. The decision of the arbitrator(s) shall be
final and binding as to any matters submitted to
arbitration; provided that, if necessary, such
decision may be enforced by either BB&T or the
Shareholders' Representatives in any court having
competent jurisdiction. After delivery of the
arbitrator's decision, the Closing Financial
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<PAGE>
Statements, modified as appropriate to reflect the
arbitrator's decision, shall be final and binding.
The determination of which party (or combination
thereof) bears the costs and expenses incurred in
connection with any such arbitration proceedings
shall be determined by the arbitrator.
(iii) Distribution of Post-Closing Merger
Consideration. The Post-Closing Merger Consideration shall be
distributed as soon as practicable following the close of the
30-day period described in Section 5(b)(ii)(C) if an Objection
Notice has not been timely filed. If an Objection Notice is
timely filed, the portion of the Post-Closing Merger
Consideration which BB&T and Craigie agree is distributable
shall be distributed (disregarding any fractional share of
BB&T Common Stock) as soon as practicable following the close
of such 30-day period, and the remainder of the Post-Closing
Merger Consideration, if any, shall be distributed as soon as
practicable following final resolution of all objections in
the Objection Notice. Distributions of the Post-Closing Merger
Consideration shall be as follows:
(A) An amount equal to 5% of the aggregate
Post-Closing Merger Consideration shall be
distributed to the Escrow Agent. The amount of such
distribution to the Escrow Agent shall be allocated
solely to the Director/Shareholders in the proportion
that the Post-Closing Merger Consideration otherwise
distributable to each Director/Shareholder bears to
the Post-Closing Merger Consideration otherwise
distributable to all Director- Shareholders. Any
fractional share allocable to the Escrow Agent
pursuant to this subparagraph shall not be
distributed.
(B) Following the distribution to the Escrow
Agent described in (A) immediately preceding, the
remainder of the Post-Closing Merger Consideration
(including fractional shares) shall be distributed to
the Closing Shareholders.
The Escrow Agent shall determine the percentage (to the
nearest one-hundredth of a share) of the total shares of BB&T
Common Stock held by it for each Director/ Shareholder as of
the Effective Time. All distributions from the escrow, if any,
and all dividends payable on shares of BB&T Common Stock held
in escrow on the record date, shall be charged or allocated
among all of the Director/Shareholders in proportion to their
respective percentages in the escrow fund. To the extent any
amounts are distributable to the Director/Shareholders upon
termination of the escrow, such distributions shall be made in
shares of BB&T Common Stock except that the value of any
fractional share shall be paid in cash. The cash payable for
such fractional shares shall, if necessary, be provided by
BB&T.
(c) The amount of cash payable to a Closing Shareholder with
respect to any fractional share of BB&T Common Stock shall be
determined by multiplying the fractional part of such share by the
closing price per share on the New York Stock Exchange of the last
trade of BB&T Common Stock on the day next preceding the date of
distribution, as reported in THE WALL STREET JOURNAL.
5
<PAGE>
Section 6. No Fractional Shares. Notwithstanding any other term or
provision hereof, no fraction of a share of BB&T Common Stock, and no
certificates or script therefor or other evidence of ownership thereof, will be
issued in connection with the conversion of Craigie Common Stock in the Merger,
and no right to receive cash in lieu thereof shall entitle the holder thereof to
any voting or other rights of a holder of shares or fractional share interests
of the Surviving Corporation. In lieu of such fractional shares, any holder of
shares who would otherwise be entitled to fractional shares of BB&T Common Stock
will, upon receipt by the Surviving Corporation of the Instruction Letter and
other documents described in Section 1.8(d) of the Agreement, be paid the cash
value of each such fraction, computed in accordance with the ratio set forth in
Section 5 above.
Section 7. Amendment. At any time before the Effective Time, this Plan
of Merger may be amended, provided that: (i) any such amendment is approved by
the Boards of Directors of Craigie and BB&T Acquisition; and (ii) no such
amendment made subsequent to the submission of this Plan of Merger to the
shareholders of Craigie shall have any of the effects specified in Section
13.1-718.I of the VSCA without the approval of the shareholders affected
thereby.
