-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E1KAOxIm9CpXZ4y00TaSkz5YQ27dXwMKid5Ze+hHU9E3xD8T8QYybN9YatNR787L ZVc4I5P04QgcCm/FbKnjcQ== 0000950168-97-003640.txt : 19971218 0000950168-97-003640.hdr.sgml : 19971218 ACCESSION NUMBER: 0000950168-97-003640 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19971217 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION CORP CENTRAL INDEX KEY: 0000036995 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 560898180 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-39515 FILM NUMBER: 97739776 BUSINESS ADDRESS: STREET 1: ONE FIRST UNION CTR CITY: CHARLOTTE STATE: NC ZIP: 28288-0630 BUSINESS PHONE: 7043746565 MAIL ADDRESS: STREET 1: FIRST UNION CORPORA STREET 2: ONE FIRST UNION CENTER CITY: CHARLOTTE STATE: NC ZIP: 28288-0630 FORMER COMPANY: FORMER CONFORMED NAME: CAMERON FINANCIAL CORP DATE OF NAME CHANGE: 19750522 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION NATIONAL BANCORP INC DATE OF NAME CHANGE: 19721115 S-4/A 1 FIRST UNION CORPORATION S-4/A#1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1997 REGISTRATION NO. 333-39515 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ FIRST UNION CORPORATION (Exact name of registrant as specified in its charter) NORTH CAROLINA 6711 56-0898180 (State or other jurisdiction (Primary standard industrial (I.R.S. employer of incorporation or organization) classification code number) identification number)
ONE FIRST UNION CENTER CHARLOTTE, NORTH CAROLINA 28288-0013 (704) 374-6565 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) MARION A. COWELL, JR., ESQ. EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL FIRST UNION CORPORATION ONE FIRST UNION CENTER CHARLOTTE, NORTH CAROLINA 28288-0013 (704) 374-6828 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPY TO: DAVID M. CARTER, ESQ. EDWARD D. HERLIHY, ESQ. HUNTON & WILLIAMS WACHTELL, LIPTON, ROSEN & KATZ RIVERFRONT PLAZA, EAST TOWER 51 WEST 52ND STREET 951 EAST BYRD STREET NEW YORK, NEW YORK 10019 RICHMOND, VIRGINIA 23219-4074 (212) 403-1000 (804) 788-7216
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As promptly 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. [ ] ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WHEAT FIRST BUTCHER SINGER, INC. 901 EAST BYRD STREET RICHMOND, VIRGINIA 23219 (804) 649-2311 December 19, 1997 Dear Stockholder: On behalf of the Board of Directors, I want to extend to you a cordial invitation to attend a Special Meeting of Stockholders of Wheat First Butcher Singer, Inc. ("Wheat"). The meeting will be held at 4:00 p.m., on January 23, 1998, at the offices of Hunton & Williams, counsel for Wheat, Riverfront Plaza, East Tower, 20th Floor, 951 East Byrd Street, Richmond, Virginia. The purpose of the meeting is to vote on a proposal to approve the Agreement and Plan of Merger, dated as of August 20, 1997 (as amended and restated as of December 16, 1997, the "Merger Agreement"), by and between Wheat, First Union Corporation ("FUNC") and a wholly-owned subsidiary of FUNC, pursuant to which, among other things, FUNC will acquire Wheat by means of a merger of such subsidiary with and into Wheat (the "Merger"), all on and subject to the terms and conditions contained in the Merger Agreement. FUNC is the sixth largest bank holding company in the nation, based on assets of $144 billion at September 30, 1997. On November 18, 1997, FUNC announced that it had entered into an agreement to acquire CoreStates Financial Corp, a bank holding company based in Philadelphia, Pennsylvania. Certain information relating to this transaction, the Merger and two other pending or recently completed transactions is set forth in the accompanying Prospectus/Proxy Statement under "SUMMARY," "RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION". Upon consummation of the Merger, each outstanding share of Wheat common stock and each outstanding share of Wheat preferred stock (excluding any shares held by any dissenting stockholders and certain shares held by Wheat or FUNC ("Excluded Shares")) will be converted into the right to receive the number of shares of FUNC common stock equal to 10,267,029 divided by the number of shares of Wheat common stock and Wheat preferred stock issued and outstanding immediately prior to the effective date of the Merger. The Merger will be generally tax-free to Wheat stockholders for federal income tax purposes. The common stock of FUNC is actively traded and is listed on the New York Stock Exchange. The last reported sale price of FUNC common stock on the New York Stock Exchange Composite Transactions Tape on December 16, 1997, was $50.875 per share. Based on the aggregate number of shares of Wheat common stock and Wheat preferred stock that were issued and outstanding on December 8, 1997 (I.E., 8,834,944), and assuming there are no Excluded Shares, on the effective date of the Merger each share of Wheat common stock and Wheat preferred stock would be converted into the right to receive 1.1621 shares of FUNC common stock. To the extent any shares of Wheat common stock or Wheat preferred stock are canceled or issued between December 8, 1997, and the effective date of the Merger, the foregoing conversion ratio would be adjusted accordingly. Consummation of the Merger is subject to certain conditions, including approval of the Merger Agreement by Wheat stockholders and approval of the Merger by various regulatory and self-regulatory authorities. Approval of the Merger Agreement requires the affirmative vote of more than two-thirds of the votes entitled to be cast at the meeting by the holders of (i) Wheat common stock, and (ii) Wheat preferred stock, each voting as a separate class. Beneficial ownership of each share of Wheat preferred stock is represented by shares of beneficial interest ("Trust Shares") in the Wheat First Butcher Singer Grantor Trust (the "Grantor Trust"), which is the record holder of the Wheat preferred stock. Holders of the Trust Shares have the right to instruct the trustees of the Grantor Trust as to how to vote the Wheat preferred stock at the meeting. It is expected that the Grantor Trust will be liquidated on the effective date of the Merger or as soon thereafter as practicable. Upon such liquidation, holders of Trust Shares would become holders of the FUNC common stock exchangeable for the shares of Wheat preferred stock represented by such holder's Trust Shares upon consummation of the Merger. Any unpaid promissory notes held by Wheat or the Grantor Trust relating to the purchase of Wheat common stock or Trust Shares would be assigned to FUNC. Upon payment in full of such notes the shares of FUNC common stock would be delivered to such holders. (CONTINUED ON FOLLOWING PAGE) The accompanying Notice of Special Meeting and Prospectus/Proxy Statement contain information about the Merger. I urge you to review carefully such information and the information in FUNC's 1996 Annual Report on Form 10-K, 1997 Quarterly Reports on Form 10-Q, 1997 Annual Meeting Proxy Statement and 1997 Current Reports on Form 8-K, copies of which are available as indicated in the accompanying Prospectus/Proxy Statement under "AVAILABLE INFORMATION". Holders of Wheat common stock (including Wheat Associates Stock Ownership Plan participants) and/or Wheat preferred stock who are entitled to vote on approval of the Merger Agreement (including holders of Trust Shares and any other beneficial owners) have the right to demand dissenters' appraisal rights with respect to such holder's shares of Wheat common stock and/or Wheat preferred stock (including Trust Shares), as applicable, and be paid the fair value of such shares in cash if the Merger Agreement is approved and the Merger is consummated. The right of any such holder of Wheat common stock and/or Wheat preferred stock to receive such payment is contingent upon strict compliance with the requirements set forth in the applicable provisions of the Virginia Stock Corporation Act, the full text of which provisions is set forth in ANNEX C to the accompanying Prospectus/Proxy Statement and a summary of which is set forth under "THE MERGER -- Dissenters' Rights". THE BOARD OF DIRECTORS OF WHEAT HAS ADOPTED THE MERGER AGREEMENT, BELIEVES IT IS IN THE BEST INTERESTS OF WHEAT AND ITS STOCKHOLDERS AND RECOMMENDS ITS APPROVAL BY WHEAT STOCKHOLDERS (INCLUDING HOLDERS OF TRUST SHARES). A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR ENCLOSED VOTING INSTRUCTION FORM, AS APPLICABLE, OR BY CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" APPROVAL OF THE MERGER AGREEMENT. EVEN IF YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE THE ENCLOSED PROXY OR ENCLOSED VOTING INSTRUCTION FORM, AS APPLICABLE, SIGN AND DATE IT AND MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID, RETURN ADDRESSED ENVELOPE. Yours very truly, /s/ Marshall B. Wishnack MARSHALL B. WISHNACK CHAIRMAN AND CHIEF EXECUTIVE OFFICER WHEAT FIRST BUTCHER SINGER, INC. 901 EAST BYRD STREET RICHMOND, VIRGINIA 23219 (804) 649-2311 ----------------------------------------------------------------- NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 23, 1998 ----------------------------------------------------------------- December 19, 1997 Dear Stockholder: NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Wheat First Butcher Singer, Inc. ("Wheat") will be held at 4:00 p.m., on January 23, 1998, at the offices of Hunton & Williams, counsel for Wheat, Riverfront Plaza, East Tower, 20th Floor, 951 East Byrd Street, Richmond, Virginia (the "Special Meeting"), for the following purpose: To consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of August 20, 1997 (as amended and restated as of December 16, 1997, the "Merger Agreement"), by and between Wheat, First Union Corporation ("FUNC") and a wholly-owned subsidiary of FUNC, pursuant to which, among other things, (i) FUNC will acquire Wheat by means of a merger of such subsidiary with and into Wheat (the "Merger"), and (ii) each outstanding share of Wheat common stock and Wheat preferred stock (excluding any shares held by any dissenting stockholders and certain shares held by Wheat or FUNC) will be converted into the right to receive the number of shares of FUNC common stock equal to 10,267,029 divided by the number of shares of Wheat common stock and Wheat preferred stock issued and outstanding immediately prior to the effective date of the Merger, all on and subject to the terms and conditions contained in the Merger Agreement. A copy of the Merger Agreement is set forth in ANNEX A to the accompanying Prospectus/Proxy Statement. The Board of Directors of Wheat has fixed December 8, 1997, as the record date for the determination of stockholders entitled to notice of and to vote at the Special Meeting, and accordingly, only holders of record of Wheat common stock and Wheat preferred stock at the close of business on that date will be entitled to notice of and to vote at the Special Meeting. Approval of the Merger Agreement requires the affirmative vote of more than two-thirds of the votes entitled to be cast at the Special Meeting by the holders of (i) Wheat common stock (including shares owned by the Wheat Associates Stock Ownership Plan, which will be voted in accordance with instructions of participants), and (ii) Wheat preferred stock (which will be voted by the trustees of the Wheat First Butcher Singer Grantor Trust (the "Grantor Trust") in accordance with directions from the holders of shares of beneficial interest in the Grantor Trust (the "Trust Shares")), each of such Wheat common stock and Wheat preferred stock voting as a separate class. PURSUANT TO THE VIRGINIA STOCK CORPORATION ACT, HOLDERS OF WHEAT COMMON STOCK (INCLUDING WHEAT ASSOCIATES STOCK OWNERSHIP PLAN PARTICIPANTS) AND/OR WHEAT PREFERRED STOCK ENTITLED TO VOTE ON APPROVAL OF THE MERGER AGREEMENT (INCLUDING HOLDERS OF TRUST SHARES AND ANY OTHER BENEFICIAL OWNERS) HAVE THE RIGHT TO DISSENT FROM THE MERGER AND TO DEMAND PAYMENT OF THE FAIR VALUE OF EACH SUCH HOLDER'S SHARES OF WHEAT COMMON STOCK AND/OR WHEAT PREFERRED STOCK (INCLUDING TRUST SHARES), AS APPLICABLE, IN THE EVENT THE MERGER IS CONSUMMATED. A HOLDER OF WHEAT COMMON STOCK AND/OR WHEAT PREFERRED STOCK (INCLUDING TRUST SHARES) WHO WISHES TO ASSERT SUCH HOLDER'S DISSENTERS' RIGHTS MUST (I) DELIVER TO WHEAT (ATTENTION: CORPORATE SECRETARY), BEFORE SUCH VOTE IS TAKEN ON THE MERGER AGREEMENT, WRITTEN NOTICE OF SUCH HOLDER'S INTENT TO DEMAND PAYMENT FOR SUCH SHARES IF THE MERGER IS CONSUMMATED, (II) NOT VOTE SUCH SHARES IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT, AND (III) COMPLY WITH THE APPLICABLE FURTHER PROVISIONS OF THE VIRGINIA STOCK CORPORATION ACT IN ORDER TO BE ENTITLED TO RECEIVE IN CASH, IF THE MERGER IS CONSUMMATED, THE FAIR VALUE OF SUCH HOLDER'S WHEAT COMMON STOCK AND/OR WHEAT PREFERRED STOCK (INCLUDING TRUST SHARES), AS APPLICABLE. BENEFICIAL OWNERS OF WHEAT COMMON STOCK OR WHEAT PREFERRED STOCK WHO ARE NOT THE RECORD HOLDERS OF THEIR SHARES (SUCH AS HOLDERS OF TRUST SHARES) WHO WISH TO ASSERT DISSENTERS' RIGHTS WITH REGARD TO SUCH SHARES AND ANY RECORD HOLDERS ASSERTING DISSENTERS' RIGHTS ON BEHALF OF SUCH HOLDERS, MUST COMPLY WITH CERTAIN ADDITIONAL PROVISIONS OF THE (CONTINUED ON FOLLOWING PAGE) VIRGINIA STOCK CORPORATION ACT. A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT WILL NOT CONSTITUTE WRITTEN NOTICE OF AN INTENT TO DEMAND PAYMENT NOR WILL A FAILURE TO VOTE AGAINST SUCH APPROVAL CONSTITUTE A WAIVER OF DISSENTERS' RIGHTS. A COPY OF THE APPLICABLE PROVISIONS OF THE VIRGINIA STOCK CORPORATION ACT REFERRED TO ABOVE IS SET FORTH IN ANNEX C TO THE ACCOMPANYING PROSPECTUS/PROXY STATEMENT AND A SUMMARY OF SUCH PROVISIONS IS SET FORTH IN THE ACCOMPANYING PROSPECTUS/PROXY STATEMENT UNDER "THE MERGER -- DISSENTERS' RIGHTS". THE BOARD OF DIRECTORS OF WHEAT RECOMMENDS THAT STOCKHOLDERS (INCLUDING HOLDERS OF TRUST SHARES) VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT. By Order of the Board of Directors of WHEAT FIRST BUTCHER SINGER, INC. /s/ Jonathan M. Harris JONATHAN M. HARRIS CORPORATE SECRETARY BECAUSE THE AFFIRMATIVE VOTE OF MORE THAN TWO-THIRDS OF THE VOTES ENTITLED TO BE CAST AT THE SPECIAL MEETING IS REQUIRED TO APPROVE THE MERGER AGREEMENT, WHEAT STOCKHOLDERS (INCLUDING HOLDERS OF TRUST SHARES) ARE URGED TO COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY OR VOTING INSTRUCTION FORM, AS APPLICABLE, IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR VOTING INSTRUCTION FORM, AS APPLICABLE, OR BY CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" APPROVAL OF THE MERGER AGREEMENT. PROSPECTUS PROXY STATEMENT - ------------------------------------------------------------ ------------------------------------------------------------ 10,267,029 SHARES FIRST UNION CORPORATION WHEAT FIRST BUTCHER SINGER, INC. COMMON STOCK SPECIAL MEETING OF STOCKHOLDERS $3.33 1/3 PAR VALUE PER SHARE TO BE HELD ON JANUARY 23, 1998 ---------------------- ----------------------
This Prospectus/Proxy Statement is being furnished by Wheat First Butcher Singer, Inc., a Virginia corporation ("Wheat"), to (i) the holders of Wheat common stock, par value $2.00 per share ("Wheat Common Stock"), and (ii) the holders of Wheat preferred stock, no par value per share ("Wheat Preferred Stock"), as a Proxy Statement in connection with the solicitation of proxies by the Board of Directors of Wheat (the "Wheat Board") for use at a Special Meeting of Stockholders of Wheat to be held at 4:00 p.m., on January 23, 1998, at the offices of Hunton & Williams, counsel for Wheat, Riverfront Plaza, East Tower, 20th Floor, 951 East Byrd Street, Richmond, Virginia (including any adjournments or postponements thereof, the "Special Meeting"). This Prospectus/Proxy Statement is also being furnished to the holders of Trust Shares (as hereinafter defined) and the participants in the Wheat ASOP (as hereinafter defined) for their information in connection with the solicitation of their voting instructions on the proposal to be voted on at the Special Meeting. This Prospectus/Proxy Statement is also being furnished by First Union Corporation, a North Carolina corporation ("FUNC"), as a Prospectus with respect to the shares (the "FUNC Common Shares") of FUNC common stock, $3.33 1/3 par value per share ("FUNC Common Stock"), that are issuable upon consummation of the Merger (as hereinafter defined), together with the appropriate number of FUNC Rights (as hereinafter defined) attached thereto. This Prospectus/Proxy Statement, the accompanying Notice of Special Meeting and form of proxy or voting instruction form, as applicable, are first being mailed to the stockholders of Wheat (including the holders of Trust Shares) on or about December 19, 1997. The purpose of the Special Meeting is to consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of August 20, 1997 (as amended and restated as of December 16, 1997, the "Merger Agreement"), between Wheat, FUNC and First Union Virginia, Inc., a wholly-owned subsidiary of FUNC (the "FUNC Subsidiary"), pursuant to which, among other things, FUNC will acquire Wheat by means of a merger of the FUNC Subsidiary with and into Wheat (the "Merger"), all on and subject to the terms and conditions contained therein. Upon consummation of the Merger, each outstanding share of Wheat Common Stock and Wheat Preferred Stock (excluding any shares (i) as to which the holders thereof have perfected their dissenters' rights, or (ii) held by FUNC or Wheat, other than in a fiduciary capacity or in satisfaction of a debt previously contracted (together, the "Excluded Shares")) will be converted into the right to receive the number of FUNC Common Shares (the "Exchange Ratio") equal to 10,267,029 divided by the number of shares of Wheat Common Stock and Wheat Preferred Stock issued and outstanding immediately prior to the effective date (the "Effective Date") of the Merger (the "Outstanding Share Number"). See "THE MERGER -- General; Consideration" and ANNEX A. Based on the aggregate number of shares of Wheat Common Stock and Wheat Preferred Stock that were issued and outstanding on December 8, 1997 (I.E., 8,834,944), and assuming there are no Excluded Shares, on the Effective Date each share of Wheat Common Stock and Wheat Preferred Stock would be converted into the right to receive 1.1621 shares of FUNC Common Stock. To the extent any shares of Wheat Common Stock or Wheat Preferred Stock are canceled or issued between December 8, 1997, and the Effective Date, such 1.1621 Exchange Ratio would be adjusted accordingly. (CONTINUED ON FOLLOWING PAGE) ---------------------- THE FUNC COMMON SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC") OR ANY OTHER GOVERNMENT AGENCY. ---------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------------- THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS DECEMBER 19, 1997. (CONTINUED FROM PREVIOUS PAGE) Pursuant to the Voting Agreements (as hereinafter defined), the beneficial holders of 18.1 percent of the outstanding shares of Wheat Common Stock have agreed to vote such shares in favor of approval of the Merger Agreement. Beneficial ownership of each share of Wheat Preferred Stock is represented by a share of beneficial interest (a "Trust Share") in the Wheat First Butcher Singer Grantor Trust (the "Grantor Trust"), which is the record holder of the Wheat Preferred Stock. The holders of Trust Shares on the Record Date (as hereinafter defined) have the right to instruct the trustees of the Grantor Trust (the "Trustees") how to vote the Wheat Preferred Stock at the Special Meeting. It is expected that the Grantor Trust will be liquidated on the Effective Date or as soon thereafter as practicable. Upon such liquidation, holders of Trust Shares would become holders of the FUNC Common Shares exchangeable for the shares of Wheat Preferred Stock represented by such holder's Trust Shares upon consummation of the Merger. Participants in the Wheat First Butcher Singer Associates Stock Ownership Plan (the "Wheat ASOP") have the right to instruct the Voting Fiduciary (as hereinafter defined) of the Wheat ASOP how to vote the shares of Wheat Common Stock allocated to such participants. Any unpaid promissory notes (the "Notes") held by Wheat or the Grantor Trust relating to the purchase of Wheat Common Stock or Trust Shares would be assigned to FUNC. Upon payment in full of such Notes the FUNC Common Shares would be delivered to such holders. See "GENERAL INFORMATION -- Record Date; Vote Required; Revocation of Proxies" and "THE MERGER -- Exchange of Wheat Stock" and " -- Voting Agreements". On November 18, 1997, FUNC announced that it had entered into an agreement to acquire CoreStates Financial Corp ("CoreStates"), a bank holding company based in Philadelphia, Pennsylvania. In addition to the Merger, the acquisitions of CoreStates, Signet Banking Corporation ("Signet") and Covenant Bancorp, Inc. ("Covenant") are reflected in certain of the pro forma financial information presented herein. The Signet acquisition was consummated on November 28, 1997. See "SUMMARY", "RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION". The FUNC Common Shares offered hereunder represent approximately 1.8 percent of the number of shares of FUNC Common Stock outstanding on September 30, 1997. FUNC Common Stock is listed and traded on the New York Stock Exchange ("NYSE"). On August 19, 1997, the last business day prior to public announcement of the execution of the Merger Agreement, the last reported sale price per share of FUNC Common Stock on the NYSE Composite Transactions Tape (the "NYSE Tape") was $46.9375. On December 16, 1997, such price was $50.875. There is no public trading market for Wheat Common Stock, Wheat Preferred Stock or Trust Shares. See "THE MERGER -- Market Prices". Pursuant to the Virginia Stock Corporation Act (the "VSCA"), holders of Wheat Common Stock (including beneficial holders) and/or Wheat Preferred Stock (including holders of Trust Shares) are entitled to dissenters' rights in connection with the Merger. A Wheat stockholder (including a holder of Trust Shares) who wishes to dissent from the Merger must comply strictly with the provisions of the VSCA in order to receive in cash, if the Merger is consummated, the fair value of such stockholder's shares. A copy of the applicable provisions of the VSCA referred to above is set forth in ANNEX C to this Prospectus/Proxy Statement and a summary of such provisions is set forth herein under "THE MERGER -- Dissenters' Rights". 2 AVAILABLE INFORMATION FUNC, CoreStates and Covenant are, and prior to its acquisition by FUNC on November 28, 1997, Signet was, subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act"), and in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by FUNC, CoreStates, Signet and Covenant can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices in New York (7 World Trade Center, 13th Floor, New York, New York 10048) and Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621) and copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Certain of such reports, proxy statements and other information are also available from the Commission over the Internet at http://www.sec.gov. Reports, proxy statements and other information relating to FUNC, CoreStates and Signet can also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. This Prospectus/Proxy Statement does not contain all of the information set forth in the Registration Statement on Form S-4 (No. 333-39515), of which this Prospectus/Proxy Statement is a part, and the exhibits thereto (together with any amendments or supplements thereto, the "Registration Statement"), which has been filed by FUNC with the Commission under the Securities Act of 1933, as amended, and the rules and regulations thereunder (the "Securities Act"). Certain portions of the Registration Statement have been omitted pursuant to the rules and regulations of the Commission and reference is hereby made to such omitted portions of the Registration Statement for further information. THIS PROSPECTUS/PROXY STATEMENT INCORPORATES BY REFERENCE CERTAIN FUNC DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. A COPY OF SUCH DOCUMENTS IS AVAILABLE WITHOUT CHARGE (OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS/PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO: FIRST UNION CORPORATION, CORPORATE RELATIONS, ONE FIRST UNION CENTER, CHARLOTTE, NORTH CAROLINA 28288-0206 (TELEPHONE NUMBER (704) 374-6782). IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY JANUARY 16, 1998. All information contained or incorporated by reference in this Prospectus/Proxy Statement with respect to FUNC, CoreStates, Signet and Covenant was supplied by FUNC, and all information contained in this Prospectus/Proxy Statement with respect to Wheat was supplied by Wheat. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FUNC OR WHEAT. NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR ANY DISTRIBUTION OF THE FUNC COMMON SHARES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FUNC, CORESTATES, COVENANT OR WHEAT SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE FUNC COMMON SHARES OR AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL. - ------------------------ The Commissioner of Insurance of the State of North Carolina (the "Commissioner") has not approved or disapproved this offering nor has the Commissioner passed upon the accuracy or adequacy of this Prospectus/Proxy Statement. 3 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission by FUNC (File No. 1-10000) under Section 13(a) or 15(d) of the Exchange Act are hereby incorporated by reference in this Prospectus/Proxy Statement: (i) FUNC's Annual Report on Form 10-K for the year ended December 31, 1996; (ii) FUNC's Quarterly Reports on Form 10-Q for the periods ended March 31, 1997, June 30, 1997, and September 30, 1997; and (iii) FUNC's Current Reports on Form 8-K dated January 13, 1997, July 21, 1997, August 20, 1997, November 18, 1997, November 28, 1997, and December 2, 1997. All documents filed by FUNC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the date of the Special Meeting are hereby incorporated by reference into this Prospectus/Proxy Statement and shall be deemed to be a part hereof from the date of filing of such documents. Certain financial and other information relating to Wheat is contained in the Prospectus/Proxy Statement, including ANNEX D. Any statement contained herein, in any supplement hereto or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of the Registration Statement and this Prospectus/Proxy Statement to the extent that a statement contained herein, in any supplement hereto or in any subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of the Registration Statement, this Prospectus/Proxy Statement or any supplement hereto. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION This Prospectus/Proxy Statement (including information included or incorporated by reference herein) contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of each of FUNC and Wheat, as well as certain information relating to CoreStates, Signet and Covenant, including (i) statements relating to the cost savings estimated to result from the CoreStates and Signet acquisitions (see "SUMMARY","RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION"), (ii) statements relating to revenues estimated to result from the CoreStates and Signet acquisitions (see "SUMMARY", "RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION"), (iii) statements relating to the restructuring charges estimated to be incurred in connection with the CoreStates and Signet acquisitions (see "SUMMARY", "RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION"), and (iv) statements preceded by, followed by or that include the words "believes", "expects", "anticipates", "estimates" or similar expressions (see, in particular, "SUMMARY", "RECENT DEVELOPMENTS", "THE MERGER -- Background and Reasons" and " -- Opinion of Financial Advisor" and "PRO FORMA FINANCIAL INFORMATION"). These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (a) expected cost savings from the Merger and the CoreStates, Signet and Covenant acquisitions may not be fully realized or realized within the expected time frame; (b) revenues following the Merger and the CoreStates, Signet and Covenant acquisitions may be lower than expected, or deposit attrition, operating costs or customer loss and business disruption following the Merger and the CoreStates, Signet and Covenant acquisitions may be greater than expected; (c) competitive pressures among depository and other financial institutions may increase significantly; (d) costs or difficulties related to the integration of the business of FUNC, Wheat, CoreStates, Signet and/or Covenant may be greater than expected; (e) changes in the interest rate environment may reduce margins; (f) general economic or business conditions, either nationally or in the states in which FUNC is doing business, may be less favorable than expected resulting in, among other things, a deterioration in credit quality or a reduced demand for credit; (g) legislative or regulatory changes may adversely affect the business in which FUNC is engaged; and (h) changes may occur in the securities markets. 4 TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION.................................................................................................. 3 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................................ 4 CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION............................................................ 4 SUMMARY................................................................................................................ 7 RECENT DEVELOPMENTS.................................................................................................... 21 Pending and Recent FUNC Acquisitions................................................................................. 21 FUNC Common Stock Transactions....................................................................................... 24 Future FUNC Acquisitions............................................................................................. 24 GENERAL INFORMATION.................................................................................................... 24 General.............................................................................................................. 24 Record Date; Vote Required; Revocation of Proxies.................................................................... 24 THE MERGER............................................................................................................. 26 General; Consideration............................................................................................... 26 Effective Date....................................................................................................... 26 Exchange of Wheat Stock.............................................................................................. 26 Background and Reasons............................................................................................... 27 Opinion of Financial Advisor......................................................................................... 29 Interests of Certain Persons......................................................................................... 33 Certain Federal Income Tax Consequences.............................................................................. 34 Business Pending Consummation........................................................................................ 35 Regulatory Approvals................................................................................................. 36 Conditions to Consummation; Termination.............................................................................. 36 Waiver; Amendment.................................................................................................... 37 Accounting Treatment................................................................................................. 37 Expenses; Termination Fee............................................................................................ 38 Voting Agreements.................................................................................................... 39 Dissenters' Rights................................................................................................... 39 Market Prices........................................................................................................ 41 Dividends............................................................................................................ 42 PRO FORMA FINANCIAL INFORMATION........................................................................................ 43 WHEAT.................................................................................................................. 49 General.............................................................................................................. 49 History and Business................................................................................................. 49 Description of Wheat Capital Stock................................................................................... 51 FUNC................................................................................................................... 54 General.............................................................................................................. 54 History and Business................................................................................................. 54 Certain Regulatory Considerations.................................................................................... 55 DESCRIPTION OF FUNC CAPITAL STOCK...................................................................................... 58 Authorized Capital................................................................................................... 58 FUNC Common Stock.................................................................................................... 58 FUNC Preferred Stock................................................................................................. 59 FUNC Class A Preferred Stock......................................................................................... 59 FUNC Rights Plan..................................................................................................... 59 Other Provisions..................................................................................................... 60 CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT AND FUNC STOCKHOLDERS....................................................... 61 General.............................................................................................................. 61 Authorized Capital................................................................................................... 61 Amendment to Articles of Incorporation or Bylaws..................................................................... 61 Size and Classification of Board of Directors........................................................................ 61
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PAGE ---- Removal of Directors................................................................................................. 62 Director Exculpation................................................................................................. 62 Director Conflict of Interest Transactions........................................................................... 62 Stockholder Meetings................................................................................................. 63 Director Nominations................................................................................................. 63 Stockholder Proposals................................................................................................ 63 Stockholder Protection Rights Plans.................................................................................. 63 Stockholder Inspection Rights; Stockholder Lists..................................................................... 64 Required Stockholder Vote for Certain Actions........................................................................ 64 Anti-Takeover Provisions............................................................................................. 66 Dissenters' Rights................................................................................................... 66 Dividends and Other Distributions.................................................................................... 67 Voluntary Dissolution................................................................................................ 67 RESALE OF FUNC COMMON SHARES........................................................................................... 67 VALIDITY OF FUNC COMMON SHARES......................................................................................... 67 EXPERTS................................................................................................................ 68 ANNEX A -- AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (including the form of Voting Agreement as Exhibit A thereto).................................................................................................... A-1 ANNEX B -- OPINION OF WHEAT, FIRST SECURITIES, INC..................................................................... B-1 ANNEX C -- SECTIONS OF THE VIRGINIA STOCK CORPORATION ACT RELATING TO DISSENTERS' RIGHTS............................... C-1 ANNEX D -- CERTAIN INFORMATION RELATING TO WHEAT....................................................................... D-1
6 SUMMARY THE FOLLOWING SUMMARY OF CERTAIN INFORMATION RELATING TO THE MERGER IS NOT INTENDED TO INCLUDE ALL MATERIAL INFORMATION RELATING TO THE MERGER AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, INCLUDING THE ANNEXES HERETO, AND IN THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS/PROXY STATEMENT. A COPY OF THE MERGER AGREEMENT IS SET FORTH IN ANNEX A TO THIS PROSPECTUS/PROXY STATEMENT AND REFERENCE IS MADE THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS OF THE MERGER. STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS ENTIRE PROSPECTUS/PROXY STATEMENT, INCLUDING THE ANNEXES HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. AS USED IN THIS PROSPECTUS/PROXY STATEMENT, THE TERMS "FUNC", "WHEAT", "CORESTATES", "SIGNET" AND "COVENANT" REFER TO SUCH ORGANIZATIONS, RESPECTIVELY, AND UNLESS THE CONTEXT OTHERWISE REQUIRES, TO THEIR RESPECTIVE CONSOLIDATED SUBSIDIARIES. PARTIES TO THE MERGER FUNC FUNC is a North Carolina-based, multi-bank holding company subject to the Bank Holding Company Act of 1956, as amended, and the rules and regulations promulgated thereunder (the "BHCA"). Through its full-service banking subsidiaries, FUNC provides a wide range of commercial and retail banking services and trust services in North Carolina, Florida, South Carolina, Georgia, Tennessee, Virginia, Maryland, Delaware, Pennsylvania, New Jersey, New York, Connecticut and Washington, D.C. FUNC also provides various other financial services, including mortgage banking, home equity lending, credit cards, leasing, investment banking, insurance and securities brokerage services, through other subsidiaries. As of September 30, 1997, and for the nine months then ended, FUNC reported assets of $144 billion, net loans of $95 billion, deposits of $92 billion, stockholders' equity of $11 billion and net income applicable to common stockholders of $1.5 billion, and as of such date FUNC operated in 38 states, Washington, D.C. and six foreign countries. FUNC is the sixth largest bank holding company in the United States, based on assets at September 30, 1997. The principal executive offices of FUNC are located at One First Union Center, Charlotte, North Carolina 28288-0013, and its telephone number is (704) 374-6565. The FUNC Subsidiary was organized by FUNC solely as a vehicle to acquire Wheat by means of the Merger. On November 18, 1997, FUNC entered into an agreement to acquire CoreStates. As of September 30, 1997, CoreStates had assets of $48 billion. The CoreStates acquisition will be accounted for as a pooling of interests. See "THE MERGER -- Accounting Treatment". The Merger and the CoreStates, Signet and Covenant acquisitions are reflected in certain of the pro forma financial information presented herein. As of September 30, 1997, Wheat, Signet and Covenant had aggregate assets of $13 billion. The Signet acquisition was consummated on November 28, 1997. FUNC is continually evaluating acquisition opportunities and frequently conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations frequently take place and future acquisitions involving cash, debt or equity securities can be expected. Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of FUNC's book value and net income per common share may occur in connection with any future transactions. See " -- Comparison of Certain Unaudited Per Share Data", " -- Selected Financial Data", "RECENT DEVELOPMENTS", "PRO FORMA FINANCIAL INFORMATION" and "FUNC". WHEAT Wheat is a Virginia-based holding company which engages, through its subsidiaries, in investment banking, retail brokerage and asset management businesses. Wheat's principal subsidiary, Wheat, First Securities, Inc. ("WFSI") provides financial services nationwide through offices located throughout 20 states and Washington, D.C. Wheat also has other subsidiaries which are engaged in the asset management business and certain trust and insurance agency activities. As of September 30, 1997, and for the six months then ended, Wheat had assets of $1.2 billion, stockholders' equity of $165 million and net income of $24 million. The principal executive offices of Wheat are located at Riverfront Plaza, West Tower, 901 East Byrd Street, Richmond, Virginia 23219, and its telephone number is (804) 649-2311. See " -- Comparison of Certain Unaudited Per Share Data", " -- Selected Financial Data", "WHEAT" and ANNEX D. SPECIAL MEETING; RECORD DATE The Special Meeting is scheduled to be held on January 23, 1998, at 4:00 p.m., at the offices of Hunton & Williams, counsel for Wheat, Riverfront Plaza, East Tower, 20th Floor, 951 East Byrd Street, Richmond, Virginia. At the Special Meeting, stockholders will consider and vote upon a proposal to approve the Merger Agreement. 7 The Wheat Board has fixed December 8, 1997, as the record date for determining stockholders entitled to notice of and to vote at the Special Meeting (the "Record Date"). As of such date, there were 8,626,044 shares of Wheat Common Stock and 208,900 shares of Wheat Preferred Stock outstanding and entitled to be voted at the Special Meeting, each voting as a separate class. See "GENERAL INFORMATION". THE MERGER; CONSIDERATION Subject to the terms and conditions of the Merger Agreement, FUNC will acquire Wheat by means of the merger of the FUNC Subsidiary with and into Wheat. Upon consummation of the Merger, each outstanding share of Wheat Common Stock and Wheat Preferred Stock (which is represented by a Trust Share) (excluding the Excluded Shares) will be converted into the right to receive the Exchange Ratio (I.E., the number of FUNC Common Shares equal to 10,267,029 divided by the Outstanding Share Number). The Corporation may at any time prior to the Effective Date change the method of effecting the acquisition of Wheat if and to the extent it deems such change to be desirable; provided, however, that no such change may (i) alter or change the amount or kind of consideration to be issued to holders of Wheat Common Stock or Wheat Preferred Stock as provided for in the Merger Agreement, (ii) adversely affect the intended tax-free treatment to the Wheat stockholders as a result of receiving such consideration, or (iii) materially impede or delay receipt of any required regulatory approval or consummation of the transactions contemplated by the Merger Agreement. Based on the aggregate number of shares of Wheat Common Stock and Wheat Preferred Stock that were issued and outstanding on December 8, 1997 (I.E., 8,834,944), and assuming there are no Excluded Shares, on the Effective Date each share of Wheat Common Stock and Wheat Preferred Stock (which is represented by a Trust Share) would be converted into the right to receive 1.1621 shares of FUNC Common Stock. To the extent any shares of Wheat Common Stock or Wheat Preferred Stock are canceled or issued between December 8, 1997, and the Effective Date, such 1.1621 Exchange Ratio would be adjusted accordingly. See "THE MERGER -- General; Consideration", " -- Exchange of Wheat Stock", "DESCRIPTION OF FUNC CAPITAL STOCK", "CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT AND FUNC STOCKHOLDERS" and ANNEX A. VOTE REQUIRED Approval of the Merger Agreement requires the affirmative vote of more than two-thirds of the votes entitled to be cast at the Special Meeting by the holders of (i) Wheat Common Stock, and (ii) Wheat Preferred Stock, each voting as a separate class. The directors and executive officers of Wheat (including certain of their related interests) beneficially owned, as of the Record Date, and are entitled to vote at the Special Meeting, 2,214,562 shares of Wheat Common Stock, which represents 25.7 percent of the outstanding shares of Wheat Common Stock entitled to be voted at the Special Meeting. As a condition to FUNC's willingness to enter into the Merger Agreement, the five members of the Executive Committee of the Wheat Board agreed to vote the shares of Wheat Common Stock beneficially owned by such directors in favor of approval of the Merger Agreement at the Special Meeting (the "Voting Agreements", the form of which is included as Exhibit A to ANNEX A to this Prospectus/Proxy Statement). The number of shares of Wheat Common Stock beneficially owned by such Executive Committee members as of the Record Date is 1,561,761, which represents 18.1 percent of the outstanding shares of Wheat Common Stock entitled to be voted at the Special Meeting. Participants in the Wheat ASOP will receive voting instructions with respect to shares of Wheat Common Stock allocated to participants' accounts in the Wheat ASOP. An independent fiduciary (the "Voting Fiduciary") has been named to discharge voting obligations with respect to Wheat Common Stock held in the Wheat ASOP. The Voting Fiduciary shall vote shares of Wheat Common Stock allocated to participants' accounts in accordance with directions received from participants. Wheat Common Stock as to which voting direction is not received from a participant and any shares of unallocated Wheat Common Stock shall be voted by the Voting Fiduciary on a proportionate basis in accordance with the votes cast by shares of Wheat Common Stock as to which voting instructions are actually received. It is expected that following consummation of the Merger the Wheat ASOP will either be merged into FUNC's 401(k) Savings Plan or merged into the Wheat 401(k) Plan, which plan would be subsequently merged into the FUNC 401(k) Savings Plan. The Wheat ASOP was the owner of 26.8 percent of the outstanding shares of Wheat Common Stock on the Record Date. 8 Beneficial ownership of the Wheat Preferred Stock is represented by Trust Shares issued by the Grantor Trust, which is the record holder of the Wheat Preferred Stock. Each Trust Share represents beneficial ownership of one share of Wheat Preferred Stock. Holders of Trust Shares will receive voting directions with respect to Trust Shares, which will permit such holders to instruct the Trustees as to how to vote the Wheat Preferred Stock owned by the Grantor Trust, including a direction to abstain from voting. Each Trust Share will be able to instruct the voting of one share of Wheat Preferred Stock. Trust Shares as to which voting directions are not received by the Trustees will not be voted. It is expected that the Grantor Trust will be liquidated on the Effective Date or as soon thereafter as practicable. Upon such liquidation, holders of Trust Shares would become holders of the FUNC Common Shares they are entitled to receive upon consummation of the Merger. Any unpaid Notes held by Wheat or the Grantor Trust relating to the purchase of Wheat Common Stock or Trust Shares would be assigned to FUNC. Upon payment in full of such Notes, the FUNC Common Shares would be delivered to such holders. See "GENERAL INFORMATION -- Record Date; Vote Required; Revocation of Proxies", "THE MERGER -- General; Consideration" and ANNEXES A and D. A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR VOTING INSTRUCTION FORM, AS APPLICABLE, OR BY CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" APPROVAL OF THE MERGER AGREEMENT. EFFECTIVE DATE Subject to the conditions to the obligations of the parties to effect the Merger set forth in the Merger Agreement, the Effective Date will occur on (i) such date as FUNC and Wheat mutually agree upon, or (ii) if FUNC and Wheat are not able to agree upon such date, such date as FUNC shall notify Wheat in writing not less than five days prior thereto, which date shall not be more than 15 days after such conditions have been satisfied or waived. Subject to the foregoing, it is currently anticipated that the Merger will be consummated in the first quarter of 1998. If the Merger is consummated in such quarter, or in any other quarter, Wheat stockholders should not assume or expect that the Effective Date will precede the record date for the dividend on FUNC Common Stock for that quarter, so as to enable such stockholders to receive such dividend. See "THE MERGER -- Exchange of Wheat Stock", " -- Business Pending Consummation" and " -- Conditions to Consummation; Termination". RECOMMENDATION OF THE WHEAT BOARD THE WHEAT BOARD HAS ADOPTED THE MERGER AGREEMENT, BELIEVES IT IS IN THE BEST INTERESTS OF WHEAT AND ITS STOCKHOLDERS AND RECOMMENDS ITS APPROVAL BY WHEAT STOCKHOLDERS (INCLUDING HOLDERS OF THE TRUST SHARES). SEE "THE MERGER -- BACKGROUND AND REASONS; WHEAT". OPINION OF FINANCIAL ADVISOR WFSI, a subsidiary of Wheat which has acted as financial advisor to Wheat, has advised the Wheat Board that, in its opinion, the consideration to be received by Wheat stockholders in the Merger is fair, from a financial point of view, to the holders of Wheat Common Stock and Wheat Preferred Stock (including holders of Trust Shares). The full text of the WFSI opinion, which describes the procedures followed, assumptions made, limitations on the review undertaken and other matters in connection with rendering such opinion, is set forth in ANNEX B to this Prospectus/Proxy Statement and should be read in its entirety by Wheat stockholders. See "THE MERGER -- Opinion of Financial Advisor". INTERESTS OF CERTAIN PERSONS Certain members of Wheat's management and the Wheat Board may be deemed to have interests in the Merger in addition to their interests as stockholders of Wheat generally. These interests include, among other things, provisions in the Merger Agreement relating to indemnification, directors' and officers' liability insurance and certain other benefits as summarized below. In connection with the execution of the Merger Agreement, FUNC entered into employment agreements with Marshall B. Wishnack, Chairman and Chief Executive Officer and a director of Wheat; Mark M. Gambill, President and a director of Wheat; Lewis C. Everett, Vice Chairman and a director of Wheat; Daniel J. Ludeman, Chairman of Mentor Investment Group, LLC (a subsidiary of Wheat) and a director of Wheat; and Thomas L. Souders, Chief Financial Officer and a director of Wheat, each of which will become effective as of the Effective Date (collectively, the "Employment Agreements"). The Employment Agreements provide, among other things, for such executives to receive annual compensation (salary plus bonus) of up to approximately 105 percent of the annual compensation received by such executive for the fiscal year ended 9 March 31, 1997, for the three-year term (one-year in the case of Mr. Souders) of such Employment Agreements, and certain additional retirement, death and other benefits. The Employment Agreements will supersede any employment agreements Messrs. Wishnack, Gambill, Everett, Ludeman and Souders have with Wheat. The Employment Agreements provide for certain payments, notwithstanding termination of employment, and associated gross-up payments for taxes. The Employment Agreements also provide for continuity payments to Messrs. Wishnack, Gambill, Everett and Ludeman in amounts representing approximately 37.5 percent, 37.5 percent and 75 percent of such executive's annual compensation on the first, second and third anniversaries of the Effective Date, respectively. The Employment Agreement for Mr. Souders provides for a termination payment equal to one year's annual compensation upon the termination of such Employment Agreement. In addition, FUNC will establish a retention bonus pool payable in the form of up to 1,701,362 restricted shares of FUNC Common Stock to be allocated to key personnel of Wheat (other than Messrs. Wishnack, Gambill, Everett, Ludeman and Souders) following consummation of the Merger. See "THE MERGER -- Interests of Certain Persons" and ANNEX D. CERTAIN FEDERAL INCOME TAX CONSEQUENCES Consummation of the Merger is conditioned upon, among other things, receipt (i) by FUNC of an opinion of Sullivan & Cromwell, counsel for FUNC, dated as of the Effective Date, to the effect that the Merger constitutes a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) by Wheat of an opinion of Wachtell, Lipton, Rosen & Katz, special counsel for Wheat, dated as of the Effective Date, to the effect that (a) the Merger constitutes a reorganization under Section 368(a) of the Code, and (b) no gain or loss will be recognized for federal income tax purposes by stockholders of Wheat who receive FUNC Common Shares in exchange for their shares of Wheat Common Stock and Wheat Preferred Stock (including Trust Shares), except with respect to cash received in lieu of fractional share interests. See "THE MERGER -- Certain Federal Income Tax Consequences". BECAUSE CERTAIN TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH WHEAT STOCKHOLDER, IT IS RECOMMENDED THAT WHEAT STOCKHOLDERS CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE AND LOCAL) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES. DISSENTERS' RIGHTS Holders of Wheat Common Stock and/or Wheat Preferred Stock entitled to vote on approval of the Merger Agreement (including holders of Trust Shares and any other beneficial owners) have the right to dissent from the Merger and, upon consummation of the Merger and the satisfaction of certain procedures, to receive cash in respect of the fair value of each such holder's shares of Wheat Common Stock and/or Wheat Preferred Stock (including shares represented by Trust Shares), as applicable, in accordance with the applicable provisions of the VSCA. The procedures to be followed by dissenting stockholders are summarized under "THE MERGER -- Dissenters' Rights" and a copy of the applicable provisions of the VSCA is set forth in ANNEX C to this Prospectus/Proxy Statement. FAILURE TO STRICTLY FOLLOW SUCH PROVISIONS MAY RESULT IN THE LOSS OF SUCH DISSENTERS' RIGHTS. In general, any dissenting stockholder who perfects such holder's statutory dissenters' rights to be paid in cash the fair value of such holder's Wheat Common Stock and/or Wheat Preferred Stock (including shares represented by Trust Shares), as applicable, will recognize gain or loss for federal income tax purposes upon receipt of such cash. See "THE MERGER -- Certain Federal Income Tax Consequences". RESALE OF FUNC COMMON SHARES The FUNC Common Shares will be freely transferable by the holders of such shares under applicable federal securities laws, except for shares held by members of the Executive Committee of the Wheat Board and any other holders who may be deemed to be "affiliates" (generally including directors, certain executive officers and ten percent or more stockholders) of FUNC. See "RESALE OF FUNC COMMON SHARES". BUSINESS PENDING CONSUMMATION Wheat agreed in the Merger Agreement to refrain from taking certain actions relating to its operations pending consummation of the Merger, without the prior written consent of FUNC, except as otherwise permitted by the Merger Agreement. See "THE MERGER -- Business Pending Consummation". 