6
<PAGE>
APPENDIX II
VIRGINIA STATE CORPORATION ACT
TITLE 13.1, CHAPTER 9
ARTICLE 15
DISSENTER'S RIGHTS
ss. 13.1-729 DEFINITIONS
In this article:
"Corporation" means the issuer of the shares held by a dissenter before
the corporate action, except that (i) with respect to a merger, "corporation"
means the surviving domestic or foreign corporation or limited liability company
by merger of that issuer, and (ii) with respect to a share exchange,
"corporation" means the acquiring corporation by share exchange, rather than the
issuer, if the plan of share exchange places the responsibility for dissenters'
rights on the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from
corporate action under ss. 13.1-730 and who exercises that right when and in the
manner required by ss.ss. 13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
"Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial
shareholder.
ss. 13.1-730 RIGHT TO DISSENT
A. A shareholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
1. Consummation of a plan of merger to which the corporation
is a party (i) if shareholder approval is required for the merger by
ss. 13.1-718 or the articles of incorporation and the shareholder is
entitled to vote on the merger or (ii) if the corporation is a
subsidiary that is merged with its parent under ss. 13.1-719;
2. Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation if the shareholder was entitled
to vote on the sale or exchange or if the sale or exchange was in
furtherance of a dissolution on which the shareholder was entitled to
vote, provided that such dissenter's rights shall not apply in the case
of (i) a sale or exchange pursuant to court order, or (ii) a sale for
cash pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
<PAGE>
4. Any corporate action taken pursuant to a shareholder vote
to the extent the articles of incorporation, bylaws, or a resolution of
the board of directors provides that voting or nonvoting shareholders
are entitled to dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with respect to
a plan of merger or share exchange or a sale or exchange of property there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) or (ii) held by at least
2,000 record shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing
such shares provide otherwise;
2. In the case of a plan of merger or share exchange, the
holders of the class or series are required under the plan of merger or
share exchange to accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or
membership interests and cash in lieu of fractional shares (i)
of the surviving or acquiring corporation or limited liability
company or (ii) of any other corporation or limited liability
company which, at the record date fixed to determine the
shareholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or share exchange is to be
acted on, were either listed subject to notice of issuance on
a national securities exchange or held of record by at least
2,000 record shareholders or members; or
c. A combination of cash and shares or membership interests as
set forth in subdivisions 2 a and 2 b of this subsection; or
3. The transaction to be voted on is an "affiliated
transaction" and is not approved by a majority of "disinterested
directors" as such terms are defined in ss. 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair
value of his shares shall terminate upon the occurrence of any one of the
following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets
aside the corporate action; or
3. His demand for payment is withdrawn with the written
consent of the corporation.
ss. 13.1-731 DISSENT BY NOMINEES AND BENEFICIAL OWNERS
A. A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
App. II-2
<PAGE>
B. A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
1. He submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
2. He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
ss. 13.1-732 NOTICE OF DISSENTERS' RIGHTS
A. If proposed corporate action creating dissenters' rights under ss.
13.1-730 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under ss. 13.1-730
is taken without a vote of shareholders, the corporation, during the ten-day
period after the effectuation of such corporate action, shall notify in writing
all record shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in ss. 13.1-734.
ss. 13.1-733 NOTICE OF INTENT TO DEMAND PAYMENT
A. If proposed corporate action creating dissenters' rights under ss.
13.1-730 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (i) shall deliver to the corporation before
the vote is taken written notice of his intent to demand payment for his shares
if the proposed action is effectuated and (ii) shall not vote such shares in
favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A
of this section is not entitled to payment for his shares under this article.
ss. 13.1-734 DISSENTERS' NOTICE
A. If proposed corporate action creating dissenters' rights under ss.
13.1-730 is authorized at a shareholders' meeting, the corporation, during the
ten-day period after the effectuation of such corporate action, shall deliver a
dissenters' notice in writing to all shareholders who satisfied the requirements
of ss. 13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and
when certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received;
3. Supply a form for demanding payment that includes the date
of the first announcement to news media or to shareholders of the terms
of the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial
ownership of the shares before or after that date;
4. Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty nor more than
sixty days after the date of delivery of the dissenters' notice; and
App. II-3
<PAGE>
5. Be accompanied by a copy of this article.
ss. 13.1-735 DUTY TO DEMAND PAYMENT
A. A shareholder sent a dissenters' notice described in ss. 13.1-734
shall demand payment, certify that he acquired beneficial ownership of the
shares before or after the date required to be set forth in the dissenters'
notice pursuant to subdivision 3 of subsection B of ss. 13.1-734, and, in the
case of certificated shares, deposit his certificates in accordance with the
terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection A of
this section retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.