10 REGULATORY APPROVALS The Merger is subject to the prior approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under Section 4 of the BHCA. The Federal Reserve Board approved the Merger on November 26, 1997. The Merger is subject to various other federal and state regulatory approvals and various self-regulatory authority approvals. There can be no assurance that the other necessary regulatory approvals will be obtained or as to the timing or conditions of such approvals. See "THE MERGER -- Regulatory Approvals". CONDITIONS TO CONSUMMATION; TERMINATION Consummation of the Merger is subject, among other things, to: (i) approval of the Merger Agreement by the requisite vote of the stockholders of Wheat; (ii) receipt of the regulatory approvals referred to above without any requirements, restrictions or conditions which the FUNC Board of Directors reasonably determines would (a) following the Effective Date, have a material adverse effect on FUNC and its subsidiaries taken as a whole, or (b) reduce the benefits of the transactions contemplated by the Merger Agreement to such a degree that FUNC would not have entered into the Merger Agreement had such requirements, restrictions or conditions been known at the time the Merger Agreement was executed; (iii) no court or governmental or regulatory authority having taken any action which prohibits the Merger; (iv) receipt by FUNC of the opinion of Sullivan & Cromwell and receipt by Wheat of the opinion of Wachtell, Lipton, Rosen & Katz, each dated as of the Effective Date, as to certain federal income tax consequences of the Merger, as discussed above; (v) receipt by FUNC of a letter from Wheat's independent auditors, dated as of, or shortly prior to the Effective Date, with respect to Wheat's consolidated financial position and results of operations and that such independent auditors are not aware of any facts or circumstances which might cause the Merger not to qualify for pooling of interests accounting treatment; (vi) receipt by FUNC from its independent auditors of a letter, dated as of the Effective Date, that the Merger will qualify for pooling of interests accounting treatment; and (vii) the FUNC Common Shares issuable in the Merger having been approved for listing on the NYSE, subject to official notice of issuance. The Merger Agreement may be terminated by mutual consent of FUNC and Wheat. The Merger Agreement may also be terminated by the Board of Directors of either FUNC or Wheat if the Merger does not occur on or before June 30, 1998, or if certain conditions set forth in the Merger Agreement are not met. See "THE MERGER -- Conditions to Consummation; Termination". EXPENSES; TERMINATION FEE All expenses incurred by or on behalf of the parties in connection with the Merger Agreement and the transactions contemplated thereby shall be borne by the party incurring the same, except that printing expenses with respect to this Prospectus/Proxy Statement will be shared equally by FUNC and Wheat. FUNC shall be entitled to a fee of $20 million (the "Termination Fee") following the occurrence of a Payment Event (as hereinafter defined). FUNC's right to receive the Termination Fee shall terminate if any of the following occurs prior to a Payment Event: (i) the Effective Date; (ii) termination of the Merger Agreement in accordance with its terms if such termination occurs prior to the occurrence of a Preliminary Payment Event (as hereinafter defined), except for termination by FUNC due to a breach by Wheat; (iii) termination of the Merger Agreement following the occurrence of a Preliminary Payment Event and the passage of 18 months after such termination; or (iv) termination of the Merger Agreement by FUNC due to a breach by Wheat and the passage of 18 months after such termination. See "THE MERGER -- Expenses; Termination Fee". VOTING AGREEMENTS As an inducement to and a condition of FUNC's willingness to enter into the Merger Agreement, Messrs. Wishnack, Gambill, Everett, Ludeman and Souders entered into the Voting Agreements. The Voting Agreements provide, among other things, that such individuals will vote the shares of Wheat Common Stock beneficially owned by them in favor of approval of the Merger Agreement at the Special Meeting. See "GENERAL INFORMATION -- Record Date; Vote Required; Revocation of Proxies", "THE MERGER -- Voting Agreements" and ANNEX A. ACCOUNTING TREATMENT It is intended that the Merger will be accounted for as a pooling of interests under generally accepted accounting principles. Consummation of the Merger is conditioned upon receipt by FUNC of (i) a letter from FUNC's independent auditors to the effect that the Merger may be accounted for as a pooling of interests and (ii) a letter from Wheat's independent auditors 11 that they are not aware of any facts or circumstances which might cause the Merger not to qualify for pooling of interests accounting treatment. See "RECENT DEVELOPMENTS -- FUNC Common Stock Transactions", "THE MERGER -- Conditions to Consummation; Termination" and " -- Accounting Treatment". CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT AND FUNC STOCKHOLDERS The rights of stockholders of Wheat are currently determined by reference to the VSCA and by Wheat's articles of incorporation (as amended, the "Wheat Articles") and bylaws (as amended, the "Wheat Bylaws"). The rights of holders of Trust Shares are governed by the terms of the Grantor Trust. On the Effective Date, stockholders of Wheat will become stockholders of FUNC, and their rights as stockholders of FUNC will be determined by reference to the North Carolina Business Corporation Act (the "NCBCA") and by FUNC's articles of incorporation (as amended, the "FUNC Articles") and bylaws (as amended, the "FUNC Bylaws"). See "WHEAT -- Description of Capital Stock", "DESCRIPTION OF FUNC CAPITAL STOCK" and "CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT AND FUNC STOCKHOLDERS". COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA The following unaudited information, adjusted to reflect the two-for-one FUNC Common Stock split paid on July 31, 1997, to holders of record on July 1, 1997 (the "FUNC Stock Split") and consummation of the Signet acquisition on November 28, 1997, reflects, where applicable, certain comparative per share data related to book value, cash dividends paid, income and market value: (i) on a historical basis for FUNC and Wheat; (ii) on a pro forma combined basis per share of FUNC Common Stock, reflecting consummation of (a) the Signet acquisition, (b) the Signet acquisition and the Merger, and (c) the Signet acquisition, the Merger and the CoreStates and Covenant acquisitions; and (iii) on an equivalent pro forma basis per share of Wheat Common Stock and Wheat Preferred Stock, as applicable, reflecting consummation of (a) the Signet acquisition, (b) the Signet acquisition and the Merger, and (c) the Signet acquisition, the Merger and the CoreStates and Covenant acquisitions. Such pro forma information has been prepared assuming (a) the issuance of 10,267,029 shares of FUNC Common Stock, (b) consummation of the Merger, the CoreStates acquisition and the Signet acquisition on a pooling of interests accounting basis as of the beginning of each of the periods presented, and (c) consummation of the Covenant acquisition on a purchase accounting basis only for the nine months ended September 30, 1997, and the year ended December 31, 1996. See "THE MERGER -- Accounting Treatment". Wheat's fiscal year-end is March 31 of each year, and accordingly, all pro forma financial information set forth below related to Wheat as of and for the (x) nine months ended September 30, reflects the fourth quarter of the fiscal year ended March 31, plus the following six months ended September 30, and has been added to comparable information related to FUNC, CoreStates, Signet and Covenant, as appropriate, for the nine months ended September 30, and (y) 12-month periods ended March 31 has been added to comparable information related to FUNC, CoreStates, Signet and Covenant, as applicable, for the preceding 12-month periods ended December 31, as appropriate. As a result of using the foregoing assumptions, the pro forma financial information has been calculated using an Exchange Ratio of 1.1621. The pro forma information and 1.1621 Exchange Ratio would be different if the number of outstanding shares of Wheat Common Stock or Wheat Preferred Stock on the Effective Date is different than 8,834,944. See "THE MERGER -- General; Consideration" and ANNEX A. Pro forma financial information is intended to show how the Merger, the Signet acquisition and the CoreStates and Covenant acquisitions might have affected historical financial statements if the Merger, the Signet acquisition and the CoreStates and Covenant acquisitions had been consummated at an earlier time. The pro forma financial information does not purport to be indicative of the results that actually would have been realized had the Merger, the Signet acquisition and the CoreStates and Covenant acquisitions taken place at the beginning of the applicable periods indicated, nor is it indicative of the combined financial position or results of operations for any future periods. 12 The information shown below should be read in conjunction with the historical financial statements of FUNC, Wheat, CoreStates, Signet and Covenant, including the respective notes thereto, and the documents incorporated herein by reference. See "AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE", "RECENT DEVELOPMENTS", "PRO FORMA FINANCIAL INFORMATION" and ANNEX D.
TWELVE MONTHS SEPTEMBER 30, ENDED ------------------ -------------- 1997 1997/1996 (1) ------------------ -------------- BOOK VALUE PER SHARE Historical per share of FUNC Common Stock.................................................................... $18.86 17.41 Wheat Common Stock................................................................... 18.77 16.37 Pro forma combined per share of FUNC Common Stock (2) FUNC and Signet...................................................................... 18.43 17.06 FUNC, Signet and Wheat............................................................... 18.39 17.02 FUNC, Signet, Wheat, CoreStates and Covenant......................................... 15.52 14.85 Equivalent pro forma per share of Wheat Common Stock (3) FUNC and Signet...................................................................... 21.42 19.83 FUNC, Signet and Wheat............................................................... 21.38 19.78 FUNC, Signet, Wheat, CoreStates and Covenant......................................... $18.04 17.25
- --------------- (1) December 31, 1996, for FUNC, CoreStates, Signet and Covenant, and March 31, 1997, for Wheat. (2) The pro forma combined book value per share of FUNC Common Stock amounts represent the sum of the pro forma combined stockholders' equity amounts, divided by the pro forma combined period-end number of shares of FUNC Common Stock outstanding. (3) The equivalent pro forma book value per share of Wheat Common Stock amounts represent the pro forma combined book value per share of FUNC Common Stock amounts multiplied by a 1.1621 Exchange Ratio. ------------------------
NINE MONTHS ENDED SEPTEMBER 30, TWELVE MONTHS ENDED (4) ----------------- ----------------------------------- 1997 1997/1996 1996/1995 1995/1994 ----------------- --------- --------- --------- CASH DIVIDENDS PAID PER SHARE Historical per share of FUNC Common Stock................................................. $0.90 1.10 0.98 0.86 Wheat Common Stock................................................ 0.30 0.40 0.20 0.20 Wheat Preferred Stock............................................. 0.30 0.40 0.15 -- Pro forma combined per share of FUNC Common Stock (5) FUNC and Signet................................................... 0.87 1.06 0.61 0.57 FUNC, Signet and Wheat............................................ 0.86 1.05 0.61 0.56 FUNC, Signet, Wheat, CoreStates and Covenant...................... 0.87 1.00 0.68 0.60 Equivalent pro forma per share of Wheat Common Stock (6) FUNC and Signet................................................... 1.01 1.23 0.71 0.66 FUNC, Signet and Wheat............................................ .99 1.22 0.71 0.65 FUNC, Signet, Wheat, CoreStates and Covenant...................... 1.01 1.17 0.79 0.70 Equivalent pro forma per share of Wheat Preferred Stock (6) FUNC and Signet................................................... 1.01 1.23 0.71 0.66 FUNC, Signet and Wheat............................................ .99 1.22 0.71 0.65 FUNC, Signet, Wheat, CoreStates and Covenant...................... $1.01 1.17 0.79 0.70
- --------------- (4) December 31, 1996, 1995 and 1994, for FUNC, CoreStates, Signet and Covenant, and March 31, 1997, 1996 and 1995, for Wheat. (5) The pro forma combined cash dividends paid per share of FUNC Common Stock amounts represent pro forma combined cash dividends paid on common stock outstanding, divided by the pro forma combined average number of shares of FUNC Common Stock outstanding, rounded to the nearest cent. (6) The equivalent pro forma cash dividends paid per share of Wheat Common Stock and Wheat Preferred Stock amounts represent historical dividend rates per share for FUNC Common Stock amounts multiplied by a 1.1621 Exchange Ratio, rounded to the nearest cent. The current annualized dividend rate per share for FUNC Common Stock, based on the most recently declared quarterly dividend rate of $.37 per share payable on March 16, 1998, would be $1.48. On an 13 equivalent pro forma basis, such current annualized FUNC dividend per share of Wheat Common Stock and Wheat Preferred Stock would be $1.72, rounded up to the nearest cent. Any future FUNC and Wheat dividends are dependent on their respective earnings and financial conditions, government regulations and policies and other factors. Pursuant to the Merger Agreement, after December 31, 1997, Wheat may not declare or pay any dividends on Wheat Common Stock or Wheat Preferred Stock without the prior written consent of FUNC. See "THE MERGERS -- Exchange of Wheat Stock", " -- Business Pending Consummation" and " -- Dividends". ------------------------
NINE MONTHS ENDED SEPTEMBER 30, TWELVE MONTHS ENDED (7) ------------- ----------------------------------- 1997 1996 1997/1996 1996/1995 1995/1994 ----- ---- --------- --------- --------- NET INCOME APPLICABLE TO COMMON STOCKHOLDERS Historical per share of: FUNC Common Stock (8).................................................. $2.60 1.85 2.67 2.52 2.29 Wheat Common Stock..................................................... 3.69 2.67 3.51 3.22 2.35 Pro forma combined per share of FUNC Common Stock (9) FUNC and Signet........................................................ 2.43 1.80 2.59 2.43 2.29 FUNC, Signet and Wheat................................................. 2.45 1.80 2.59 2.44 2.29 FUNC, Signet, Wheat, CoreStates and Covenant........................... 2.22 1.61 2.31 2.21 1.89 Equivalent pro forma per share of Wheat Common Stock (10) FUNC and Signet........................................................ 2.83 2.09 3.01 2.82 2.67 FUNC, Signet and Wheat................................................. 2.84 2.10 3.02 2.83 2.66 FUNC, Signet, Wheat, CoreStates and Covenant........................... $2.58 1.88 2.69 2.57 2.19
- --------------- (7) December 31, 1996, 1995 and 1994, for FUNC, CoreStates, Signet and Covenant, and March 31, 1997, 1996 and 1995, for Wheat. (8) FUNC net income applicable to common stockholders for the year ended December 31, 1996, includes (i) $181 million, or $0.32 per share of FUNC Common Stock, in after-tax merger-related restructuring charges related to the pooling of interests accounting acquisition of First Fidelity Bancorporation ("FFB") on January 1, 1996, and (ii) $86 million, or $0.16 per share of FUNC Common Stock, in after-tax charges relating to the recapitalization of the Savings Association Insurance Fund ("SAIF"). See "FUNC -- History and Business" and " -- Certain Regulatory Considerations". (9) The pro forma combined income per share of FUNC Common Stock amounts represent pro forma combined net income applicable to holders of FUNC Common Stock, divided by the pro forma combined average number of shares of FUNC Common Stock outstanding. (10) The equivalent pro forma income per share of Wheat Common Stock amounts represent pro forma combined income per share of FUNC Common Stock amounts multiplied by a 1.1621 Exchange Ratio. ------------------------
HISTORICAL ------------ EQUIVALENT PRO FORMA FUNC PER SHARE OF WHEAT COMMON STOCK COMMON STOCK AND WHEAT PREFERRED STOCK (11) ------------ ------------------------------- MARKET VALUE PER SHARE August 19, 1997........................................................... $ 46.9375 54.50 December 16, 1997......................................................... $ 50.8750 59.00
- --------------- (11) The equivalent pro forma market values per share of Wheat Common Stock and Wheat Preferred Stock represent the historical market values per share of FUNC Common Stock multiplied by a 1.1621 Exchange Ratio, rounded down to the nearest one-eighth. The FUNC historical market values per share represent the last reported sale prices per share of FUNC Common Stock on the NYSE Tape on: (i) August 19, 1997, the last business day preceding public announcement of the execution of the Merger Agreement; and (ii) on December 16, 1997. There is no public trading market for Wheat Common Stock or Wheat Preferred Stock. See "THE MERGER -- Market Prices". Because the market price of FUNC Common Stock is subject to fluctuation, the market value of the FUNC Common Shares that holders of Wheat Common Stock and Wheat Preferred Stock will receive upon consummation of the Merger may increase or decrease prior to and after the receipt of such shares. Wheat stockholders are urged to obtain current market quotations for FUNC Common Stock. 14 SELECTED FINANCIAL DATA The following tables set forth certain unaudited historical consolidated selected financial information for FUNC and Wheat and certain unaudited pro forma combined selected financial information, adjusted to reflect the FUNC Stock Split and consummation of the Signet acquisition on November 28, 1997. Such pro forma information has been prepared assuming (a) the issuance of 10,267,029 shares of FUNC Common Stock, (b) consummation of the Merger, the CoreStates acquisition and the Signet acquisition on a pooling of interests accounting basis as of the beginning of each of the periods presented, and (c) consummation of the Covenant acquisition on a purchase accounting basis only for the nine months ended September 30, 1997, and for the year ended December 31, 1996. See "THE MERGER -- Accounting Treatment". FUNC net income applicable to common stockholders as of and for the year ended December 31, 1996, includes (i) $181 million, or $0.32 per share of FUNC Common Stock, in after-tax FFB merger-related restructuring charges, and (ii) $86 million, or $0.16 per share of FUNC Common Stock, in after-tax charges relating to the recapitalization of the SAIF. See "FUNC -- History and Business" and " -- Certain Regulatory Considerations". This information should be read in conjunction with the historical financial statements of FUNC, Wheat, CoreStates, Signet and Covenant, including the respective notes thereto, and the documents incorporated herein by reference. See "AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE", "RECENT DEVELOPMENTS ", "PRO FORMA FINANCIAL INFORMATION" and ANNEX D. Wheat's fiscal year-end is March 31 of each year, and accordingly, all pro forma financial information set forth below related to Wheat as of and for the (x) nine months ended September 30 reflects the fourth quarter of the fiscal year ended March 31, plus the following six months ended September 30, and has been added to comparable information related to FUNC, CoreStates, Signet and Covenant for the nine months ended September 30, as appropriate, and (y) 12-month periods ended March 31 has been added to comparable information related to FUNC, CoreStates, Signet and Covenant for the 12-month periods ended December 31, as appropriate. Interim unaudited historical data of FUNC and Wheat reflect, in the respective opinions of management, all adjustments (consisting only of normal recurring adjustments) necessary to a fair presentation of such data. As a result of using the foregoing assumptions, the pro forma financial information has been calculated using a 1.1621 Exchange Ratio. The pro forma information and 1.1621 Exchange Ratio would be different if the number of outstanding shares of Wheat Common Stock or Wheat Preferred Stock on the Effective Date is different than 8,834,944. See "THE MERGER -- General; Consideration" and ANNEX A. Pro forma financial information is intended to show how the Merger, the Signet acquisition and the CoreStates and Covenant acquisitions might have affected historical financial statements if the Merger, the Signet acquisition and the CoreStates and Covenant acquisitions had been consummated at an earlier time. The pro forma combined selected financial data does not purport to be indicative of the results that actually would have been realized had the Merger, the Signet acquisition and the CoreStates and Covenant acquisitions taken place at the beginning of the applicable periods indicated, nor is it indicative of the combined financial position or results of operations for any future periods. 15 FUNC (HISTORICAL)
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, --------------------- ---------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1996 1995 1994 1993 - -------------------------------------------------------- -------- ------- ------- ------- ------- ------- CONSOLIDATED SUMMARIES OF INCOME Interest income....................................... $ 7,556 7,193 9,628 8,687 7,231 6,602 Interest expense...................................... 3,586 3,452 4,632 4,052 2,793 2,482 -------- ------- ------- ------- ------- ------- Net interest income................................... 3,970 3,741 4,996 4,635 4,438 4,120 Provision for loan losses............................. 465 255 375 220 179 370 -------- ------- ------- ------- ------- ------- Net interest income after provision for loan losses... 3,505 3,486 4,621 4,415 4,259 3,750 Securities available for sale transactions............ 12 20 31 44 6 33 Investment security transactions...................... 3 3 4 5 4 7 Noninterest income.................................... 2,262 1,649 2,322 1,848 1,566 1,542 Merger-related restructuring charges.................. -- 281 281 94 -- -- SAIF special assessment............................... -- 133 133 -- -- -- Noninterest expense................................... 3,529 3,141 4,254 3,999 3,747 3,536 -------- ------- ------- ------- ------- ------- Income before income taxes............................ 2,253 1,603 2,310 2,219 2,088 1,796 Income taxes.......................................... 792 564 811 789 712 579 -------- ------- ------- ------- ------- ------- Net income............................................ 1,461 1,039 1,499 1,430 1,376 1,217 Dividends on preferred stock.......................... -- 8 9 26 46 46 -------- ------- ------- ------- ------- ------- Net income applicable to common stockholders before redemption premium.................................. 1,461 1,031 1,490 1,404 1,330 1,171 Redemption premium on preferred stock................. -- -- -- -- 41 -- -------- ------- ------- ------- ------- ------- Net income applicable to common stockholders after redemption premium.................................. $ 1,461 1,031 1,490 1,404 1,289 1,171 -------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- PER COMMON SHARE DATA (a) Net income before redemption premium.................. $ 2.60 1.85 2.67 2.52 2.36 2.15 Net income after redemption premium................... 2.60 1.85 2.67 2.52 2.29 2.15 Cash dividends........................................ 0.90 0.81 1.10 0.98 0.86 0.75 Book value............................................ 18.86 15.97 17.41 15.94 14.10 13.36 CASH DIVIDENDS PAID ON COMMON STOCK..................... 508 449 611 336 298 244 CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS Assets................................................ 143,904 133,882 140,127 131,880 113,529 104,550 Loans, net of unearned income......................... 94,904 92,520 95,858 90,563 77,831 68,263 Deposits.............................................. 91,690 91,444 94,815 92,555 87,865 81,885 Long-term debt........................................ 7,819 7,332 7,660 7,121 4,242 3,675 Guaranteed preferred beneficial interests............. 990 -- 495 -- -- -- Preferred stockholders' equity........................ -- 48 -- 183 230 514 Common stockholders' equity........................... 10,720 8,641 10,008 8,860 8,044 7,432 Total stockholders' equity............................ $ 10,720 8,689 10,008 9,043 8,274 7,946 Preferred shares outstanding (IN THOUSANDS)........... -- 1,911 -- 3,388 5,213 11,560 Common shares outstanding (IN THOUSANDS).............. 568,296 541,015 574,697 555,692 570,721 556,408 CONSOLIDATED AVERAGE BALANCE SHEET ITEMS Assets................................................ $138,301 133,541 134,127 118,142 106,413 99,610 Loans, net of unearned income......................... 94,636 89,864 90,660 83,265 70,726 62,996 Deposits.............................................. 92,325 91,064 91,320 87,274 80,760 76,830 Long-term debt........................................ 7,489 7,570 7,565 5,707 4,009 3,598 Guaranteed preferred beneficial interests............. 964 -- 47 -- -- -- Common stockholders' equity (b)....................... 9,889 9,000 9,079 8,412 7,870 6,782 Total stockholders' equity (b)........................ $ 9,889 9,138 9,187 8,623 8,372 7,302 Common shares outstanding (IN THOUSANDS).............. 562,534 557,968 557,624 557,354 563,325 544,876 CONSOLIDATED PERCENTAGES Net income applicable to common stockholders before redemption premium to average common stockholders' equity (b)............................. 19.75%(c) 15.30(c) 16.41 16.69 16.91 17.26 Net income applicable to common stockholders after redemption premium to average common stockholders' equity (b).......................................... 19.75(c) 15.30(c) 16.41 16.69 16.38 17.26 Net income to Average total stockholders' equity (b).............. 19.75(c) 15.19(c) 16.32 16.59 16.44 16.66 Average assets...................................... 1.41(c) 1.04(c) 1.12 1.21 1.29 1.22 Average stockholders' equity to average assets (d).... 7.14 6.81 6.82 7.23 7.52 7.11 Allowance for loan losses to Net loans........................................... 1.44 1.49 1.42 1.66 2.03 2.38 Nonaccrual and restructured loans................... 224 188 204 233 248 151 Nonperforming assets................................ 194 167 179 182 178 115 Net charge-offs to average net loans.................. 0.65(c) 0.58(c) 0.63 0.41 0.40 0.78 Nonperforming assets to loans, net and foreclosed properties.......................................... 0.74 0.89 0.80 0.91 1.14 2.06 Capital ratios (d) Tier 1 capital...................................... 8.18 6.38 7.33 6.70 7.76 9.14 Total capital....................................... 13.72 10.94 12.33 11.45 12.94 14.64 Leverage............................................ 6.53 5.23 6.13 5.49 6.12 6.13 Net interest margin................................... 4.36%(c) 4.21(c) 4.21 4.46 4.75 4.82 (IN MILLIONS, EXCEPT PER SHARE DATA) 1992 - -------------------------------------------------------- ------- CONSOLIDATED SUMMARIES OF INCOME Interest income....................................... 6,609 Interest expense...................................... 2,942 ------- Net interest income................................... 3,667 Provision for loan losses............................. 643 ------- Net interest income after provision for loan losses... 3,024 Securities available for sale transactions............ 39 Investment security transactions...................... (3) Noninterest income.................................... 1,360 Merger-related restructuring charges.................. -- SAIF special assessment............................... -- Noninterest expense................................... 3,443 ------- Income before income taxes............................ 977 Income taxes.......................................... 278 ------- Net income............................................ 699 Dividends on preferred stock.......................... 53 ------- Net income applicable to common stockholders before redemption premium.................................. 646 Redemption premium on preferred stock................. -- ------- Net income applicable to common stockholders after redemption premium.................................. 646 ------- ------- PER COMMON SHARE DATA (a) Net income before redemption premium.................. 1.26 Net income after redemption premium................... 1.26 Cash dividends........................................ 0.64 Book value............................................ 11.68 CASH DIVIDENDS PAID ON COMMON STOCK..................... 168 CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS Assets................................................ 95,308 Loans, net of unearned income......................... 60,301 Deposits.............................................. 76,156 Long-term debt........................................ 3,733 Guaranteed preferred beneficial interests............. -- Preferred stockholders' equity........................ 530 Common stockholders' equity........................... 6,187 Total stockholders' equity............................ 6,717 Preferred shares outstanding (IN THOUSANDS)........... 12,158 Common shares outstanding (IN THOUSANDS).............. 529,790 CONSOLIDATED AVERAGE BALANCE SHEET ITEMS Assets................................................ 90,621 Loans, net of unearned income......................... 58,700 Deposits.............................................. 71,947 Long-term debt........................................ 3,528 Guaranteed preferred beneficial interests............. -- Common stockholders' equity (b)....................... 5,724 Total stockholders' equity (b)........................ 6,280 Common shares outstanding (IN THOUSANDS).............. 510,768 CONSOLIDATED PERCENTAGES Net income applicable to common stockholders before redemption premium to average common stockholders' equity (b)............................. 11.28 Net income applicable to common stockholders after redemption premium to average common stockholders' equity (b).......................................... 11.28 Net income to Average total stockholders' equity (b).............. 11.13 Average assets...................................... 0.77 Average stockholders' equity to average assets (d).... 6.89 Allowance for loan losses to Net loans........................................... 2.57 Nonaccrual and restructured loans................... 105 Nonperforming assets................................ 76 Net charge-offs to average net loans.................. 1.03 Nonperforming assets to loans, net and foreclosed properties.......................................... 3.36 Capital ratios (d) Tier 1 capital...................................... 9.22 Total capital....................................... 14.31 Leverage............................................ 6.55 Net interest margin................................... 4.73
- --------------- (a) Per common share data has been restated to reflect the FUNC Stock Split. (b) Average common stockholders' equity and total stockholders' equity exclude net unrealized gains and (losses) on debt and equity securities in 1994 through 1997. (c) Annualized. (d) The average stockholders' equity to average assets ratios and all capital ratios for 1992-1994 are not restated for pooling of interests acquisitions. Risk-based capital ratio guidelines require a minimum ratio of tier 1 capital to risk-weighted assets of four percent and total capital to risk-weighted assets of eight percent. The minimum leverage ratio of tier 1 capital to adjusted average quarterly assets is from three to five percent. 16 FUNC AND SIGNET PRO FORMA COMBINED SELECTED FINANCIAL DATA (A)
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, -------------------------------------- -------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1996 1995 1994 - -------------------------------------------------- ----------------- ----------------- -------- -------- -------- CONSOLIDATED SUMMARIES OF INCOME Interest income................................. $ 8,187 7,812 10,459 9,553 8,038 Interest expense................................ 3,859 3,719 4,994 4,425 3,090 -------- -------- -------- -------- -------- Net interest income............................. 4,328 4,093 5,465 5,128 4,948 Provision for loan losses....................... 515 299 449 258 193 -------- -------- -------- -------- -------- Net interest income after provision for loan losses........................................ 3,813 3,794 5,016 4,870 4,755 Securities available for sale transactions...... 19 20 36 45 9 Investment security transactions................ 3 3 4 6 4 Noninterest income.............................. 2,457 1,839 2,597 2,125 2,130 Merger-related restructuring charges............ -- 281 281 94 -- SAIF special assessment......................... -- 133 133 -- -- Noninterest expense............................. 3,930 3,501 4,740 4,563 4,593 -------- -------- -------- -------- -------- Income before income taxes...................... 2,362 1,741 2,499 2,389 2,305 Income taxes.................................... 828 611 875 848 779 -------- -------- -------- -------- -------- Net income...................................... 1,534 1,130 1,624 1,541 1,526 Dividends on preferred stock.................... -- 8 9 26 46 -------- -------- -------- -------- -------- Net income applicable to common stockholders before redemption premium..................... 1,534 1,122 1,615 1,515 1,480 Redemption premium on preferred stock........... -- -- -- -- 41 -------- -------- -------- -------- -------- Net income applicable to common stockholders after redemption premium...................... $ 1,534 1,122 1,615 1,515 1,439 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- PER COMMON SHARE DATA Net income before redemption premium............ $ 2.43 1.80 2.59 2.43 2.36 Net income after redemption premium............. 2.43 1.80 2.59 2.43 2.29 Book value...................................... 18.43 15.79 17.06 15.66 14.41 CASH DIVIDENDS PAID ON COMMON STOCK............... 546 485 659 382 355 CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS Assets.......................................... 155,175 145,375 151,847 142,858 126,460 Loans, net of unearned income................... 101,426 98,692 102,213 95,979 85,755 Deposits........................................ 99,402 99,278 102,702 100,148 95,687 Long-term debt.................................. 8,169 7,732 8,060 7,374 4,496 Guaranteed preferred beneficial interests....... 990 -- 495 -- -- Preferred stockholders' equity.................. -- 48 -- 183 230 Common stockholders' equity..................... 11,710 9,530 10,932 9,724 9,155 Total stockholders' equity...................... $ 11,710 9,578 10,932 9,907 9,385 Preferred shares outstanding (IN THOUSANDS)..... -- 1,911 -- 3,388 5,213 Common shares outstanding (IN THOUSANDS)........ 635,334 606,711 640,782 620,822 635,222 CONSOLIDATED PERCENTAGES Allowance for loan losses to Net loans..................................... 1.47% 1.53 1.47 1.71 2.10 Nonperforming assets.......................... 203 173 187 186 192 Net charge-offs to average net loans............ 0.67(b) 0.61(b) 0.66 0.44 0.42 Nonperforming assets to loans, net and foreclosed properties......................... 0.73% 0.88 0.78 0.92 1.09 (IN MILLIONS, EXCEPT PER SHARE DATA) 1993 1992 - -------------------------------------------------- -------- -------- CONSOLIDATED SUMMARIES OF INCOME Interest income................................. 7,406 7,376 Interest expense................................ 2,757 3,273 -------- -------- Net interest income............................. 4,649 4,103 Provision for loan losses....................... 417 711 -------- -------- Net interest income after provision for loan losses........................................ 4,232 3,392 Securities available for sale transactions...... 37 49 Investment security transactions................ 7 (21) Noninterest income.............................. 1,903 1,641 Merger-related restructuring charges............ -- -- SAIF special assessment......................... -- -- Noninterest expense............................. 4,134 3,942 -------- -------- Income before income taxes...................... 2,045 1,119 Income taxes.................................... 654 311 -------- -------- Net income...................................... 1,391 808 Dividends on preferred stock.................... 46 53 -------- -------- Net income applicable to common stockholders before redemption premium..................... 1,345 755 Redemption premium on preferred stock........... -- -- -------- -------- Net income applicable to common stockholders after redemption premium...................... 1,345 755 -------- -------- -------- -------- PER COMMON SHARE DATA Net income before redemption premium............ 2.21 1.32 Net income after redemption premium............. 2.21 1.32 Book value...................................... 13.57 11.86 CASH DIVIDENDS PAID ON COMMON STOCK............... 289 193 CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS Assets.......................................... 116,399 107,401 Loans, net of unearned income................... 74,573 66,110 Deposits........................................ 89,706 83,979 Long-term debt.................................. 3,941 4,031 Guaranteed preferred beneficial interests....... -- -- Preferred stockholders' equity.................. 514 530 Common stockholders' equity..................... 8,397 7,014 Total stockholders' equity...................... 8,911 7,544 Preferred shares outstanding (IN THOUSANDS)..... 11,560 12,158 Common shares outstanding (IN THOUSANDS)........ 618,678 591,348 CONSOLIDATED PERCENTAGES Allowance for loan losses to Net loans..................................... 2.52 2.75 Nonperforming assets.......................... 123 82 Net charge-offs to average net loans............ 0.79 1.14 Nonperforming assets to loans, net and foreclosed properties......................... 2.04 3.34
- --------------- (a) See "Pro Forma Financial Information". (b) Annualized. 17 WHEAT (HISTORICAL)
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED MARCH 31, ------------------- ----------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1997 1996 1995 1994 1993 - --------------------------------------------------------------- ------- ----- ----- ----- ----- ----- ----- CONSOLIDATED SUMMARIES OF INCOME Interest income.............................................. $ 40 33 49 40 34 24 18 Interest expense............................................. 18 14 22 19 16 9 6 ------- ----- ----- ----- ----- ----- ----- Net interest income.......................................... 22 19 27 21 18 15 12 Securities available for sale transactions................... 67 67 88 80 70 74 80 Noninterest income........................................... 318 256 357 293 215 251 213 Noninterest expense.......................................... 352 301 420 347 269 304 272 ------- ----- ----- ----- ----- ----- ----- Income before income taxes................................... 55 41 52 47 34 36 33 Income taxes................................................. 22 17 21 19 13 15 13 ------- ----- ----- ----- ----- ----- ----- Net income................................................... $ 33 24 31 28 21 21 20 ------- ----- ----- ----- ----- ----- ----- ------- ----- ----- ----- ----- ----- ----- PER COMMON AND PREFERRED SHARE DATA Net income................................................... $ 3.69 2.67 3.51 3.22 2.35 2.34 2.26 Book value................................................... 18.77 14.73 16.37 13.70 11.04 9.42 7.39 CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS Assets....................................................... 1,173 958 944 737 608 586 443 Long-term debt............................................... 86 41 64 34 36 31 22 Total stockholders' equity................................... $ 165 134 147 122 96 84 69 Common and preferred shares outstanding (IN THOUSANDS)....... 8,809 9,116 8,954 8,881 8,673 8,931 9,345
18 FUNC, SIGNET AND WHEAT PRO FORMA COMBINED SELECTED FINANCIAL DATA (A)
NINE MONTHS ENDED SEPTEMBER 30, TWELVE MONTHS ENDED -------------------- ------------------------------------------------ (IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1997/1996 1996/1995 1995/1994 1994/1993 - -------------------------------------------- -------- ------- --------- --------- --------- --------- CONSOLIDATED SUMMARIES OF INCOME Interest income........................... $ 8,227 7,845 10,508 9,593 8,072 7,430 Interest expense.......................... 3,877 3,733 5,016 4,444 3,106 2,766 -------- ------- --------- --------- --------- --------- Net interest income....................... 4,350 4,112 5,492 5,149 4,966 4,664 Provision for loan losses................. 515 299 449 258 193 417 -------- ------- --------- --------- --------- --------- Net interest income after provision for loan losses............................. 3,835 3,813 5,043 4,891 4,773 4,247 Securities available for sale transactions............................ 86 87 124 125 79 111 Investment security transactions.......... 3 3 4 6 4 7 Noninterest income........................ 2,775 2,095 2,954 2,418 2,345 2,154 Merger-related restructuring charges...... -- 281 281 94 -- -- SAIF special assessment................... -- 133 133 -- -- -- Noninterest expense....................... 4,282 3,802 5,160 4,910 4,862 4,438 -------- ------- --------- --------- --------- --------- Income before income taxes................ 2,417 1,782 2,551 2,436 2,339 2,081 Income taxes.............................. 850 628 896 867 792 669 -------- ------- --------- --------- --------- --------- Net income................................ 1,567 1,154 1,655 1,569 1,547 1,412 Dividends on preferred stock.............. -- 8 9 26 46 46 -------- ------- --------- --------- --------- --------- Net income applicable to common stockholders before redemption premium...................... 1,567 1,146 1,646 1,543 1,501 1,366 Redemption premium on preferred stock..... -- -- -- -- 41 -- -------- ------- --------- --------- --------- --------- Net income applicable to common stockholders after redemption premium... $ 1,567 1,146 1,646 1,543 1,460 1,366 -------- ------- --------- --------- --------- --------- -------- ------- --------- --------- --------- --------- PER COMMON SHARE DATA Net income before redemption premium...... $ 2.45 1.80 2.59 2.44 2.36 2.21 Net income after redemption premium....... 2.45 1.80 2.59 2.44 2.29 2.21 Book value................................ 18.39 15.67 17.02 15.60 14.33 13.48 CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS Assets.................................... 156,348 146,333 152,791 143,595 127,068 116,985 Loans, net of unearned income............. 101,426 98,692 102,213 95,979 85,755 74,573 Deposits.................................. 99,402 99,278 102,702 100,148 95,687 89,706 Long-term debt............................ 8,255 7,773 8,124 7,408 4,532 3,972 Guaranteed preferred beneficial interests............................... 990 -- 495 -- -- -- Preferred stockholders' equity............ -- 48 -- 183 230 514 Common stockholders' equity............... 11,875 9,664 11,079 9,846 9,251 8,481 Total stockholders' equity................ $ 11,875 9,712 11,079 10,029 9,481 8,995 Preferred shares outstanding (IN THOUSANDS).......................... -- 1,911 -- 3,388 5,213 11,560 Common shares outstanding (IN THOUSANDS).......................... 645,601 616,978 651,049 631,089 645,489 628,945 CONSOLIDATED PERCENTAGES Allowance for loan losses to Net loans............................... 1.47% 1.53 1.47 1.71 2.10 2.52 Nonperforming assets.................... 203 173 187 186 192 123 Net charge-offs to average net loans...... 0.67(b) 0.61(b) 0.66 0.44 0.42 0.79 Nonperforming assets to loans, net and foreclosed properties................... 0.73% 0.88 0.78 0.92 1.09 2.04 (IN MILLIONS, EXCEPT PER SHARE DATA) 1993/1992 - -------------------------------------------- --------- CONSOLIDATED SUMMARIES OF INCOME Interest income........................... 7,394 Interest expense.......................... 3,279 --------- Net interest income....................... 4,115 Provision for loan losses................. 711 --------- Net interest income after provision for loan losses............................. 3,404 Securities available for sale transactions............................ 129 Investment security transactions.......... (21) Noninterest income........................ 1,854 Merger-related restructuring charges...... -- SAIF special assessment................... -- Noninterest expense....................... 4,214 --------- Income before income taxes................ 1,152 Income taxes.............................. 324 --------- Net income................................ 828 Dividends on preferred stock.............. 53 --------- Net income applicable to common stockholders before redemption premium...................... 775 Redemption premium on preferred stock..... -- --------- Net income applicable to common stockholders after redemption premium... 775 --------- --------- PER COMMON SHARE DATA Net income before redemption premium...... 1.33 Net income after redemption premium....... 1.33 Book value................................ 11.77 CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS Assets.................................... 107,844 Loans, net of unearned income............. 66,110 Deposits.................................. 83,979 Long-term debt............................ 4,053 Guaranteed preferred beneficial interests............................... -- Preferred stockholders' equity............ 530 Common stockholders' equity............... 7,083 Total stockholders' equity................ 7,613 Preferred shares outstanding (IN THOUSANDS).......................... 12,158 Common shares outstanding (IN THOUSANDS).......................... 601,615 CONSOLIDATED PERCENTAGES Allowance for loan losses to Net loans............................... 2.75 Nonperforming assets.................... 82 Net charge-offs to average net loans...... 1.14 Nonperforming assets to loans, net and foreclosed properties................... 3.34
- --------------- (a) See "PRO FORMA FINANCIAL INFORMATION". (b) Annualized. 19 FUNC, SIGNET, WHEAT, CORESTATES AND COVENANT PRO FORMA COMBINED SELECTED FINANCIAL DATA (A)
NINE MONTHS ENDED SEPTEMBER 30, TWELVE MONTHS ENDED -------------------- ------------------------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1997/1996 1996/1995 1995/1994 1994/1993 1993/1992 - ----------------------------------------- -------- ------- --------- --------- --------- --------- --------- CONSOLIDATED SUMMARIES OF INCOME Interest income........................ $ 10,787 10,308 13,831 13,068 11,086 10,335 10,480 Interest expense....................... 4,839 4,591 6,187 5,752 4,052 3,660 4,477 -------- ------- --------- --------- --------- --------- --------- Net interest income.................... 5,948 5,717 7,644 7,316 7,034 6,675 6,003 Provision for loan losses.............. 658 488 679 402 472 606 972 -------- ------- --------- --------- --------- --------- --------- Net interest income after provision for loan losses.......................... 5,290 5,229 6,965 6,914 6,562 6,069 5,031 Securities available for sale transactions......................... 101 142 184 156 97 154 146 Investment security transactions....... 3 3 4 6 4 7 (21) Noninterest income..................... 3,438 2,715 3,794 3,269 3,115 2,944 2,691 Restructuring and merger-related charges.............................. -- 411 422 233 107 -- -- SAIF special assessment................ -- 147 148 -- -- -- -- Noninterest expense.................... 5,497 5,018 6,802 6,656 6,673 6,332 6,246 -------- ------- --------- --------- --------- --------- --------- Income before income taxes............. 3,335 2,513 3,575 3,456 2,998 2,842 1,601 Income taxes........................... 1,173 905 1,278 1,232 1,018 908 455 -------- ------- --------- --------- --------- --------- --------- Net income............................. 2,162 1,608 2,297 2,224 1,980 1,934 1,146 Dividends on preferred stock........... -- 8 10 26 46 46 53 -------- ------- --------- --------- --------- --------- --------- Net income applicable to common stockholders before redemption premium.............................. 2,162 1,600 2,287 2,198 1,934 1,888 1,093 Redemption premium on preferred stock.. -- -- -- -- 41 -- -- -------- ------- --------- --------- --------- --------- --------- Net income applicable to common stockholders after redemption premium.............................. $ 2,162 1,600 2,287 2,198 1,893 1,888 1,093 -------- ------- --------- --------- --------- --------- --------- -------- ------- --------- --------- --------- --------- --------- PER COMMON SHARE DATA Net income before redemption premium.............................. $ 2.22 1.61 2.31 2.21 1.93 1.91 1.17 Net income after redemption premium.... $ 2.22 1.61 2.31 2.21 1.89 1.91 1.17 Average common shares outstanding (IN THOUSANDS)....................... 973,263 990,901 989,106 993,504 1,003,740 988,055 933,400 CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS Assets................................. $204,327 191,531 198,668 189,592 173,116 161,194 152,535 Loans, net of unearned income.......... 136,769 131,526 135,231 127,693 116,510 104,411 94,635 Deposits............................... 133,447 131,581 136,706 134,112 130,461 123,570 118,799 Long-term debt......................... 12,054 10,291 11,193 9,620 6,695 5,983 5,724 Guaranteed preferred beneficial interests................. 990 -- 495 -- -- -- -- Preferred stockholders' equity......... -- 48 -- 183 230 514 530 Common stockholders' equity............ 14,988 13,696 14,775 13,722 12,982 12,186 10,367 Total stockholders' equity............. $ 14,988 13,744 14,775 13,905 13,212 12,700 10,897 Preferred shares outstanding (IN THOUSANDS)........................... -- 1,911 -- 3,388 5,213 11,560 12,158 Common shares outstanding (IN THOUSANDS)........................... 965,709 974,937 995,189 987,596 1,013,603 1,001,056 969,491 CONSOLIDATED PERCENTAGES Allowance for loan losses to Net loans............................ 1.59% 1.68 1.64 1.81 2.13 2.41 2.57 Nonperforming assets................. 217 195 211 201 180 117 78 Net charge-offs to average net loans... 0.67(b) 0.62(b) 0.64 0.45 0.55 0.74 1.10 Nonperforming assets to loans, net and foreclosed properties................ 0.73% 0.86 0.78 0.90 1.18 2.05 3.28