C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
ss. 13.1-736 SHARE RESTRICTIONS
A. The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the proposed
corporate action.
ss. 13.1-737 PAYMENT
A. Except as provided in ss. 13.1-738, within thirty days after receipt
of a payment demand made pursuant to ss. 13.1-735, the corporation shall pay the
dissenter the amount the corporation estimates to be the fair value of his
shares, plus accrued interest. The obligation of the corporation under this
paragraph may be enforced (i) by the circuit court in the city or county where
the corporation's principal office is located, or, if none in this Commonwealth,
where its registered office is located or (ii) at the election of any dissenter
residing or having its principal office in the Commonwealth, by the circuit
court in the city or county where the dissenter resides or has its principal
office. The court shall dispose of the complaint on an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal
year ending not more than sixteen months before the effective date of
the corporate action creating dissenters' rights, an income statement
for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
2. An explanation of how the corporation estimated the fair
value of the shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment
under ss. 13.1-739; and
4. A copy of this article.
App. II-4
<PAGE>
ss. 13.1-738 AFTER-ACQUIRED SHARES
A. A corporation may elect to withhold payment required by ss. 13.1-737
from a dissenter unless he was the beneficial owner of the shares on the date of
the first publication by news media or the first announcement to shareholders
generally, whichever is earlier, of the terms of the proposed corporate action,
as set forth in the dissenters' notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under ss. 13.1-739.
ss. 13.1-739 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
A. A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under ss. 13.1-737), or reject the
corporation's offer under ss. 13.1-738 and demand payment of the fair value of
his shares and interest due, if the dissenter believes that the amount paid
under ss. 13.1-737 or offered under ss. 13.1-738 is less than the fair value of
his shares or that the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection A
of this section within thirty days after the corporation made or offered payment
for his shares.
ss. 13.1-740 COURT ACTION
A. If a demand for payment under ss. 13.1-739 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the circuit court in the city or county described in
subsection B of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within the
sixty-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
B. The corporation shall commence the proceeding in the city or county
where its principal office is located, or, if none in this Commonwealth, where
its registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not residents
of this Commonwealth, whose demands remain unsettled parties to the proceeding
as in an action against their shares and all parties shall be served with a copy
of the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
D. The corporation may join as a party to the proceeding any
shareholder who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this article. If the court
determines that such shareholder has not complied with the provisions of this
article, he shall be dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced
under subsection B of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
App. II-5
<PAGE>
F. Each dissenter made a party to the proceeding is entitled to
judgment (i) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation or (ii)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under ss. 13.1-738.
ss. 13.1-741 COURT COSTS AND COUNSEL FEES
A. The court in an appraisal proceeding commenced under ss. 13.1-740
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters did not act in good faith in demanding
payment under ss. 13.1-739.
B. The court may also assess the reasonable fees and expenses of
experts, excluding those of counsel, for the respective parties, in amounts the
court finds equitable:
1. Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of ss.ss. 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed did not act in good faith with respect
to the rights provided by this article.
C. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, the court
may award to these counsel reasonable fees to be paid out of the amounts awarded
the dissenters who were benefited.
D. In a proceeding commenced under subsection A of ss. 13.1-737 the
court shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
App. II-6
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 55-8-50 through 55-8-58 of the North Carolina Business
Corporation Act contain specific provisions relating to indemnification of
directors and officers of North Carolina corporations. In general, such sections
provide that: (i) a corporation must indemnify a director or officer who is
wholly successful in his defense of a proceeding to which he is a party because
of his status as such, unless limited by the articles of incorporation, and (ii)
a corporation may indemnify a director or officer if he is not wholly successful
in such defense, if it is determined as provided by statute that the director or
officer meets a certain standard of conduct, provided when a director or officer
is liable to the corporation or is adjudged liable on the basis that personal
benefit was improperly received by him, the corporation may not indemnify him. A
director or officer of a corporation who is a party to a proceeding may also
apply to a court for indemnification, and the court may order indemnification
under certain circumstances set forth in statute. A corporation may, in its
articles of incorporation or bylaws or by contract or resolution of the board of
directors, provide indemnification in addition to that provided by statute,
subject to certain conditions.
The registrant's bylaws provide for the indemnification of any director
or officer of the registrant against liabilities and litigation expenses arising
our of his status as such, excluding: (i) any liabilities or litigation expenses
relating to activities that were at the time taken known or believed by such
person to be clearly in conflict with the best interest of the registrant and
(ii) that portion of any liabilities or litigation expenses with respect to
which such person is entitled to receive payment under any insurance policy.
The registrant's articles of incorporation provide for the elimination
of the personal liability of each director of the registrant to the fullest
extent permitted by law.
The registrant maintains directors and officers liability insurance
that, in general, insures: (i) the registrant's directors and officers against
loss by reason of any of their wrongful acts and (ii) the registrant against
loss arising from claims against the directors and officers by reason of their
wrongful acts, all subject to the terms and conditions contained in the policy.
Certain rules of the Federal Deposit Insurance Corporation limit the
ability of certain depository institutions, their subsidiaries and their
affiliated depository institution holding companies to indemnify affiliated
parties, including institution directors. In general, subject to the ability to
purchase directors and officers liability insurance and to advance professional
expenses under certain circumstances, the rules prohibit such institutions from
indemnifying a director for certain costs incurred with regard to an
administrative or enforcement action commenced by any federal banking agency
that results in a final order or settlement pursuant to which the director is
assessed a civil money penalty, removed from office, prohibited from
participating in the affairs of an insured depository institution or required to
cease and desist from or take an affirmative action described in Section 8(b) of
the Federal Deposit Insurance Act (12 U.S.C. ss. 1818(b)).
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as exhibits to this registration
statement on Form S-4:
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------------ ----------------------------------------------------------------------------------------------
<S> <C>
2 Amended and Restated Agreement and Plan of Reorganization, dated as of March 7, 1997,
between BB&T Corporation and Craigie Incorporated (included as Appendix I to the Proxy
Statement/Prospectus
3(a) Articles of Incorporation of BB&T Corporation, as amended (incorporated herein by reference
to Exhibit No. 3(a) to the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and Exhibit No. 3(b) to the registrant's registration statement on Form S-3
filed May 23, 1997 (Registration No. 333-27755))
3(b) Bylaws of BB&T Corporation, as amended (incorporated herein by reference to Exhibit No. 3.2
to the registrant's registration statement on Form S-4 filed June 29, 1989 (Registration No. 33-
29586) and Exhibit No. 3(c) to the registrant's registration statement on Form S-4 filed May 6,
1997 (Registration No. 333-26545))
5 Opinion of Womble Carlyle Sandridge & Rice, PLLC*
8 Opinion of Womble Carlyle Sandridge & Rice, PLLC
23(a) Consent of Womble Carlyle Sandridge & Rice, PLLC (included in Exhibits 5 and 8)
23(b) Consent of Arthur Andersen LLP*
23(c) Consent of KPMG Peat Marwick LLP*
24 Power of Attorney*
99 Form of Craigie Incorporated Proxy Card*
</TABLE>
*Previously filed.
(b) Financial statement schedules: Not applicable.
ITEM 22. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
2. That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered
II-2
<PAGE>
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned registrant hereby undertakes as follows: That prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
D. The registrant undertakes that every prospectus (i) that is filed
pursuant to Paragraph (C) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
E. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
F. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
G. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Winston-Salem, State of North Carolina, on August 28, 1997.
BB&T CORPORATION
By: /s/ Jerone C. Herring
Name: Jerone C. Herring
Title: Executive Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement on Form S-4 has been signed
by the following persons in the capacities indicated on August 28, 1997.
<TABLE>
<S> <C>
/s/ John A. Allison IV /s/ Scott E. Reed
Name: John A. Allison IV Name: Scott E. Reed
Title: Chairman of the Board and Title: Senior Executive Vice President
Chief Executive Officer and Chief Financial Officer
(principal executive officer) (principal financial officer)
/s/ Sherry A. Kellett /s/ Paul B. Barringer
Name: Sherry A. Kellett Name: Paul B. Barringer
Title: Executive Vice President Title: Director
and Controller
(principal accounting officer)
/s/ W. R. Cuthbertson, Jr. /s/ Ronald E. Deal
Name: W. R. Cuthbertson, Jr. Name: Ronald E. Deal
Title: Director Title: Director
/s/ A. J. Dooley, Sr. /s/ Joe L. Dudley, Sr.