- --------------- (a) See "PRO FORMA FINANCIAL INFORMATION". (b) Annualized. 20 RECENT DEVELOPMENTS PENDING AND RECENT FUNC ACQUISITIONS CORESTATES On November 18, 1997, FUNC entered into an agreement to acquire CoreStates, a bank holding company based in Philadelphia, Pennsylvania. CoreStates, through its lead bank subsidiary, CoreStates Bank, N.A., provides financial services through banking offices located in Pennsylvania, New Jersey and Delaware. As of September 30, 1997, and for the nine months then ended, CoreStates reported assets of $48 billion, net loans of $35 billion, deposits of $34 billion, stockholders' equity of $3 billion and net income of $597 million. Under the terms of the CoreStates acquisition agreement, FUNC will exchange 1.62 shares of FUNC Common Stock (subject to possible adjustment under certain circumstances) for each outstanding share of CoreStates common stock. The acquisition of CoreStates, which will be accounted for as a pooling of interests, is expected to close in the second quarter of 1998, subject to certain conditions of closing, including approval of the CoreStates acquisition agreement by CoreStates and FUNC stockholders, approval by FUNC stockholders of an amendment to the FUNC Articles to increase the number of authorized shares of FUNC Common Stock from 750,000,000 to 2,000,000,000, and approval by various regulatory agencies. Based on the 1.62 exchange ratio, a total of 323,642,000 shares of FUNC Common Stock are expected to be issued upon consummation of the CoreStates acquisition, excluding FUNC Common Stock to be exchanged for an estimated 3.5 million shares of CoreStates common stock that CoreStates expects to issue in order to qualify the CoreStates acquisition as a pooling of interests. See "THE MERGER -- Accounting Treatment". In connection with the CoreStates acquisition, CoreStates granted FUNC an option to purchase, under certain circumstances, up to 19.9 percent of the outstanding shares of common stock of CoreStates at a price of $72.00 per share, subject to certain adjustments, and FUNC granted CoreStates an option to purchase, under certain circumstances, up to 9.9 percent of the outstanding shares of FUNC Common Stock at a price of $52.00 per share, subject to certain adjustments. Under certain circumstances, the respective issuers of such options may be required to repurchase the options or the shares acquired pursuant to the exercise thereof. In addition, Terrence A. Larsen, CoreStates' Chairman and Chief Executive Officer, would become a Vice Chairman of FUNC and would become a member of the Office of the Chairman, which also would include Edward E. Crutchfield, Chairman and Chief Executive Officer of FUNC, and John R. Georgius, President of FUNC. Also, six directors of CoreStates would become directors of FUNC. On November 18, 1997, FUNC filed a Current Report on Form 8-K with the Commission (the "CoreStates Form 8-K"), which contains, among other things, certain financial and other information (the "CoreStates Form 8-K Materials") about CoreStates and the CoreStates acquisition. The CoreStates Form 8-K Materials contain certain forward-looking statements regarding FUNC, CoreStates and the combined organization following the CoreStates acquisition, including statements relating to estimated cost savings and enhanced revenues that may be realized from the CoreStates acquisition, and certain restructuring charges expected to be incurred in connection with the CoreStates acquisition. Such forward-looking statements involve significant risks and uncertainties. Actual results may differ materially from the results discussed in the CoreStates Form 8-K Materials and herein. Factors that might cause such a difference include, but are not limited to, those discussed in the CoreStates Form 8-K and FUNC's Quarterly Report on Form 10-Q for the period ended September 30, 1997. See "AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS". As indicated in the CoreStates Form 8-K: (Bullet) FUNC expects to realize before-tax expense savings resulting from the CoreStates acquisition of approximately $406 million and $723 million in 1998 and 1999, respectively, or approximately $258 million and $459 million after-tax, respectively. These estimates assume that approximately 45 percent of CoreStates' 1997 annualized expenses are eliminated by the end of 1999. (Bullet) FUNC expects to realize before-tax revenue enhancements relating to the CoreStates acquisition of approximately $123 million and $194 million in 1998 and 1999, respectively, or approximately $58 million and $89 million after-tax, respectively. These estimates are primarily based on FUNC's broader array of income generating products from its capital markets, capital management and other fee producing businesses. (Bullet) Assuming (i) the restructuring charges discussed below and the expense savings and revenue enhancements discussed above are as estimated, (ii) 985 million shares of FUNC Common Stock are outstanding in 1998 and 999 million shares are outstanding in 1999, (iii) the CoreStates acquisition is consummated by mid-1998, (iv) the conversion of CoreStates' operations and computer systems to FUNC's operations and computer systems is completed by November 1998, (v) 1998 earnings per share of (a) FUNC Common Stock are $3.91, and (b) CoreStates common stock are $4.23, each of which represents the First Call consensus earnings estimates as of 21 November 18, 1997 (before public announcement of the CoreStates acquisition but after public announcement of the Signet acquisition and the filing of the Signet Form 8-K (as hereinafter defined), the "1998 Illustrative First Call Consensus Estimates"), (vi) 1999 earnings per share of FUNC Common Stock and CoreStates common stock are equal to the 1998 Illustrative First Call Consensus Estimates plus 11 percent for FUNC and ten percent for CoreStates (the "1999 Illustrative Estimates") (I.E., $4.34 for FUNC Common Stock and $4.65 for CoreStates common stock), and (vii) certain other assumptions contained in the CoreStates Form 8-K, the CoreStates acquisition is estimated to dilute the 1998 Illustrative First Call Consensus Estimate for FUNC Common Stock by $.09 and add $.12 to the 1999 Illustrative Estimate for FUNC Common Stock. The 1998 Illustrative First Call Consensus Estimates and the 1999 Illustrative Estimates are presented for illustrative purposes only, are subject to the risks and uncertainties set forth in the CoreStates Form 8-K Materials and under "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION", among others, and do not constitute earnings projections or estimates by FUNC or CoreStates. (Bullet) FUNC expects to record after-tax restructuring and merger-related charges associated with the CoreStates acquisition, currently estimated at $795 million, or $0.81 per share of FUNC Common Stock, in the second quarter of 1998. The estimated $795 million restructuring charge is summarized below. (IN MILLIONS, AFTER TAX) - ---------------------------------------------------------------------------------- Severance and change in control related obligations............................... $214 Fixed asset write-downs and vacant space accruals................................. 289 Service contract terminations..................................................... 127 Charitable support................................................................ 63 Other............................................................................. 102 ---- Total............................................................................. $795 ---- ----
The estimated restructuring charge includes approximately $149 million in non-cash charges. Cash payments included in the estimated restructuring charge are expected to be completed within 18 months from the date of consummation. The "Other" category includes CoreStates acquisition-related amounts, none of which individually is estimated to exceed $50 million. The amounts included in the $795 million estimated restructuring charge are subject to change prior to the effective date of the CoreStates acquisition. The estimates include assumptions about the timing of the consummation of the CoreStates acquisition and the number of employees whose employment will terminate as a result of the CoreStates acquisition. Changes in such assumptions could result in a change in the estimated restructuring charge. In addition, FUNC estimates that another $75 million in pre-tax CoreStates acquisition-related costs will be incurred over the 12 months following consummation of the CoreStates acquisition. These costs primarily relate to training and systems conversions. See "PRO FORMA FINANCIAL INFORMATION". SIGNET On July 18, 1997, FUNC entered into an agreement to acquire Signet, a Virginia-based bank holding company. Signet, through its principal bank subsidiary, Signet Bank, provides financial services through banking offices located in Virginia, Maryland and Washington, D.C. As of September 30, 1997, and for the nine months then ended, Signet reported assets of $11 billion, net loans of $7 billion, deposits of $8 billion, stockholders' equity of $990 million and net income of $73 million. Under the terms of the Signet acquisition agreement, FUNC exchanged 1.10 shares of FUNC Common Stock for each outstanding share of Signet common stock. As of September 30, 1997, Signet had 60.9 million shares of common stock outstanding. The Signet acquisition, which will be accounted for as a pooling of interests, was consummated on November 28, 1997. See " -- FUNC Common Stock Transactions" and "THE MERGER -- Accounting Treatment". Two directors of Signet are expected to be elected or appointed as directors of FUNC. On July 21, 1997, FUNC filed a Current Report on Form 8-K with the Commission (the "Signet Form 8-K") which contains, among other items, certain financial and other information (the "Signet Form 8-K Materials") about the Signet acquisition. The Signet Form 8-K Materials contain certain forward-looking statements regarding FUNC, Signet and the combined organization following the Signet acquisition, including statements relating to estimated cost savings and enhanced revenues that may be realized from the Signet acquisition, and certain restructuring charges expected to be incurred in connection with the Signet acquisition. Such forward-looking statements involve significant risks and uncertainties. Actual results may differ materially from the results discussed in the Signet Form 8-K Materials and herein. Factors that might cause such a difference include, but are not limited to, those discussed in the Signet Form 8-K and FUNC's Quarterly Report on Form 10-Q for the period ended September 30, 1997. See "AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION". 22 As indicated in the Signet Form 8-K: (Bullet) FUNC expects to realize before-tax expense savings resulting from the Signet acquisition of approximately $169 million in 1998 and $242 million in 1999, or approximately $108 million and $155 million after-tax, respectively. These estimates assume that approximately 50 percent of Signet's 1996 annual expenses are eliminated by the end of 1999. (Bullet) FUNC expects to realize before-tax revenue enhancements relating to the Signet acquisition of approximately $30 million in 1998 and $37 million in 1999, or approximately $15 million and $19 million after-tax, respectively. These estimates are primarily based on an analysis of fee income generating products currently offered by FUNC which either are not offered by Signet or are offered by Signet on a more limited basis. (Bullet) Assuming (i) the restructuring charges discussed below and the expense savings and revenue enhancements discussed above are as estimated, (ii) 641 million shares of FUNC Common Stock are outstanding in 1998 and 646 million shares of FUNC Common Stock are outstanding in 1999, (iii) the Signet acquisition is consummated in 1997 (the Signet acquisition was consummated on November 28, 1997), (iv) the conversion of Signet's operations and computer systems to FUNC's operations and computer systems are completed by April 1998, (v) 1998 earnings per share of FUNC Common Stock are $3.905 and per share of Signet common stock are $2.62, which represent the First Call consensus earnings estimates (before public announcement of the Signet and CoreStates acquisition agreements and before Signet's June 3, 1997, corporate redesign announcement, the "1998 Illustrative First Call Consensus Estimates"), (vi) 1999 earnings per share of FUNC Common Stock and Signet common stock are equal to the 1998 Illustrative First Call Consensus Estimates plus ten percent (the "1999 Illustrative Estimates") (i.e., $4.295 for FUNC Common Stock and $2.88 for Signet common stock), and (vii) certain other assumptions contained in the Signet Form 8-K, the Signet acquisition is estimated to add $0.005 per share to the 1998 Illustrative First Call Consensus Estimate for FUNC Common Stock and $0.065 per share to the 1999 Illustrative Estimate for FUNC Common Stock. The 1998 Illustrative First Call Consensus Estimates and the 1999 Illustrative Estimates are presented for illustrative purposes only, are subject to the risks and uncertainties set forth in the Signet Form 8-K Materials and under "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION", among others, and do not constitute earnings projections or estimates by FUNC or Signet. (Bullet) FUNC expects to take an after-tax restructuring charge relating to the Signet acquisition currently estimated at $135 million, or $0.42 per share of FUNC Common Stock, in 1997. The estimated $135 million restructuring charge is summarized below.
(IN MILLIONS, AFTER TAX) - ---------------------------------------------------------------------------------- Severance and change in control related obligations............................... $ 58 Fixed asset write-downs and vacant space accruals................................. 38 Service contract terminations..................................................... 18 Other............................................................................. 21 ---- Total............................................................................. $135 ---- ----
The estimated restructuring charge includes approximately $18 million in non-cash charges. Cash payments included in the estimated restructuring charge are expected to be completed by the end of the second quarter of 1998. The "Other" category includes Signet acquisition-related amounts, none of which is estimated to exceed $13 million. The estimates include certain assumptions, including the number of employees whose employment will terminate as a result of the Signet acquisition. Changes in such assumptions could result in a change in the estimated restructuring charge. See "THE MERGER -- Opinion of Financial Advisor" and "PRO FORMA FINANCIAL INFORMATION". COVENANT On August 4, 1997, FUNC entered into an agreement to acquire Covenant, a bank holding company based in Haddonfield, New Jersey. Covenant's bank subsidiary operates 16 branches in southern New Jersey and at September 30, 1997, Covenant reported $420 million in assets. Under the terms of the agreement, FUNC will exchange (i) 0.3813 shares of FUNC Common Stock for each share of Covenant common stock and (ii) 1.2 shares of FUNC Common Stock for each share of Covenant Series B preferred stock. Based on a price of $49.50 per share of FUNC Common Stock (the last reported sale price per share of FUNC Common Stock on the NYSE Tape on August 4, 1997, the day before the acquisition was announced), the purchase price would be approximately $78 million. The acquisition, which will be accounted for as a purchase, is expected to close in the first quarter of 1998, subject to certain conditions of closing. See "THE MERGER -- Accounting Treatment". FUNC has repurchased in the open market 1.65 million shares of FUNC Common Stock expected to 23 be issued in the acquisition at a cost of $79 million. WFSI is a market maker for the common and preferred stock of Covenant. See "WHEAT -- History and Business". FUNC COMMON STOCK TRANSACTIONS In 1995, as adjusted to reflect the FUNC Stock Split, FUNC repurchased in the open market 51 million shares of FUNC Common Stock at a cost of $1.2 billion; in 1996, 31 million shares at a cost of $968 million; and from January 1, 1997 to the most recent practicable date prior to the mailing of this Prospectus/Proxy Statement, 24 million shares (including the shares related to the acquisition of Covenant discussed above) at a cost of $1.0 billion. On September 23, 1997, FUNC sold 7.5 million shares of FUNC Common Stock in a public offering (the "Offering"), in order for the Signet acquisition and the Merger to qualify for pooling of interests accounting treatment. See "THE MERGER -- Accounting Treatment". The Offering also included the sale by Banco Santander, S.A. ("Santander") of all of the remaining 44.7 million shares of FUNC Common Stock (approximately 7.98 percent of the outstanding shares of FUNC Common Stock as of August 31, 1997) beneficially owned by Santander. Santander had acquired its shares of FUNC Common Stock in connection with FUNC's acquisition of FFB on January 1, 1996. FUNC received $358 million in net proceeds from its sale of the 7.5 million shares in the Offering. FUNC did not receive any proceeds from the sale of Santander's shares in the Offering. WFSI was an underwriter in the Offering. See "WHEAT -- History and Business". FUTURE FUNC ACQUISITIONS FUNC is continually evaluating acquisition opportunities and frequently conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations, frequently take place and future acquisitions involving cash, debt and equity securities can be expected. Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of FUNC's book value and net income may occur in connection with future acquisitions. See "FUNC -- History and Business". GENERAL INFORMATION GENERAL This Prospectus/Proxy Statement is being furnished by Wheat to its stockholders as a Proxy Statement in connection with the solicitation of proxies by the Wheat Board for use at the Special Meeting to be held on January 23, 1998, and any adjournments or postponements thereof, to consider and vote upon a proposal to approve the Merger Agreement. This Prospectus/Proxy Statement is also being furnished to the holders of Trust Shares and the participants in the Wheat ASOP for their information in connection with the solicitation of their voting instructions on the proposal to be voted on at the Special Meeting. This Prospectus/Proxy Statement is also being furnished by FUNC as a Prospectus in connection with the issuance by FUNC of the FUNC Common Shares upon consummation of the Merger. Directors, officers and employees of Wheat and FUNC may solicit proxies from Wheat stockholders and voting instructions from holders of Trust Shares and any other beneficial owners, either personally or by telephone, telegraph or other forms of communication. Such persons will receive no additional compensation for such services. All expenses associated with the solicitation of proxies in the form enclosed will be borne by the party incurring the same, except for printing expenses and fees related to the Registration Statement, which will be shared equally between FUNC and Wheat. THE WHEAT BOARD HAS ADOPTED THE MERGER AGREEMENT, BELIEVES IT IS IN THE BEST INTERESTS OF WHEAT AND ITS STOCKHOLDERS AND RECOMMENDS ITS APPROVAL BY WHEAT STOCKHOLDERS (INCLUDING HOLDERS OF THE TRUST SHARES). SEE "THE MERGER -- BACKGROUND AND REASONS; WHEAT ". RECORD DATE; VOTE REQUIRED; REVOCATION OF PROXIES The Wheat Board has fixed December 8, 1997, as the Record Date for determining stockholders entitled to notice of and to vote at the Special Meeting, and accordingly, only holders of record of Wheat Common Stock and Wheat Preferred Stock at the close of business on that day are entitled to notice of and to vote at the Special Meeting. The number of shares of Wheat Common Stock and Wheat Preferred Stock outstanding on the Record Date was 8,626,044 and 208,900, respectively, each of such shares being entitled to one vote. The presence, in person or by proxy, of at least a majority of the total number of outstanding shares of Wheat Common Stock and Wheat Preferred Stock is necessary to constitute a quorum at the Special Meeting. Abstentions will be treated as shares present at the Special Meeting for purposes of determining the presence of a quorum. Approval of the Merger Agreement requires the affirmative vote of more than two-thirds of the votes entitled to be cast at the Special Meeting by the holders of Wheat Common Stock and Wheat Preferred Stock, each voting as a separate class. Therefore, abstentions will have the same effect as votes against approval of the Merger Agreement. 24 The directors and executive officers of Wheat (including certain of their related interests) beneficially owned, as of the Record Date, and are entitled to vote at the Special Meeting 2,214,562 shares of Wheat Common Stock which represents 25.7 percent of the outstanding shares of Wheat Common Stock entitled to be voted at the Special Meeting. As a condition of FUNC's willingness to enter into the Merger Agreement, each of the members of the Executive Committee of the Wheat Board entered into the Voting Agreements and agreed to vote the shares of Wheat Common Stock beneficially owned by such directors in favor of approval of the Merger Agreement at the Special Meeting. The form of Voting Agreement is included as Exhibit A to ANNEX A to this Prospectus/Proxy Statement). The number of shares of Wheat Common Stock beneficially owned by such directors as of the Record Date is 1,561,761, which represents 18.1 percent of the outstanding shares of Wheat Common Stock entitled to be voted at the Special Meeting. The directors and executive officers of Wheat have indicated that they intend to vote their shares of Wheat Common Stock and Trust Shares in favor of approval of the Merger Agreement. To the best of FUNC's knowledge, no shares of Wheat Common Stock or Wheat Preferred Stock are owned by the executive officers, directors or affiliates of FUNC. See "THE MERGER -- Voting Agreements" and ANNEXES A and D. Participants in the Wheat ASOP will receive voting instructions with respect to shares of Wheat Common Stock allocated to participant accounts in the Wheat ASOP. The Voting Fiduciary has been named to discharge voting obligations with respect to Wheat Common Stock held in the Wheat ASOP. The Voting Fiduciary shall vote shares of Wheat Common Stock allocated to participants' accounts in accordance with directions received from participants. Wheat Common Stock as to which voting direction is not received from a participant and any shares of unallocated Wheat Common Stock shall be voted by the Voting Fiduciary on a proportionate basis in accordance with the votes cast by shares of Wheat Common Stock as to which voting instructions are actually received. It is expected that following consummation of the Merger the Wheat ASOP will either be merged into FUNC's 401(k) Savings Plan or merged into the Wheat 401(k) Plan, which plan would be subsequently merged into the FUNC 401(k) Savings Plan. The Wheat ASOP was the owner of 26.8 percent of the outstanding shares of Wheat Common Stock on the Record Date. Beneficial ownership of the Wheat Preferred Stock is represented by Trust Shares issued by the Grantor Trust, which is the record holder of the Wheat Preferred Stock. Each Trust Share represents beneficial ownership of one share of Wheat Preferred Stock. Holders of Trust Shares will receive voting directions with respect to Trust Shares, which will permit such holders to instruct the Trustees as to how to vote the Wheat Preferred Stock owned by the Grantor Trust, including a direction to abstain from voting. Each Trust Share will be able to instruct the voting of one share of Wheat Preferred Stock. Trust Shares as to which voting directions are not received by the Trustees will not be voted. It is expected that the Grantor Trust will be liquidated on the Effective Date or as soon thereafter as practicable. Upon such liquidation, holders of Trust Shares would become holders of the FUNC Common Shares they are entitled to receive upon consummation of the Merger. Any unpaid Notes held by Wheat or the Grantor Trust relating to the purchase of Wheat Common Stock and the Trust Shares would be assigned to FUNC. Upon payment in full of such Notes, the FUNC Common Shares would be delivered to such holders. After having been submitted, the enclosed proxy or voting instruction form, as applicable, may be revoked by the person giving it, at any time before it is exercised, by, in the case of proxies: (i) submitting written notice of revocation of such proxy to the Secretary of Wheat; (ii) submitting a duly executed proxy having a later date; or (iii) appearing at the Special Meeting and notifying the Secretary of such stockholder's intention to vote in person. All shares represented by valid proxies or voting instruction forms, as applicable, will be exercised in the manner specified thereon. If no specification is made, such shares will be voted in favor of approval of the Merger Agreement and otherwise in the discretion of the proxyholders named thereon or the Voting Fiduciary, as applicable, as to any other matters which may be voted on at the Special Meeting, including among other things, a motion to adjourn or postpone the Special Meeting to another time and/or place for the purpose of soliciting additional proxies or otherwise; provided, however, that no proxy or voting instruction form, as applicable, which is voted against the proposal to adopt the Merger Agreement will be voted in favor of any adjournment or postponement proposed for the purpose of soliciting additional votes in favor of the Merger Agreement. After having been submitted to the Voting Fiduciary or the Trustees, as applicable, a voting instruction form may be revoked by the person giving it at any time before it is exercised, by (i) submitting written notice of revocation of such proxy to the Voting Fiduciary or the Trustees, as applicable, or (ii) submitting a duly executed voting instruction form to the Voting Fiduciary or the Trustees, as applicable, having a later date. Holders of Trust Shares do not have the right to vote in person at the Special Meeting, as voting rights of the Wheat Preferred Stock held by the Grantor Trust may be exercised only by the Trustees. 