Name: A. J. Dooley, Sr. Name: Joe L. Dudley, Sr.
Title: Director Title: Director
/s/ Tom D. Efird /s/ O. William Fenn, Jr.
Name: Tom D. Efird Name: O. William Fenn, Jr.
Title: Director Title: Director
/s/ Paul S. Goldsmith /s/ L. Vincent Hackley
Name: Paul S. Goldsmith Name: L. Vincent Hackley
Title: Director Title: Director
II-4
<PAGE>
/s/ Ernest F. Hardee /s/ Jane P. Helm
Name: Ernest F. Hardee Name: Jane P. Helm
Title: Director Title: Director
/s/ Richard Janeway, M.D. /s/ J. Ernest Lathem, M.D.
Name: Richard Janeway, M.D. Name: J. Ernest Lathem, M.D.
Title: Director Title: Director
/s/ James H. Maynard
Name: James H. Maynard Name: Joseph A. McAleer, Jr.
Title: Director Title: Director
/s/ Albert O. McCauley /s/ Dickson McLean, Jr.
Name: Albert O. McCauley Name: Dickson McLean, Jr.
Title: Director Title: Director
/s/ Charles E. Nichols /s/ L. Glenn Orr, Jr.
Name: Charles E. Nichols Name: L. Glenn Orr, Jr.
Title: Director Title: Director
/s/ A. Winniett Peters /s/ Richard L. Player, Jr.
Name: A. Winniett Peters Name: Richard L. Player, Jr.
Title: Director Title: Director
/s/ C. Edward Pleasants, Jr. /s/ Nido R. Qubein
Name: C. Edward Pleasants, Jr. Name: Nido R. Qubein
Title: Director Title: Director
</TABLE>
/s/ A. Tab Williams, Jr.
Name: A. Tab Williams, Jr.
Title: Director
*By: /s/ Jerone C. Herring
Jerone C. Herring
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT 8
August 28, 1997
BB&T Corporation
200 West Second Street
Winston-Salem, North Carolina 27101
Re: Registration Statement on Form S-4 (the "Registration Statement")
with respect to shares issued pursuant to the Agreement and Plan
of Reorganization, dated as of March 7, 1997, as amended (the
"Agreement"), between Craigie Incorporated ("Craigie") and BB&T
Corporation ("BB&T")
Ladies and Gentlemen:
We have acted as counsel to BB&T in connection with the registration of
550,000 shares of its Common Stock, par value $5.00 per share (the "BB&T Common
Stock"), issuable pursuant to the Agreement, as set forth in the Registration
Statement that is being filed on the date hereof by SNC with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended (the "Securities Act"). This opinion is provided pursuant to the
requirements of Item 21(a) of Form S-4 and Item 601(b)(8) of Regulation S-K. All
capitalized terms not otherwise defined herein shall have the meanings given to
them in the Agreement.
In the Merger, BB&T Acquisition Corporation will merge into Craigie
pursuant to Virginia law, and each outstanding share of Craigie Common Stock
(the only class outstanding) is to be converted into a number of shares of BB&T
Common Stock determined under a formula in the Agreement. Cash will be paid in
lieu of issuance of fractional shares. Craigie shareholders are entitled by
state law to dissent from the Merger.
In giving this opinion we have reviewed, and with your permission we
have relied upon the representations and warranties contained in or the facts
described in, the Agreement, the Registration Statement and certificates dated
August 28, 1997 and August 20, 1997 in which officers of Craigie and officers of
BB&T make certain representations on behalf of Craigie and BB&T regarding the
Merger (the "Tax Certificates"). We also have reviewed such other documents as
we have considered necessary and appropriate for the purposes of this opinion.