25 THE MERGER THE FOLLOWING INFORMATION RELATING TO THE MERGER IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, INCLUDING THE ANNEXES HERETO, AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. A COPY OF THE MERGER AGREEMENT IS SET FORTH IN ANNEX A TO THIS PROSPECTUS/PROXY STATEMENT AND REFERENCE IS MADE THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS OF THE MERGER. STOCKHOLDERS OF WHEAT ARE URGED TO READ THE MERGER AGREEMENT CAREFULLY. GENERAL; CONSIDERATION Subject to the terms and conditions of the Merger Agreement, FUNC will acquire Wheat by means of the merger of the FUNC Subsidiary with and into Wheat. Upon consummation of the Merger, each outstanding share of Wheat Common Stock and Wheat Preferred Stock (which is represented by a Trust Share) (other than Excluded Shares) will be converted, by virtue of the Merger, automatically and without any action on the part of the holder thereof, into the right to receive the Exchange Ratio (I.E., the number of FUNC Common Shares equal to 10,267,029 divided by the Outstanding Share Number). Each holder of Wheat Common Stock and Wheat Preferred Stock (including holders of Trust Shares) who would otherwise be entitled to a fractional share of FUNC Common Stock will receive cash in lieu thereof in an amount determined by multiplying the last reported sale price per share of FUNC Common Stock on the NYSE Tape on the last trading day prior to the Effective Date by the fraction of a share of FUNC Common Stock to which such holder would otherwise be entitled. The Corporation may at any time prior to the Effective Date change the method of effecting the acquisition of Wheat if and to the extent it deems such change to be desirable; provided, however, that no such change may (i) alter or change the amount or kind of consideration to be issued to holders of Wheat Common Stock or Wheat Preferred Stock as provided for in the Merger Agreement, (ii) adversely affect the intended tax-free treatment to the Wheat stockholders as a result of receiving such consideration, or (iii) materially impede or delay receipt of any required regulatory approval or consummation of the transactions contemplated by the Merger Agreement. Based on the aggregate number of shares of Wheat Common Stock and Wheat Preferred Stock that were issued and outstanding on December 8, 1997 (I.E., 8,834,944), and assuming there are no Excluded Shares, on the Effective Date each share of Wheat Common Stock and Wheat Preferred Stock (which is represented by a Trust Share) would be converted into the right to receive 1.1621 shares of FUNC Common Stock. To the extent any shares of Wheat Common Stock or Wheat Preferred Stock are canceled or issued between December 8, 1997, and the Effective Date, such 1.1621 Exchange Ratio would be adjusted accordingly. See ANNEX A. EFFECTIVE DATE Subject to the conditions to the obligations of the parties to effect the Merger, the Effective Date will occur on (i) such date as FUNC and Wheat mutually agree upon, or (ii) if FUNC and Wheat are not able to agree upon such date, such date as FUNC shall notify Wheat in writing not less than five days prior thereto, which date shall not be more than 15 days after such conditions have been satisfied or waived. Subject to the foregoing, it is currently anticipated that the Merger will be consummated in the first quarter of 1998. If the Merger is consummated in such quarter, or in any other quarter, Wheat stockholders should not assume or expect that the Effective Date will precede the record date for the dividend on FUNC Common Stock for that quarter, so as to enable such stockholders to receive such dividend. The Board of Directors of either FUNC or Wheat may terminate the Merger Agreement if the Effective Date does not occur on or before June 30, 1998. See " -- Exchange of Wheat Stock", " - -- Business Pending Consummation" and " -- Conditions to Consummation; Termination". EXCHANGE OF WHEAT STOCK As promptly as practicable after the Effective Date, FUNC will send or cause to be sent to the holders of Wheat Common Stock and Trust Shares (assuming the Grantor Trust is liquidated) on the Effective Date, transmittal materials for use in effecting the exchange of each such holder's shares of Wheat Common Stock and Trust Shares (assuming the Grantor Trust is liquidated) for a certificate or certificates representing the FUNC Common Shares to which such holder is entitled, any checks for such holder's fractional share interests and any dividends to which such holder is entitled, as appropriate. The transmittal materials will contain information and instructions with respect to such exchange. With respect to any unpaid Notes, to the extent such holders have not made full payment for such Wheat Common Stock and/or Trust Shares in full, the certificates representing the related FUNC Common Shares will not be distributed to such holders unless and until such payments in full have been made. 26 Upon delivery to the exchange agent selected by FUNC (the "Exchange Agent") of a properly completed letter of transmittal (together with certificates for those shares of Wheat Common Stock that are certificated), the Exchange Agent will mail to such holders (other than the holders of any unpaid Notes), certificates representing the number of FUNC Common Shares to which such holders are entitled, together with all undelivered dividends or distributions in respect of such shares and, where applicable, checks for any fractional share interests (in each case, without interest). All FUNC Common Shares issued to the holders of Wheat Common Stock and Trust Shares pursuant to the Merger will be deemed issued as of the Effective Date. After the Effective Date, former holders of Wheat Common Stock and Trust Shares will be entitled to vote at any meeting of holders of FUNC Common Stock having a record date on or after the Effective Date, the number of FUNC Common Shares into which their shares of Wheat Common Stock and Trust Shares have been converted, regardless of whether they have exchanged their shares of Wheat Common Stock and Trust Shares as described above. FUNC dividends having a record date on or after the Effective Date will include dividends on all FUNC Common Shares issued in the Merger. FUNC dividends having a record date before the Effective Date (which record date may, in FUNC's sole discretion, be the day immediately preceding the Effective Date or any other day prior to the Effective Date) will not be paid on the FUNC Common Shares issued in the Merger. The Merger Agreement provides that Wheat will cause each person who may be deemed to be an "affiliate" (as defined in the Securities Act) of Wheat to execute an agreement restricting the disposition of such affiliate's shares of Wheat Common Stock, Wheat Preferred Stock and FUNC Common Shares. The Merger Agreement further provides that although shares of Wheat Common Stock and Wheat Preferred Stock (which are represented by the Trust Shares) held by an affiliate of Wheat will automatically be converted into the right to receive FUNC Common Shares upon consummation of the Merger, such shares will not be physically exchanged for FUNC Common Shares until FUNC receives such an agreement. BACKGROUND AND REASONS WHEAT INTRODUCTION. Beginning in January 1997, Wheat and FUNC held preliminary discussions regarding a possible cooperative business arrangement, and a confidentiality agreement was executed at that time. Discussions continued until late April, but in early May 1997, FUNC indicated to Wheat that it had decided at that time to develop its equity capital markets capability through internal growth and broke off further discussions with Wheat. Following announcement in late June 1997, by NationsBank Corporation of its proposed acquisition of Montgomery Securities, on July 2, 1997, Wheat's Chairman and Chief Executive Officer, Marshall B. Wishnack, telephoned FUNC's Chairman and Chief Executive Officer, Edward E. Crutchfield, to discuss whether an FUNC acquisition of, or a joint venture with, Wheat's capital markets division would be desirable and could be structured in a tax efficient manner. Over the next few weeks it was determined that such a transaction could not be effected in a tax efficient manner that would be attractive to Wheat stockholders. On August 8, 1997, Mr. Crutchfield telephoned Mr. Wishnack to state that FUNC was interested in discussing a full merger with Wheat. Mr. Wishnack told Mr. Crutchfield he would call a meeting of Wheat's Executive Committee to consider the idea. The meeting was held on August 11, 1997, and the Executive Committee authorized Mr. Wishnack to commence such discussions. On August 12, 1997, Wheat and FUNC representatives met to explore a possible combination. Discussions occurred during the remainder of such week. On August 15, 1997, FUNC indicated it would like to make a preliminary nonbinding indication of interest to acquire Wheat. First Union made this preliminary nonbinding indication of interest in Richmond on August 16, 1997. Negotiations occurred and due diligence was conducted between August 16 and August 20, 1997. On August 19, 1997, the Merger Agreement was considered by the Wheat Board. All of the members of the Wheat Board, with the exception of one director who abstained from voting, voted to approve the Merger Agreement. On August 20, 1997, the Merger Agreement was signed. The abstaining director resigned as a director prior to the Record Date. Accordingly, all references to the directors as of the Record Date or the date of this Prospectus/Proxy Statement do not include such director. HISTORIC AND STRATEGIC CONSIDERATIONS. Wheat's strategy and intention historically have been to remain an independent financial services firm. This notwithstanding, the Wheat Board has closely followed recent regulatory and competitive changes in the securities industry. The Wheat Board was interested particularly in the Federal Reserve Board's recent decisions to allow commercial banks greater access to the securities industry and the resulting rush by commercial banks to enter the securities business by acquiring brokerage and investment banking firms. 27 In March 1997, the Federal Reserve Board raised the cap on revenues that commercial banks may derive from an approved subsidiary engaged in securities activities from 10 percent to 25 percent of revenues. In April 1997, Bankers Trust New York Corporation announced the acquisition of Alex. Brown Incorporated. A month later, BB&T Corporation, a regional bank holding company headquartered in North Carolina, announced its purchase of the regional investment banking firm of Craigie Incorporated, headquartered in Richmond, and two weeks later, Swiss Bank Corporation announced its acquisition of the old line investment banking firm of Dillon Read & Co. Commercial bank acquisitions of investment banking and brokerage firms continued in June 1997, with BankAmerica Corporation's announcement of its proposed purchase of Robertson Stephens & Company and NationsBank Corporation's announcement of its proposed merger with Montgomery Securities. In its evaluation of Wheat's future as an independent firm, the Wheat Board concluded that firms that successfully combined the strengths of commercial banks with those of investment banks could have significant competitive advantages over independent firms and eventually could dominate the capital markets business. The Wheat Board believes that the Merger provides a unique opportunity for increased financial strength, as it will leverage the Wheat franchise with one of the largest commercial banks on the East Coast. The Merger will combine Wheat's investment banking, equity underwriting, retail brokerage network and asset management services with FUNC's large base of middle market clients and capability to hold and place debt, enabling Wheat to offer a wider array of services to its existing customers and to expand its customer base through FUNC's network of customers. FACTORS CONSIDERED BY THE WHEAT BOARD. In reaching its conclusion to approve the Merger Agreement and the transactions contemplated thereby, the Wheat Board consulted with Wheat management, and with financial and legal advisors, and considered a variety of factors, including the following principal factors: THE COMPLEMENTARY NATURE OF WHEAT'S AND FUNC'S RESPECTIVE BUSINESSES AND BUSINESS CULTURES. The Wheat Board believes that FUNC and Wheat share common fundamental values and a strong commitment to serving the client's best interests. The Wheat Board believes it has found in FUNC a partner with an existing investment culture and a successful growth strategy. Importantly, the Wheat Board believes that Wheat and FUNC serve many complementary markets and that FUNC offers a strong platform of clients and services against which Wheat can leverage its existing business. FUNC complements Wheat's geographic footprint and offers a household name that Wheat hopes will strengthen its reputation. The Wheat Board believes that the Merger will allow Wheat to remain competitive and to leverage its capabilities with the goal of continuing to grow its business. Wheat's equity capital markets group will have the opportunity to leverage its capabilities across FUNC's large customer base of middle market companies. In addition, Wheat will have the opportunity to introduce FUNC's high yield and other debt products to existing corporate and institutional clients. The Merger will allow Wheat to offer its public finance and institutional clients, products and services to which Wheat has not previously had access. Similarly, Wheat's asset management affiliate, Mentor Investment Group, LLC ("Mentor"), will have the opportunity to take advantage of FUNC's large branch banking network. The Merger will enhance Wheat's retail brokerage business by permitting Wheat's financial consultants to offer a wider range of products. The Merger also should benefit Wheat's fully-disclosed securities clearing operations. STOCKHOLDER CONSIDERATION. The Wheat Board carefully evaluated the consideration to be received by Wheat's stockholders in the Merger. The presentation WFSI made to the Wheat Board on August 19, 1997, included, without limitation, WFSI's opinion that from a financial point of view the Exchange Ratio is fair to Wheat stockholders. See " -- Opinion of Financial Advisor" and ANNEX B. The Wheat Board also took into account the fact that FUNC's stock has performed favorably against the S&P Index since the early 1990s. FUNC Common Stock was trading at a price to earning ratio below its peers and has been given a number one rating by WFSI's banking analyst. Moreover, FUNC's current annual dividend has increased steadily since the early 1980s. MERGER AGREEMENT. Management of Wheat discussed with the Wheat Board the terms and conditions of the Merger Agreement, including the amount and form of consideration, the parties' representations, warranties, covenants and agreements, and the conditions to the respective obligations set forth in the Merger Agreement. WHEAT'S FUTURE AS AN INDEPENDENT FIRM. The Wheat Board carefully considered the advantages and disadvantages of remaining independent in the current competitive environment. The Wheat Board believes that rapidly increasing competition in the equity underwriting business will create pressures on profits and will result in strong competition for top talent. It most likely will be difficult for an independent firm to remain competitive in this environment when facing strong, better- 28 capitalized competitors. These better-capitalized competitors include commercial banks that generally have much larger market capitalizations than independent broker-dealer companies. The Wheat Board also considered the effects of continued uncertainty about the future of an independent Wheat organization and the prospect of unfriendly suitors. These factors, in turn, also could lead to potentially lower Wheat stockholder returns. INFORMATION PROVIDED BY WHEAT'S ADVISORS WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO WHEAT STOCKHOLDERS. The Wheat Board has been advised that, for federal income tax purposes, Wheat stockholders generally would not recognize taxable gain or loss as a result of the Merger. See " -- Certain Federal Income Tax Consequences". RESPECT FOR WHEAT'S UNIQUE SECURITIES EXPERTISE. The Wheat Board considered FUNC to be a partner that would respect the unique securities expertise and dedication of Wheat's 3,000 associates and the important relationship between a financial consultant and his or her client. Like Wheat, FUNC shares Wheat's philosophy that the relationship between the financial consultant and the client is fundamental to the brokerage business. FUNC and Wheat management both offer a "level playing field" without special incentives for proprietary products and a firm commitment to serving the best interests of the client. The Wheat Board believes that the Merger will allow Wheat to maintain its personalized service and accessibility. CONTINUED OPERATIONS IN RICHMOND AND RETENTION OF KEY EMPLOYEES. After the Merger, WFSI, doing business as Wheat First Union, will continue to be headquartered in Richmond, Virginia, and its brokerage operations group will remain in Wheat's current facilities in suburban Richmond. The Wheat management structure will continue at Wheat First Union, with Marshall B. Wishnack, Lewis C. Everett, Mark M. Gambill and Daniel J. Ludeman in key leadership positions. The above discussion of factors considered by the Wheat Board is not intended to be exhaustive. Because it considered many factors, each with its own considerations, the Wheat Board did not assign relative weights to specific factors considered in reaching their conclusions. Moreover, individual members of the Wheat Board may have assigned different weights to different factors. RECOMMENDATION OF THE WHEAT BOARD OF DIRECTORS. THE WHEAT BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, WHEAT AND THE WHEAT STOCKHOLDERS (INCLUDING THE HOLDERS OF TRUST SHARES). ACCORDINGLY, THE WHEAT BOARD HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND RECOMMENDS THAT THE WHEAT STOCKHOLDERS (INCLUDING THE HOLDERS OF TRUST SHARES) VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER. FUNC In addition to building a multi-state banking organization that has one of the leading positions in each of its markets, FUNC believes it is advantageous to expand its non-commercial banking fee-based businesses, such as its capital markets, investment banking, investment advisory and retail brokerage businesses, as a way to diversify and strengthen its sources of income. The economies of banking and increased competition from non-banking organizations favor such an organization as a way of gaining efficiency and spreading costs over a larger base, as well as providing product and revenue diversification. To further its objective to build such an organization, FUNC has concentrated its efforts on what it perceives to be some of the better banking markets in the eastern region of the United States, on advantageous ways of entering or expanding its presence in those markets, and on selected acquisitions of fee-based businesses to complement certain strategic initiatives. FUNC believes that acquiring Wheat is an excellent way to significantly expand its investment banking, retail brokerage and investment advisory businesses. FUNC is continually evaluating acquisition opportunities and frequently conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations frequently take place and future acquisitions involving cash, debt or equity securities can be expected. Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of FUNC's book value and net income per common share may occur in connection with any future transactions. See "FUNC -- History and Business". OPINION OF FINANCIAL ADVISOR Wheat retained WFSI to act as its financial advisor in connection with the Merger and to render an opinion to the Wheat Board as to the fairness, from a financial point of view, to the holders of Wheat Common Stock and Wheat Preferred Stock (including the holders of Trust Shares) of the Exchange Ratio. WFSI is a nationally recognized investment banking firm regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated 29 underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The Wheat Board selected WFSI to serve as its financial advisor in connection with the Merger on the basis of such firm's expertise. WFSI is a wholly-owned subsidiary of Wheat, and certain members of management of WFSI are also members of management of Wheat and also may have interests that are in addition to, and may be different from, the interests of Wheat stockholders. The Wheat Board relied on WFSI's experience in providing advice in connection with mergers and acquisitions and related transactions. Wheat was advised by its outside counsel, Wachtell, Lipton, Rosen & Katz, that the Wheat Board's fiduciary duties did not require it to retain a third party financial advisor. Representatives of WFSI attended the meeting of the Wheat Board on August 19, 1997, at which the Merger Agreement was considered, approved and adopted. At the meeting, WFSI issued an oral opinion that, as of such date, the Exchange Ratio was fair, from a financial point of view, to the holders of Wheat Common Stock and Wheat Preferred Stock (including the holders of Trust Shares). WFSI subsequently issued a written opinion dated as of August 19, 1997, that the Exchange Ratio was fair, from a financial point of view, to the holders of Wheat Common Stock and Wheat Preferred Stock (including the holders of Trust Shares). The full text of WFSI's written opinion which sets forth certain assumptions made, matters considered and limitations on review undertaken is attached as ANNEX B to this Prospectus/Proxy Statement, is incorporated herein by reference and should be read in its entirety in connection with this Prospectus/Proxy Statement. The summary of the opinion of WFSI set forth in this Prospectus/Proxy Statement is qualified in its entirety by reference to the opinion. WFSI's opinion is directed only to the fairness, from a financial point of view, of the Exchange Ratio to the holders of Wheat Common Stock and Wheat Preferred Stock. WFSI's opinion was provided to the Wheat Board to assist it in connection with its consideration of the Merger and does not constitute a recommendation to any stockholder of Wheat as to how such stockholder should vote on the Merger Agreement. In arriving as its opinion, WFSI reviewed certain publicly available business and financial information relating to Wheat and FUNC and certain other information provided to it, including the following: (i) certain internal financial reports provided by the management of Wheat; (ii) FUNC's Annual Reports to Stockholders, Annual Reports on Form 10-K and related financial information for the three fiscal years ended December 31, 1996; (iii) FUNC's Quarterly Reports on Form 10-Q and related financial information for the periods ended June 30, 1997 and March 31, 1997; (iv) certain publicly available information with respect to historical market prices and trading activities for FUNC Common Stock and for certain publicly traded financial institutions which WFSI deemed relevant; (v) certain publicly available information with respect to banking companies and the financial terms of certain other mergers and acquisitions which WFSI deemed relevant; (vi) the Merger Agreement; (vii) certain estimates of the earnings and cost savings projected by Wheat and FUNC for the combined company; (viii) other financial information concerning the businesses and operations of Wheat and FUNC, including certain audited financial information and certain financial analyses and forecasts for FUNC prepared by senior management in connection with its previously announced acquisitions; and (ix) such financial studies, analyses, inquiries and other matters as WFSI deemed necessary. In addition, WFSI discussed the business and prospects of each company with members of senior management of Wheat and FUNC. In connection with its review, WFSI relied upon and assumed the accuracy and completeness of all of the foregoing information provided to it or publicly available, including representations and warranties of Wheat and FUNC included in the Merger Agreement, and WFSI has not assumed any responsibility for independent verification of such information. WFSI relied upon the managements of Wheat and FUNC as to the reasonableness and achieveability of their financial and operational forecasts and projections, and the assumptions and bases therefor, provided to WFSI, and assumed that such forecasts and projections reflect the best currently available estimates and judgments of such managements and that such forecasts and projections will be realized in the amounts and in the time periods currently estimated by such managements. WFSI also assumed, without independent verification, that the aggregate reserves for loan losses, litigation and other contingencies for Wheat and FUNC are adequate to cover such losses. WFSI did not review any individual credit files of FUNC, not did it make an independent evaluation or appraisal of the assets or liabilities of Wheat or FUNC. In connection with rendering its opinion, WFSI performed a variety of financial analyses. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances, and therefore, such an opinion is not readily susceptible to partial analysis or summary description. Moreover, the evaluation of the fairness, from a financial point of view, of the Exchange Ratio to holders of Wheat Common Stock and Wheat Preferred Stock was to some extent a subjective one based on the 30 experience and judgment of WFSI and not merely the result of mathematical analysis of financial data. Accordingly, notwithstanding the separate factors summarized below, WFSI believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create an incomplete view of the evaluation process underlying its opinion. The ranges of valuations resulting from any particular analysis described below should not be taken to be WFSI's view of the actual value of Wheat or FUNC. In performing its analyses, WFSI made numerous assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond the control of Wheat or FUNC. The analyses performed by WFSI are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. Additionally, analyses relating to the values of businesses do not purport to be appraisals or to reflect the prices at which businesses actually may be sold. In rendering its opinion, WFSI assumed that, in the course of obtaining the necessary regulatory approvals for the Merger, no conditions will be imposed that will have a material adverse effect on the contemplated benefits of the Merger, on a pro forma basis, to FUNC. WFSI's opinion is just one of the many factors taken into consideration by the Wheat Board in determining to approve the Merger Agreement. WFSI's opinion does not address the relative merits of the Merger as compared to any alternative business strategies that might exist for Wheat, nor does it address the effect of any other business combination in which Wheat might engage. The following is a summary of the analyses performed by WFSI in connection with its opinions delivered to the Wheat Board on August 19, 1997; COMPARISON OF SELECTED COMPANIES. WFSI compared the financial performance and market trading information of FUNC to that of a group of certain bank holding companies (the "Group"). This Group included: BankAmerica Corp.; Barnett Banks, Inc.; BankBoston Corp.; First Chicago NBD Corp.; Fleet Financial Group; KeyCorp; Mellon Bank Corp.; NationsBank Corporation; National City Corp.; Norwest Corp.; Banc One Corp.; PNC Bank Corp.; SunTrust Banks, Inc.; U.S. Bancorp; and Wells Fargo & Co. Based on financial data as of and for the three-month period ended June 30, 1997, FUNC (as estimated by WFSI pro forma for the Signet acquisition) had: (i) tangible equity to assets of 5.24 percent compared to an average of 6.36 percent, a minimum of 4.03 percent, and a maximum of 8.77 percent for the Group; (ii) nonperforming assets to total assets of 0.48 percent compared to an average of 0.48 percent, a minimum of 0.28 percent, and a maximum of 0.81 percent for the Group; (iii) returns on average assets before extraordinary items of 1.38 percent compared to an average of 1.48 percent, a minimum of 0.91 percent, and a maximum of 2.10 percent for the Group; and (iv) returns on average equity before extraordinary items of 19.47 percent compared to an average of 17.96 percent, a minimum of 6.86 percent, and a maximum of 24.39 percent for the Group. Additionally, for the five fiscal years ended December 31, 1996, FUNC had (i) average returns on average assets before extraordinary items of 1.15 percent compared to an average of 1.28 percent, a minimum of 1.04 percent, and a maximum of 1.68 percent for the Group, and (ii) returns on average equity before extraordinary items of 15.94 percent compared to an average of 16.15 percent, a minimum of 13.68 percent, and a maximum of 19.90 percent for the Group. Also, based on earnings per share for the fiscal year ended December 31, 1996, and earnings per share estimates for the fiscal year ending December 31, 1998, as reported by "First Call" (First Call is a data service that monitors and publishes a compilation of earnings estimates produced by selected research analysts regarding companies of interest to institutional investors), FUNC had projected compound annual earnings per share growth of 11.09 percent, compared with an average of 12.74 percent, a minimum of 10.66 percent, and a maximum of 16.39 percent for the Group. Based on the market values as of August 18, 1997, and financial data as of June 30, 1997, FUNC had (as estimated by WFSI pro forma for the Signet acquisition): (i) a stock price to book value multiple of 266.5 percent compared to an average of 281.9 percent, a minimum of 181.0 percent, and a maximum of 373.3 percent for the Group; (ii) a stock price to First Call 1997 estimated earnings per share before extraordinary items multiple of 13.3x compared to an average of 16.2x, a minimum of 13.0x, and a maximum of 20.5x for the Group; (iii) a stock price to First Call 1998 estimated earnings per share multiple of 11.8x, compared to an average of 14.0x, a minimum of 11.8x, and a maximum of 18.2x for the Group; and (iv) indicated dividend yield of 2.78 percent compared to an average of 2.41 percent, a minimum of 1.45 percent, and a maximum of 3.48 percent for the Group. ANALYSIS OF SELECTED TRANSACTIONS. WFSI performed an analysis of consideration paid in five selected completed or pending acquisitions of brokerage firms announced between April 1, 1997 and August 18, 1997 (the "Selected Transactions"). The consideration in the Selected Transactions was derived by computing the present value of deferred payments to be made to stockholders. In the Selected Transactions, deferred payments to employees/stockholders were contingent on 31 these employees being employed by the company at the time of the payment. Using this calculation, multiples of book value and trailing earnings in the Selected Transactions were compared to the multiples and premiums implied by the consideration offered by FUNC in the Merger. The Selected Transactions included the following completed or pending transactions: Bankers Trust New York Corp./Alex. Brown, Inc.; Swiss Bank Corporation/Dillon Read & Co., Inc.; BankAmerica Corp./Robertson Stephens & Company L.P.; NationsBank Corporation/Montgomery Securities; and Canadian Imperial Bank of Commerce ("CIBC")/Oppenheimer & Co., Inc. Based on the market value of FUNC Common Stock on August 18, 1997, and financial data for Wheat as of or for the twelve months ended July 31, 1997, the following summarizes the WFSI analysis: ANALYSIS OF SELECTED TRANSACTIONS
BASED ON PRESENT VALUE TO STOCKHOLDERS ---------------------------- ANNOUNCEMENT PRESENT PRICE/ PRICE/ TRANSACTION DATE VALUE EARNINGS BOOK - --------------------------------------------------------------------------------- ------------ ------- -------- ----- CIBC -- Oppenheimer.............................................................. 7/22/97 $ 350 8.3x 109.4% NationsBank -- Montgomery........................................................ 6/30/97 1,114 13.9 994.6 BankAmerica -- Robertson Stephens................................................ 6/10/97 416 15.9 388.6 Swiss Bank -- Dillon Read........................................................ 5/15/97 528 13.2 264.2 Bankers Trust -- Alex. Brown..................................................... 4/6/97 $ 1,700 11.0 264.0 ------------ ------- -------- ----- Average.......................................................................... 12.5 404.2 Median........................................................................... 13.2 264.2 FUNC -- Wheat.................................................................... 13.5x 302.6%
IMPACT ANALYSIS. WFSI analyzed the impact to the projected earnings of FUNC based on First Call estimated earnings per share for FUNC, a 20 percent growth rate in net income for Wheat from calendar 1998 to 1999 and certain assumptions relating to retention expense and cost savings that could be realized in the Merger. WFSI's analysis estimated that the Merger would be 0.30 percent dilutive to FUNC's earnings per share in the year ended December 31, 1998, and 0.31 percent accretive to FUNC's earnings per share for the year ended December 31, 1999. COMPARABLE PUBLIC COMPANIES TRADING ANALYSIS. WFSI compared the multiples to earnings and book value implied by the Exchange Ratio to the trading multiples of certain publicly traded regional broker-dealers (the "Broker Group"). The Broker Group included: A.G. Edwards, Inc.; EVEREN Capital Corporation; Hambrecht & Quist; Interra Financial, Inc.; Legg Mason, Inc.; McDonald & Company Investments, Inc.; Morgan Keegan & Co.; Piper Jaffray Companies, Inc.; and Raymond James Financial, Inc. Based on the market value of FUNC Common Stock on August 18, 1997, and Wheat financial data as of June 30, 1997, and based on market values as of August 18, 1997, quarterly earnings and book values as reported by First Call for the most recently completed quarter for the Broker Group, the analysis yielded ratios of the implied consideration to be paid by FUNC to Wheat in the Merger (i) to book value of 302.6 percent compared to an average of 217.8 percent, a minimum of 169.1 percent, and a maximum of 248.5 percent for the Broker Group; and (ii) to trailing earnings per share of 13.5x compared to an average of 14.8x, a minimum of 9.5x, and a maximum of 20.1x for the Group. DISCOUNTED DIVIDENDS ANALYSIS. Using discounted dividends analysis, WFSI estimated the percent value of the future stream of dividends that Wheat could produce over the next five years, under various circumstances, assuming Wheat performed in accordance with the earnings forecasts of management. WFSI then estimated the terminal values for Wheat Common Stock and Wheat Preferred Stock at the end of the period by applying prices to book value multiples ranging from 150 percent to 300 percent of projected book value in year five. The dividend streams and terminal values were then discounted to present values using different discount rates (ranging from 14 percent to 16 percent) chosen to reflect different assumptions regarding the required rates of return to holders or prospective buyers of Wheat Common Stock and Wheat Preferred Stock. This discounted dividend analysis indicated reference valuation ranges of between $275 million and $513 million for Wheat. These values compare to the implied consideration to be offered by FUNC to Wheat in the Merger of $474 million based on the market value of FUNC Common Stock on August 18, 1997. No company or transaction used as a comparison in the above analysis is identical to Wheat, FUNC or the Merger. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading value of the companies used for comparison in the above analysis. 32 WFSI's opinion is dated as of August 19, 1997, and is based solely upon the information available to WFSI and the economic, market and other circumstances as they existed as of such date. Events occurring after that date could materially affect the assumptions and conclusions contained in WFSI's opinion. WFSI has not undertaken to reaffirm or revise its opinion or otherwise comment on any events occurring after that date. Subsequent to the date WFSI rendered its opinion, Wheat allocated $350,000 to WFSI's corporate finance department for WFSI's services performed in rendering the opinion. See " -- Interests of Certain Persons", " -- Business Pending Consummation" and " -- Market Prices". INTERESTS OF CERTAIN PERSONS GENERAL Certain members of Wheat's management and the Wheat Board have interests in the Merger that are in addition to any interests they have as stockholders of Wheat generally. The material interests include provisions in the Merger Agreement relating to the indemnification of Wheat's directors and officers, directors' and officers' liability insurance, and certain other benefits, as described below. EMPLOYMENT AGREEMENTS FUNC has entered into the Employment Agreements with Messrs. Wishnack, Gambill, Everett, Ludeman and Souders. The terms of the Employment Agreements run from the Effective Date through the third anniversary (in the case of Mr. Souders, the first anniversary) of the Effective Date (the "Employment Periods"). Pursuant to his Employment Agreement, Mr. Wishnack will serve as the most senior officer of Wheat First Union, a division of First Union's Capital Markets Group reporting to the Executive Vice Presidents of FUNC responsible for FUNC's Capital Markets Group and Capital Management Group. During the Employment Periods of the respective Employment Agreements, Messers. Wishnack, Gambill, Everett, Ludeman and Souders will be entitled to receive minimum annual compensation (salary and bonus) of up to approximately 105 percent of the annual compensation received by such executives for the fiscal year ended March 31, 1997. The Employment Agreements also provide for continuity payments on the first, second and third anniversaries of the Effective Date to Messrs. Wishnack, Gambill, Everett and Ludeman in the amounts representing approximately 37.5 percent, 37.5 percent and 75 percent of such executive's annual compensation on the first, second and third anniversaries of the Effective Date, respectively. The Employment Agreement for Mr. Souders provides for a termination payment equal to one year's annual compensation upon the termination of his Employment Period. In the event the employment of the executive is terminated during the Employment Period by FUNC without "Cause" or by the executive for "Good Reason" or due to death or disability, FUNC shall (i) pay the executive a pro rata minimum annual bonus for the year of termination, (ii) continue to pay the executive his base salary and minimum annual compensation through the Employment Period, and (iii) pay the applicable continuity payments. The Employment Agreements provide for a gross-up payment to be made to the executive, if necessary, to eliminate the effects of the imposition of the excise tax under Section 4999 of the Code (as hereinafter defined) on payments made to the executive and of the imposition of income and excise taxes on such gross-up payment. RETENTION POOL FUNC has agreed to grant certain Wheat employees up to 1,701,362 restricted shares of FUNC Common Stock as incentive for such individuals to remain employees of Wheat following the Effective Date. Messrs. Wishnack, Gambill, Everett, Ludeman and Souders will not participate in such retention pool. Such restricted stock awards will vest in 25 percent, 25 percent and 50 percent increments, respectively, over a three-year period following the Effective Date. Such restricted stock awards may be forfeited by a participant if such participant ceases to be an employee of Wheat for certain reasons. EQUITY FUND Certain officers and employees of Wheat (the "Limited Partners") acquired limited partnership interests in the Wheat First Butcher Singer Private Equity Fund, Limited Partnership (the "Limited Partnership"), offered by a Private Placement Memorandum dated June 10, 1997. WFSI serves as General Partner of the Limited Partnership. WFSI is required to match (the "Matching Contributions") 50 percent of the investments by the Limited Partners, excluding such investments by any director or executive officer of Wheat. Each Limited Partner will fully vest in his investments and Matching Contributions, as applicable, in the event of death, disability or a "Change in Control" of WFSI. Approval of the Merger Agreement by Wheat stockholders would constitute a "Change in Control" of WFSI under the Limited Partnership. 33 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE The Merger Agreement provides that for the six-year period following the Effective Date, FUNC will indemnify the directors and officers of Wheat and its affiliates holding such positions on or prior to the date of the Merger Agreement against certain liabilities to the extent such persons were indemnified under the VSCA, the Wheat Articles and the Wheat Bylaws as in effect on the date of the Merger Agreement. In addition, FUNC agreed in the Merger Agreement to use its reasonable best efforts to maintain Wheat's existing directors' and officers' liability insurance policy for persons who were covered by such policy on the date of the Merger Agreement for a period of three years after the Effective Date at an annual cost not to exceed 150 percent of the current amount expended by Wheat to maintain or procure such insurance coverage for a comparable three-year period. CERTAIN OTHER MATTERS RELATING TO THE MERGER Upon consummation of the Merger, (i) Mr. Wishnack will serve as Chairman and Chief Executive Officer of Wheat First Union, a division of FUNC's Capital Markets Group, (ii) Mr. Gambill will serve as President of Wheat First Union, (iii) Mr. Everett will serve as Vice Chairman of Wheat First Union, and (iv) Mr. Ludeman will serve as Chairman and Chief Executive Officer of Mentor Investment Group, LLC. Upon completion of the Merger, it is anticipated that certain overlapping operations will be consolidated, certain products and services currently offered by FUNC will be offered to Wheat customers, and certain products and services currently offered by Wheat will be offered to FUNC customers. See " -- Business Pending Consummation" and ANNEX D. CERTAIN FEDERAL INCOME TAX CONSEQUENCES THE FOLLOWING IS A DISCUSSION OF ALL MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. THE DISCUSSION IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY AND MAY NOT APPLY TO SPECIAL SITUATIONS, SUCH AS WHEAT STOCKHOLDERS WHO RECEIVED THEIR WHEAT COMMON STOCK OR WHEAT PREFERRED STOCK AS COMPENSATION. Sullivan & Cromwell, counsel for FUNC, has advised FUNC, and Wachtell, Lipton, Rosen & Katz, special counsel for Wheat, has advised Wheat, that, in their opinion: (i) No gain or loss will be recognized for federal income tax purposes by Wheat stockholders upon the exchange in the Merger of shares of Wheat Common Stock or Wheat Preferred Stock solely for FUNC Common Shares (except with respect to cash received in lieu of fractional share interests in FUNC Common Stock deemed received). (ii) The basis of FUNC Common Shares received in the Merger by Wheat stockholders (including the basis of fractional share interests in FUNC Common Stock deemed received) will be the same as the basis of the shares of Wheat Common Stock or Wheat Preferred Stock surrendered in exchange therefor. (iii) The holding period of the FUNC Common Shares received in the Merger by a Wheat stockholder (including the holding period of fractional share interests in FUNC Common Stock deemed received) will include the holding period of the shares of Wheat Common Stock or Wheat Preferred Stock surrendered in exchange therefor, provided such shares of Wheat Common Stock or Wheat Preferred Stock were held as capital assets at the Effective Time. (iv) Cash received by a holder of Wheat Common Stock or Wheat Preferred Stock in lieu of fractional share interests in FUNC Common Stock will be treated as received for such fractional share interests and, provided the fractional shares would have constituted a capital asset in the hands of such holder, the holder should in general recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the portion of the adjusted tax basis in the Wheat Common Stock or Wheat Preferred Stock allocable to the fractional share interests. Wheat stockholders that dissent from the Merger and receive cash in exchange for their shares of Wheat Common Stock or Wheat Preferred Stock should in general recognize capital gain or loss in an amount equal to the difference between the amount of cash received (less any amount constituting interest) and the Wheat stockholder's basis in the Wheat Common Stock or Wheat Preferred Stock, as applicable, surrendered therefor. Special rules may apply to dissenting Wheat stockholders that actually or constructively (pursuant to Section 318 of the Code) own either shares of Wheat as to which dissenters' rights are not being exercised or shares of FUNC Common Stock. Any amount constituting interest would be taxable as ordinary income. In addition, consummation of the Merger is conditioned, among other things, upon receipt by FUNC of an opinion of Sullivan & Cromwell dated as of the Effective Date, that the Merger constitutes a reorganization under Section 368(a) of the 34 Code and by Wheat of an opinion of Wachtell, Lipton, Rosen & Katz, dated as of the Effective Date, that (i) the Merger constitutes a reorganization within the meaning of Section 368(a) of the Code, and (ii) no gain or loss will be recognized by Wheat stockholders who receive FUNC Common Shares in exchange for their shares of Wheat Common Stock or Wheat Preferred Stock, except with respect to cash received in lieu of fractional share interests. FUNC and Wheat do not currently intend to waive the receipt of such tax opinions; however, if such tax opinions were waived and the material federal income tax consequences of the Merger were materially different from those summarized above, Wheat would resolicit its stockholders prior to consummating the Merger. The tax opinions of Sullivan & Cromwell and Wachtell, Lipton, Rosen & Katz summarized above are or will be based, among other things, on representations relating to certain facts and circumstances of, and the intentions of the parties to, the Merger. Distributions from the Wheat ASOP will be taxed in accordance with the rules pertaining to distributions from "qualified plans". BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH WHEAT STOCKHOLDER AND OTHER FACTORS, EACH WHEAT STOCKHOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER (INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS). BUSINESS PENDING CONSUMMATION Wheat agreed in the Merger Agreement to refrain from taking certain actions relating to its operations pending consummation of the Merger, without the prior written consent of FUNC, except as otherwise permitted in the Merger Agreement. These actions include, without limitation: (i) conducting the business of Wheat other than in the ordinary and usual course or failing to use reasonable efforts to preserve intact Wheat's business organizations, assets and relationships, or taking any action reasonably likely to have an adverse effect upon Wheat's ability to perform its obligations under the Merger Agreement; (ii) issuing any additional shares of Wheat capital stock, or permitting any additional shares of Wheat capital stock to become subject to new grants of employee or director stock options, or similar stock-based employee rights; (iii) (a) declaring or paying any dividend on shares of Wheat capital stock after December 31, 1997, or (b) adjusting, reclassifying or acquiring any shares of Wheat capital stock; (iv) entering into, amending or renewing any employment, consulting, severance or similar agreement with any director, officer or employee, or granting any salary or wage increase or increasing any employee benefit, except (a) for normal individual compensation increases in the ordinary course of business consistent with past practice, (b) for changes required by applicable law, (c) to satisfy existing contractual obligations, or (d) for employment arrangements for, or grants of awards to newly hired employees in the ordinary course of business consistent with past practice; (v) entering into, establishing, adopting or amending (except (a) as required by applicable law, or (b) to satisfy existing obligations) any employee benefit, incentive or welfare contract, plan or arrangement, in respect of any director, officer or employee, or taking any action to accelerate the vesting or exercisability of stock options, restricted stock or other compensation or benefits payable thereunder; (vi) except for sales of securities or other instruments in the ordinary course of business consistent with past practices, encumbering or disposing of or discontinuing any of its assets, business or properties; (vii) except for the purchase of securities or other instruments in the ordinary course of business consistent with past practice, acquiring all or any portion of, the assets, business or properties of any other entity; (viii) amending the Wheat Articles or the Wheat Bylaws; (ix) implementing or adopting any change in its accounting principles, practices or methods, other than as may be required by generally accepted accounting principles; (x) entering into, terminating, amending or modifying any material contract; (xi) settling any claim, action or proceeding, except for those involving solely money damages in an amount, individually or in the aggregate for all such settlements, that does not exceed $250,000; (xii) knowingly taking any action that would (a) prevent or impede the Merger from qualifying (1) for pooling of interests accounting treatment, or (2) as a reorganization within the meaning of Section 368 of the Code, or (b) result in (1) any of its representations and warranties set forth in the Merger Agreement being untrue in any material respect at any time on or prior to the Effective Date, (2) any of the conditions to the Merger set forth in the Merger Agreement not being satisfied, or (3) a material violation of any provision of the Merger Agreement except, in each case, as may be required by applicable law; (xiii) except as in the exercise of the fiduciary obligations of Wheat to any investment company (as advised in writing by its counsel), requesting that any action be taken by any investment company board other than routine actions reasonably not likely to have a material adverse effect on Wheat; (xiv) incurring any indebtedness for borrowed money; and (xv) agreeing or committing to do any of the foregoing. From time to time Wheat and its affiliates (including its directors and executive officers) engage in transactions with FUNC and its affiliates (including its directors and executive officers) in the ordinary course of business, including the 35 transactions described below. It is anticipated that such transactions will increase, and various additional transactions may be engaged in, as a result of the execution of the Merger Agreement. See "RECENT DEVELOPMENTS -- FUNC Common Stock Transactions". FUNC's banking subsidiaries have various extensions of credit to Wheat and WFSI. All of such extensions of credit predate execution of the Merger Agreement except one, a $125 million intra-day lending arrangement that can be used by WFSI to fund a specific underwriting. The maximum exposure under such extensions of credit is currently $248 million. As of November 30, 1997, outstandings under such extensions of credit amounted to $25 million. REGULATORY APPROVALS Consummation of the Merger is conditioned on the receipt of all approvals of regulatory authorities required for the Merger without any conditions, restrictions or requirements which the FUNC Board of Directors reasonably determines would (i) following the Effective Date, have a material adverse effect on FUNC and its subsidiaries taken as a whole, or (ii) reduce the benefits of the transactions contemplated by the Merger Agreement to such a degree that FUNC would not have entered into the Merger Agreement had such conditions, restrictions or requirements been known at the date the Merger Agreement was executed. The Merger is subject to prior notice to the Federal Reserve Board under Section 4 of the BHCA. Under Section 4 of the BHCA and related regulations, the Federal Reserve Board must consider whether the performance of FUNC's and Wheat's nonbanking activities on a combined basis can reasonably be expected to produce benefits to the public (such as greater convenience, increased competition and gains in efficiency) that outweigh possible adverse effects (such as undue concentration of resources, decreased or unfair competition, conflicts of interest and unsound banking practices). This consideration includes an evaluation of the financial and managerial resources of FUNC and Wheat and the effect of the proposed transaction on those resources. The Federal Reserve Board approved the Merger on November 26, 1997. Approvals also will be required from certain regulatory authorities in connection with changes, as a result of the Merger, in the ownership of certain businesses that are controlled by Wheat. These authorities include the Comptroller of the Currency of the United States (the "OCC"), certain state insurance authorities and state authorities who supervise trust company activities in Virginia and Pennsylvania. Approval also is required from the NYSE with respect to the Merger and the merger of a subsidiary of FUNC into WFSI. A notice has been filed with the OCC. Additional notices, applications and other filings are being made with respect to state insurance and trust company authorities, the National Association of Securities Dealers, Inc., state "blue sky" administrators, the NYSE, and the other securities' exchanges WFSI is a member of, as applicable. THE MERGER WILL NOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY APPROVALS. THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS WILL BE OBTAINED, AND IF OBTAINED, THERE CAN BE NO ASSURANCE AS TO THE DATE OF ANY SUCH APPROVAL. THERE CAN ALSO BE NO ASSURANCE THAT SUCH APPROVAL WILL NOT CONTAIN A CONDITION OR REQUIREMENT WHICH CAUSES SUCH APPROVAL TO FAIL TO SATISFY THE CONDITIONS SET FORTH IN THE MERGER AGREEMENT AND DESCRIBED BELOW UNDER " -- CONDITIONS TO CONSUMMATION; TERMINATION". THERE CAN LIKEWISE BE NO ASSURANCE THAT THE UNITED STATES DEPARTMENT OF JUSTICE OR A STATE ATTORNEY GENERAL WILL NOT CHALLENGE THE MERGER, OR IF SUCH A CHALLENGE IS MADE, AS TO THE OUTCOME THEREOF. CONDITIONS TO CONSUMMATION; TERMINATION Consummation of the Merger is subject, among other things, to: (i) approval of the Merger Agreement by the requisite vote of the stockholders of Wheat; (ii) receipt of the regulatory approvals referred to above without any requirements, restrictions or conditions which the FUNC Board of Directors reasonably determines would (a) following the Effective Date, have a material adverse effect on FUNC and its subsidiaries taken as a whole, or (b) reduce the benefits of the transactions contemplated by the Merger Agreement to such a degree that FUNC would not have entered into the Merger Agreement had such requirements, restrictions or conditions been known at the time the Merger Agreement was executed; (iii) no court or governmental or regulatory authority having taken any action which enjoins or prohibits the Merger; (iv) receipt by FUNC of the opinion of Sullivan & Cromwell and by Wheat of the opinion of Wachtell, Lipton, Rosen & Katz, each dated as of the Effective Date, as to certain federal income tax consequences of the Merger; (v) Wheat having obtained the consents or approvals of the stockholders of investment companies to which certain Wheat subsidiaries provide investment management or other services; (vi) the Employment Agreements remaining in effect (other than as a consequence of death or disability); and (vii) the FUNC Common Shares having been approved for listing on the NYSE, subject to official notice of issuance. 