In giving this opinion we have with your permission assumed that the
statements in the Tax Certificates are correct as of the date of this opinion,
and any representation or statement made "to the best of knowledge" or similarly
qualified is correct without such qualification. As to all matters in which a
person or entity has represented that such person or entity either is not a
party to, or does not have, or is not aware of, any plan or intention,
understanding or agreement, we have assumed that there is in fact no such plan,
intention, understanding or agreement. We also assume that (a) the Merger will
be consummated in accordance with the Agreement, (b) Craigie's only outstanding
stock (as that term is used in Section 368 of the Internal Revenue Code of 1986,
as amended (the "Code")) is the Craigie Common Stock, and (c) the Rights
attached to the shares of BB&T Common Stock issued in the Merger will not be
exchanged by BB&T for any part of the value of the Craigie Common Stock, and
such Rights will have no ascertainable fair market value at the Effective Time.
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Based on the foregoing, and subject to the limitations herein, we are
of the opinion that under existing law, upon consummation of the Merger in
accordance with the Agreement, for federal income tax purposes:
(1) The Merger will constitute a "reorganization" within
the meaning of Section 368 of the Code.
(2) No gain or loss will be recognized by Craigie or BB&T
by reason of the Merger.
(3) No gain or loss will be recognized by the
shareholders of Craigie upon the receipt of BB&T
Common Stock (including any fractional share interest
to which they may be entitled) solely in exchange for
their shares of Craigie Common Stock.
(4) A shareholder of Craigie who receives cash in lieu of
a fractional share of BB&T Common Stock will
recognize gain or loss as if the fractional share has
been received and then redeemed for cash equal to the
amount paid by BB&T in respect of such fractional
share.
(5) The aggregate tax basis of the shares of BB&T Common
Stock received (including any fractional share
interest deemed received) by shareholders of Craigie
who exchange all of their Craigie Common Stock solely
for shares of BB&T Common Stock in the Merger will be
the same as the aggregate tax basis of the shares of
Craigie Common Stock surrendered in exchange
therefor.
(6) The holding period of the shares of BB&T Common Stock
received in the Merger (including any fractional
share interest deemed received) will include the
period during which the shares of Craigie Common
Stock surrendered in exchange therefor were held,
provided such shares of Craigie Common Stock were
held as capital assets at the Effective Time.
We express no opinion as to the laws of any jurisdiction other than the
United States of America. Further, our opinion is limited to the specific
conclusions set forth above, and no other opinions are expressed or implied. The
opinions stated with respect to shares of Craigie Common Stock do not apply to
any stock rights, warrants or options to acquire Craigie Common Stock. The
opinions stated as to Craigie shareholders are general in nature and do not
necessarily apply to any particular Craigie shareholder, and, for example, may
not apply to shareholders who are corporations, trusts, dealers in securities,
financial institutions, insurance companies or tax exempt organizations; or to
persons who are not United States citizens or resident aliens or domestic
entities (partnerships or trusts), are subject to the alternative minimum tax
(to the extent that tax affects the tax consequences), or are subject to the
"golden parachute" provisions of the Code (to the extent that tax affects the
tax consequences); or to shareholders who acquired Craigie Common Stock pursuant
to employee stock options or otherwise as compensation if such shares are
subject to any restriction related to employment, who do not hold their shares
as capital assets, or who hold their shares as part of a "straddle" or
"conversion transaction."
This opinion represents our best legal judgment, but it has no binding
effect or official status of any kind. Changes to the Code or in regulations or
rulings thereunder, or changes by the courts in the interpretation of the
authorities relied upon, may be applied retroactively and may affect the
opinions
<PAGE>
expressed herein. Any material defect in any assumption or representation on
which we have relied would adversely affect our opinion.
We furnish this opinion to you solely to support the discussion set
forth under the headings "SUMMARY--The Merger--Certain Federal Income Tax
Consequences," "THE MERGER--The Reorganization Agreement--Conditions to the
Merger," "THE MERGER--Certain Federal Income Tax Consequences of the Merger" and
"LEGAL MATTERS" in the Registration Statement, and we do not consent to its use
for any other purpose. We hereby consent to be named in the Registration
Statement under the foregoing heading and to the filing of a copy of this
opinion as Exhibit 8 to the Registration Statement. In giving this consent, we
do not admit that we are within the category of persons whose consent is
required by Section 7 of the Securities Act or the rules and regulations of the
Commission thereunder.
Very truly yours,
WOMBLE CARLYLE SANDRIDGE & RICE,
A Professional Limited Liability Company
By: /s/ Jasper L. Cummings, Jr.
Jasper L. Cummings, Jr.
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