36 Consummation of the Merger is also subject to the satisfaction or waiver of various other conditions specified in the Merger Agreement, including, among others: (i) the delivery by Wheat and FUNC, each to the other, of certificates executed by certain of their respective executive officers as to compliance with the Merger Agreement; and (ii) the receipt by FUNC of a letter from its independent certified public accountants, dated as of or shortly prior to the Effective Date, that the Merger qualifies for pooling of interests accounting treatment; and (iii) the receipt by FUNC of a letter from Wheat's independent certified public accountant, dated as of or shortly prior to the Effective Date, with respect to Wheat's financial position and results of operations and that such independent auditors are not aware of any facts or circumstances which might cause the Merger not to qualify for pooling of interests accounting treatment. The Merger Agreement provides that, whether before or after the Special Meeting and notwithstanding the approval of the Merger Agreement by the stockholders of Wheat, the Merger Agreement may be terminated and the Merger abandoned at any time prior to the Effective Date: (i) by mutual consent of FUNC and Wheat; or (ii) by either the Board of Directors of FUNC or the Wheat Board (a) if the stockholders of Wheat fail to approve the Merger Agreement or any required regulatory approval is denied, (b) in the event of a breach by the other party of any representation, warranty or covenant contained in the Merger Agreement, which breach is not cured after 30 days' written notice thereof is given to the party committing such breach, (c) if the Merger is not consummated on or before June 30, 1998, or (d) if the Wheat Board has failed to recommend approval of the Merger, has withdrawn such recommendation or has modified or changed such recommendation in a manner adverse in any respect to the interests of FUNC. See " -- Expenses; Termination Fee". WAIVER; AMENDMENT Prior to the Effective Date, any provision of the Merger Agreement may be: (i) waived by the party benefitted by the provision; or (ii) amended or modified at any time by an agreement in writing among the parties executed in the same manner as the Merger Agreement, provided that after approval by the stockholders of Wheat, the Merger Agreement may not be amended if the consideration to be received by the stockholders of Wheat would thereby be decreased. FUNC may at any time change the method of effecting the acquisition of Wheat if and to the extent it deems such change to be desirable; provided, however, no such change shall (a) alter or change the amount or kind of consideration to be issued to Wheat stockholders, (b) adversely affect the intended tax-free treatment to Wheat stockholders, or (c) materially impede or delay receipt of approvals or the consummation of the transactions contemplated by the Merger Agreement. ACCOUNTING TREATMENT Pooling of interests accounting will be used to reflect the Signet acquisition, and it is expected that the pooling of interests method of accounting will be used to reflect the Merger and the CoreStates acquisition upon consummation. The unaudited pro forma financial data contained in this Prospectus/Proxy Statement have been prepared using the pooling of interests accounting basis to account for the Merger, the CoreStates acquisition and the Signet acquisition. Under pooling of interests accounting, upon consummation, the assets and liabilities of the acquired company are added to those of the acquiring company at their recorded book values, and the stockholders' equity accounts of the acquired company and the acquiring company are combined on the acquiring company's consolidated balance sheet. Depending on the relative significance of the acquisition, together with any other pending or recently completed acquisitions, to the acquiring company, the income and other financial statements of the acquiring company for periods ended prior to consummation may be restated to reflect the consolidated combined financial position and results of operations as if such acquisition had taken place prior to the periods covered by such financial statements. Due to the relative significance of the Merger to FUNC, FUNC's financial statements will not be restated as a result of the Merger. Such financial statements will be restated upon consummation of the Signet acquisition only for periods beginning on and after January 1, 1995, and will be restated upon consummation of the CoreStates acquisition, for all periods presented. It is expected that the purchase method of accounting will be used to reflect the Covenant acquisition upon consummation. The unaudited pro forma financial information contained in this Prospectus/Proxy Statement has been prepared using the purchase accounting basis to account for the Covenant acquisition. Under purchase accounting, the assets and liabilities of the acquired company are recorded at their respective fair market values upon consummation and added to those of the acquiring company. Financial statements of the acquiring company issued after consummation would reflect such values. Financial statements of the acquiring company issued before consummation would not be restated retroactively to reflect the acquired company's historical financial position or results of operations. See "RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION". 37 EXPENSES; TERMINATION FEE All expenses incurred by or on behalf of the parties in connection with the Merger Agreement and the transactions contemplated thereby shall be borne by the party incurring the same, except that printing expenses with respect to this Prospectus/Proxy Statement will be shared equally by FUNC and Wheat. FUNC shall be entitled to the Termination Fee of $20 million from Wheat following the occurrence of a Payment Event. FUNC's right to receive the Termination Fee shall terminate if any of the following occurs prior to a Payment Event: (i) the Effective Date; (ii) termination of the Merger Agreement in accordance with its terms if such termination occurs prior to the occurrence of a Preliminary Payment Event, except termination by FUNC due to a breach by Wheat; (iii) termination of the Merger Agreement following the occurrence of a Preliminary Payment Event and the passage of 18 months after such termination; or (iv) termination of the Merger Agreement by FUNC due to a breach by Wheat and the passage of 18 months after such termination. A Preliminary Payment Event refers to any of the following events or transactions occurring after the date of the Merger Agreement: (i) Wheat, without having received FUNC's prior written consent, shall have entered into an agreement to engage in any Acquisition Transaction (as hereinafter defined) with any person other than FUNC, or the Wheat Board shall have recommended that the stockholders of Wheat approve or accept any Acquisition Transaction with any person other than FUNC. For purposes of the Merger Agreement, "Acquisition Transaction" means (a) a merger or consolidation, or any similar transaction, involving Wheat, (b) a purchase, lease or other acquisition of all or substantially all of the assets of Wheat, (c) a purchase or other acquisition (including by way of merger, consolidation, share exchange or otherwise) of securities representing 20 percent or more of the voting power of Wheat; provided that the term "Acquisition Transaction" does not include any internal merger or consolidation involving only Wheat or any Wheat subsidiaries; (ii)(a) any person (other than FUNC or the Wheat ASOP) shall have acquired beneficial ownership or the right to acquire beneficial ownership of 20 percent or more of the outstanding shares of Wheat Common Stock, or (b) any group, other than a group of which FUNC is a member, shall have been formed that beneficially owns 20 percent or more of the shares of Wheat Common Stock then outstanding; (iii) any person, other than FUNC, or any group, other than a group of which FUNC is a member, shall have made a proposal to Wheat or its stockholders, by public announcement or public or nonpublic written communication to engage in an Acquisition Transaction or to acquire beneficial ownership of 20 percent or more of the then outstanding shares of Wheat Common Stock; (iv) after a proposal is made by a third party to Wheat or its stockholders to engage in an Acquisition Transaction, or such third party states its intention to Wheat to make such a proposal, Wheat shall have breached any representation, covenant or obligation contained in the Merger Agreement and such breach would entitle FUNC to terminate the Merger Agreement (without regard to the cure period provided for in the Merger Agreement unless such cure is promptly effected without jeopardizing consummation of the Merger); (v) the holders of shares of Wheat Common Stock and Wheat Preferred Stock shall not have approved the Merger Agreement at the Special Meeting or the Special Meeting shall not have been held or shall have been canceled prior to termination of the Merger Agreement, in each case after any person (other than FUNC or the Wheat ASOP) shall have (a) made, or disclosed an intention to make, a proposal to engage in an Acquisition Transaction or (b) to acquire beneficial ownership of 25 percent or more of Wheat Common Stock. The term "Payment Event" shall mean either of the following events or transactions occurring after the date of the Merger Agreement: (a) the acquisition by any person, other than FUNC or the Wheat ASOP, alone or together with such person's affiliates and associates, or any group, of beneficial ownership of 25 percent or more of the outstanding shares of Wheat Common Stock; or (b) the occurrence of a Preliminary Payment Event described in clause (i) above, except that the percentage referred to therein shall be 25 percent. The foregoing discussion is qualified in its entirety by reference to the applicable provisions in the Merger Agreement relating to the Termination Fee. See ANNEX A. 38 VOTING AGREEMENTS As an inducement to and a condition of FUNC's willingness to enter into the Merger Agreement, Messrs. Wishnack, Gambill, Everett, Ludeman and Souders, who, as of the Record Date, beneficially owned in the aggregate approximately 18.1 percent of the outstanding shares of Wheat Common Stock, executed separate Voting Agreements with FUNC pursuant to which each agreed, among other things, that all such shares will be voted to approve the Merger Agreement at the Special Meeting. A copy of the form of the Voting Agreements is set forth in Exhibit A to the Merger Agreement, which is set forth in ANNEX A to this Prospectus/Proxy Statement, and reference is made thereto for the complete terms of the Voting Agreements. The foregoing discussion is qualified in its entirety by reference to the form of the Voting Agreements. DISSENTERS' RIGHTS Holders of Wheat Common Stock and/or Wheat Preferred Stock entitled to vote on approval of the Merger Agreement (including Wheat ASOP participants and holders of Trust Shares) will be entitled to have the fair value of each such holder's shares of Wheat Common Stock and/or Wheat Preferred Stock, as applicable, immediately prior to consummation of the Merger paid to such holder in cash, together with interest, if any, by complying with the provisions of Article 15 of the VSCA ("Article 15"). Under Article 15, the determination of the fair value of a dissenter's shares would exclude any appreciation or depreciation in the value of such shares in anticipation of the Merger, unless such exclusion would be inequitable. A holder of Wheat Common Stock and/or Wheat Preferred Stock who desires to exercise such holder's dissenters' rights must satisfy all of the following conditions. A written notice of such holder's intent to demand payment for such holder's Wheat Common Stock and/or Wheat Preferred Stock, as applicable, must be delivered to Wheat (attention: Corporate Secretary) before the taking of the vote on approval of the Merger Agreement. This written notice must be in addition to and separate from voting against, abstaining from voting, or failing to vote on approval of the Merger Agreement. Voting against, abstaining from voting or failing to vote on approval of the Merger Agreement will not constitute written notice of an intent to demand payment within the meaning of Article 15. A holder of Wheat Common Stock and/or Wheat Preferred Stock, as applicable, electing to exercise such holder's dissenters' rights under Article 15 must not vote for approval of the Merger Agreement with respect to such holder's shares of Wheat Common Stock and/or Wheat Preferred Stock, as applicable. Voting for approval of the Merger Agreement with respect to such shares, or delivering a proxy in connection with the Special Meeting with respect to such shares (unless the proxy specifies a vote against, or abstaining from voting on, approval of the Merger Agreement), will constitute a waiver of such holder's dissenters' rights with respect to such shares and will nullify any written notice of an intent to demand payment submitted by such holder with respect to such shares. Holders of Trust Shares electing to assert dissenters' rights with respect to the shares of Wheat Preferred Stock beneficially owned by such holder must not instruct the Trustees to vote such shares in favor of approval of the Merger Agreement. A holder of record of shares of Wheat Common Stock and/or Wheat Preferred Stock, as applicable, that are beneficially owned by others (such as the Trust Shares) may assert dissenters' rights as to less than all of such shares only if such holder dissents with respect to all shares of Wheat Common Stock and/or Wheat Preferred Stock, as applicable, beneficially owned by any one person and notifies Wheat in writing of the name and address of each person on whose behalf such holder is asserting dissenters' rights. The rights of a partial dissenter under Article 15 are determined as if the shares as to which the holder dissents and the holder's other shares were registered in the names of different stockholders. A beneficial holder of Wheat Common Stock and/or Wheat Preferred Stock (such as holders of the Trust Shares), as applicable, may assert dissenters' rights as to shares of Wheat Common Stock and/or Wheat Preferred Stock, as applicable, held on such holder's behalf only if such holder: (i) submits to Wheat the record holder's written consent to the dissent not later than the time the beneficial holder asserts dissenters' rights; and (ii) does so with respect to all shares of Wheat Common Stock and/or Wheat Preferred Stock, as applicable, of which such holder is the beneficial holder or over which such holder has the power to direct the vote. If the Merger is consummated, FUNC will, within ten days after the Effective Date, deliver a dissenters' notice to all holders who satisfied the foregoing requirements, which will: (i) state where payment demand is to be sent and where and when certificates for shares of dissenting stockholders are to be deposited; (ii) supply a form for demanding payment that includes the date (August 20, 1997) of the first annoucement to news media of the terms of the Merger, and requires that the person asserting dissenters' rights certify whether or not such person acquired beneficial ownership of such person's dissenting shares before or after such date; (iii) set a date by which FUNC must receive the payment demand, which date may not be 39 less than 30 nor more than 60 days after the date of delivery of the dissenters' notice; and (iv) be accompanied by a copy of Article 15. A stockholder who is sent a dissenters' notice shall demand payment, certify that such holder acquired beneficial ownership of such holder's dissenting shares before, on or after August 20, 1997, and, if such holders shares are certificated, deposit the certificates representing such holder's dissenting shares in accordance with the dissenters' notice. A stockholder who deposits such holder's shares as described in the dissenters' notice retains all other rights of a holder of Wheat Common Stock and/or Wheat Preferred Stock, as the case may be, except to the extent such rights are cancelled or modified by consummation of the Merger. A stockholder who does not demand payment and deposit his share certificates where required, in each case by the date set forth in the dissenters' notice, is not entitled to payment for such holder's shares under Article 15. Except as provided below with respect to after-acquired shares, within 30 days after receipt of a payment demand, FUNC shall pay the dissenter the amount that FUNC estimates to be the fair value of the dissenter's shares, plus accrued interest. The obligation of FUNC to make such payment may be enforced: (i) by the Circuit Court for the City of Richmond, Virginia; or (ii) at the election of any dissenter residing or having its principal office in Virginia, by the circuit court in the city or county where the dissenter resides or has such office. The payment by FUNC will be accompanied by: (i) FUNC's balance sheet as of the end of a fiscal year ended not more than 16 months before the Effective Date, an income statement for that year, a statement of changes in stockholders' equity for that year and the latest available interim financial statements, if any; (ii) an explanation of how FUNC estimated the fair value of the dissenting shares and of how the interest was calculated; (iii) a statement of the dissenter's right to demand payment as described below; and (iv) a copy of Article 15. FUNC may elect to withhold payment from a dissenter unless the dissenter was the beneficial owner of the dissenting shares on August 20, 1997, in which case FUNC will estimate the fair value of such after-acquired shares, plus accrued interest, and will offer to pay such amount to each dissenter who agrees to accept it in full satisfaction of such dissenter's demand. FUNC will send with such 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 below. Within 30 days after FUNC makes or offers payment as described above, a dissenter may notify FUNC in writing of the dissenter's own estimate of the fair value of the dissenting shares and the amount of interest due, and demand payment of such estimate (less any payment by FUNC) or reject FUNC's offer and demand payment of such estimate. Failure to do so is deemed a waiver of the dissenters' right to demand payment under Article 15. If any such demand for payment remains unsettled, within 60 days after receiving the payment demand FUNC will petition the Circuit Court for the City of Richmond, Virginia, to determine the fair value of the shares and the accrued interest and make all dissenters whose demands remain unsettled parties to such proceeding, or pay each dissenter whose demand remains unsettled the amount demanded. Each dissenter made a party to such proceeding is entitled to a judgment for: (i) the amount, if any, by which the court finds that the fair value of the dissenting shares, plus interest, exceeds the amount paid by FUNC; or (ii) the fair value, plus accrued interest, of the dissenter's after-acquired shares for which FUNC elected to withhold payment. The court will determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court and assess the costs against FUNC, or against all or some of the dissenters to the extent the court finds the dissenters did not act in good faith in demanding payment. THE FOREGOING IS ONLY A SUMMARY OF THE RIGHTS OF A DISSENTING HOLDER OF WHEAT COMMON STOCK AND/OR WHEAT PREFERRED STOCK AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE APPLICABLE PROVISIONS OF THE VSCA SET FORTH IN ANNEX C TO THIS PROSPECTUS/PROXY STATEMENT. ANY HOLDER OF WHEAT COMMON STOCK AND/OR WHEAT PREFERRED STOCK, AS APPLICABLE, WHO INTENDS TO DISSENT FROM THE MERGER SHOULD CAREFULLY REVIEW THE TEXT OF THE APPLICABLE PROVISIONS OF THE VSCA SET FORTH IN ANNEX C TO THIS PROSPECTUS/PROXY STATEMENT AND SHOULD ALSO CONSULT WITH SUCH HOLDER'S ATTORNEY. THE FAILURE OF A HOLDER OF WHEAT COMMON STOCK AND/OR WHEAT PREFERRED STOCK, AS APPLICABLE, TO FOLLOW PRECISELY THE PROCEDURES SUMMARIZED ABOVE, AND SET FORTH IN ANNEX C, MAY RESULT IN LOSS OF DISSENTERS' RIGHTS. NO FURTHER NOTICE OF THE EVENTS GIVING RISE TO DISSENTERS' RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE FURNISHED TO HOLDERS OF WHEAT COMMON STOCK AND/OR WHEAT PREFERRED STOCK (INCLUDING HOLDERS OF TRUST SHARES), EXCEPT AS INDICATED ABOVE OR OTHERWISE REQUIRED BY LAW. In general, any dissenting stockholder who perfects such holder's right to be paid the fair value of such holder's Wheat Common Stock and/or Wheat Preferred Stock, as applicable, in cash will recognize taxable gain or loss for federal income tax purposes upon receipt of such cash. See " -- Certain Federal Income Tax Consequences". 40 MARKET PRICES The following table sets forth (i) the high and low last reported sale prices per share of FUNC Common Stock on the NYSE Tape (trading symbol FTU), with respect to each quarterly period since January 1, 1996, (ii) the book value per share of Wheat Common Stock and Wheat Preferred Stock as of the last day of the fiscal quarter represented, and (iii) the equivalent pro forma market values per share of Wheat Common Stock and Wheat Preferred Stock. The prices of FUNC Common Stock shown below have been adjusted, where applicable, to reflect the FUNC Stock Split. Wheat stockholders are urged to obtain current quotations of the market price of FUNC Common Stock. There is no public trading market for Wheat Common Stock, Wheat Preferred Stock or Trust Shares. See "RECENT DEVELOPMENTS -- Pending and Recent FUNC Acquisitions" and " -- FUNC Common Stock Transactions". The pro forma financial information presented below has been calculated using a 1.1621 Exchange Ratio. The pro forma information and 1.1621 Exchange Ratio would be different if the number of outstanding shares of Wheat Common Stock or Wheat Preferred Stock on the Effective Date is different than 8,834,944. See "THE MERGER -- General; Consideration" and ANNEX A.
WHEAT COMMON STOCK FUNC COMMON STOCK AND WHEAT ----------------------------- PREFERRED HIGH LOW STOCK ------------- ---------- ----- 1996 First quarter................................................... $ 31 3/8 25 3/4 13.70 Second quarter.................................................. 32 1/4 28 3/4 14.24 Third quarter................................................... 33 7/8 30 1/2 14.73 Fourth quarter.................................................. 38 1/2 33 1/2 15.55 1997 First quarter................................................... 47 3/4 36 5/8 16.37 Second quarter.................................................. 47 7/8 39 1/8 17.25 Third quarter................................................... 50 11/16 45 7/8 18.77 Fourth quarter (through December 16, 1997)...................... $ 52 7/8 46 15/16 19.76(2) EQUIVALENT PRO FORMA PER SHARE OF WHEAT COMMON STOCK AND WHEAT PREFERRED STOCK(1) --------------------------- HIGH LOW ----------- ----------- 1996 First quarter................................................... 36 3/8 29 7/8 Second quarter.................................................. 37 3/8 33 3/8 Third quarter................................................... 39 1/4 35 3/8 Fourth quarter.................................................. 44 5/8 38 7/8 1997 First quarter................................................... 55 3/8 42 1/2 Second quarter.................................................. 55 5/8 45 3/8 Third quarter................................................... 58 7/8 53 1/4 Fourth quarter (through December 16, 1997)...................... 61 3/8 54 1/2
- --------------- (1) Equivalent pro forma market values per share of Wheat Common Stock and Wheat Preferred Stock amounts represent the high and low last reported sales prices per share of FUNC Common Stock multiplied by a 1.1621 Exchange Ratio, rounded down to the nearest one-eighth. (2) Represents the book value per share as of November 30, 1997. On August 19, 1997, the last business day prior to public announcement of the execution of the Merger Agreement, the last reported sale price per share of FUNC Common Stock on the NYSE Tape was $46.9375. On December 16, 1997, such price was $50.875. The Merger Agreement provides for the filing of a listing application with the NYSE covering the FUNC Common Shares. It is a condition to consummation of the Merger that the FUNC Common Shares be approved for listing on the NYSE, effective upon official notice of issuance. See " -- Conditions to Consummation; Termination". Shares distributed from the Wheat ASOP are valued according to an independent appraisal, which historically has been performed, as of June 30 and December 31 of each year. Since 1983 the valuation has been performed by Piper Jaffray Inc. ("Piper Jaffray"). Piper Jaffray has valued the Wheat Common Stock on the basis of minority interest value. In estimating this fair market value, Piper Jaffray considered Wheat as a going concern engaged in the business in which it was engaged as of the valuation date. Piper Jaffray's valuations, for Wheat ASOP purposes, of the fair market value per share of Wheat Common Stock on December 31, 1995, June 30, 1996, December 31, 1996 and June 30, 1997 were $20.75-$21.25; $22.50-$23.00; $29.50-$30.00; and $39.25-$39.75, respectively. In providing its opinions, Piper Jaffray assumed that all information and data furnished to it by Wheat or otherwise made available to it is accurate and complete, and it made no independent verification of such information and data. Piper Jaffray further relied upon the assurance of Wheat's management that it is not aware of any information or facts that would make the information incomplete or misleading. In arriving at its opinions, Piper Jaffray did not perform any appraisal or valuation of specific assets of Wheat and expressed no opinion regarding its liquidation value. 41 DIVIDENDS The following table sets forth the cash dividends paid on FUNC Common Stock, Wheat Common Stock and Wheat Preferred Stock with respect to each calendar quarter since January 1, 1996, and the equivalent pro forma cash dividends paid per share of Wheat Common Stock and Wheat Preferred Stock. Dividends paid on shares of FUNC Common Stock shown below have been adjusted, where applicable, to reflect the FUNC Stock Split. The pro forma financial information presented below has been calculated using a 1.1621 Exchange Ratio. The pro forma information and 1.1621 Exchange Ratio would be different if the number of outstanding shares of Wheat Common Stock or Wheat Preferred Stock on the Effective Date is different than 8,834,944. See "THE MERGER -- General; Consideration" and ANNEX A.
EQUIVALENT PRO FORMA PER SHARE OF WHEAT COMMON STOCK AND FUNC WHEAT WHEAT WHEAT COMMON COMMON PREFERRED PREFERRED STOCK STOCK STOCK STOCK(1) ------ -- -- ----- 1996 First quarter............................................................... $0.26 0.05 0.05 0.300 Second quarter.............................................................. 0.26 0.10 0.10 0.300 Third quarter............................................................... 0.29 0.10 0.10 0.335 Fourth quarter.............................................................. 0.29 0.10 0.10 0.335 1997 First quarter............................................................... 0.29 0.10 0.10 0.335 Second quarter.............................................................. 0.29 0.10 0.10 0.335 Third quarter............................................................... 0.32 0.10 0.10 0.370 Fourth quarter.............................................................. $0.32 0.10 0.10 0.370
- --------------- (1) Equivalent pro forma cash dividends paid per share of Wheat Common Stock and Wheat Preferred Stock amounts represent FUNC historical dividend rates per share multiplied by the 1.1621 Exchange Ratio, rounded to the nearest one- half cent. The current annualized dividend rate per share for FUNC Common Stock, based on the most recently declared quarterly dividend of $.37 per share payable on March 16, 1998, would be $1.48. On an equivalent pro forma basis, such current annualized FUNC dividend per share of Wheat Common Stock and Wheat Preferred Stock would be $1.72, rounded up to the nearest cent. Any future FUNC and Wheat dividends are dependent on their respective earnings and financial condition, government regulations and policies and other factors. Pursuant to the Merger Agreement, after December 31, 1997, Wheat may not declare or pay any dividends on Wheat Common Stock or Wheat Preferred Stock without the prior written consent of FUNC. See " -- Business Pending Consummation", "FUNC -- Certain Regulatory Considerations; PAYMENT OF DIVIDENDS" and "DESCRIPTION OF FUNC CAPITAL STOCK". 42 PRO FORMA FINANCIAL INFORMATION PRO FORMA COMBINED CONDENSED BALANCE SHEET FUNC, SIGNET, WHEAT, CORESTATES AND COVENANT SEPTEMBER 30, 1997 (UNAUDITED) The following unaudited pro forma combined condensed balance sheet combines the consolidated historical balance sheets of FUNC, Signet, Wheat, CoreStates and Covenant assuming the companies had been combined as of September 30, 1997, on a pooling of interests accounting basis with respect to the Merger and the Signet and CoreStates acquisitions, and on a purchase accounting basis with respect to the Covenant acquisition. The Signet acquisition was consummated on November 28, 1997.
FUNC AND FUNC, SIGNET (IN MILLIONS) FUNC SIGNET SIGNET WHEAT AND WHEAT CORESTATES COVENANT ------------ -------- ------ ------- ----- ------------ ---------- -------- ASSETS Cash and due from banks........................ $ 6,200 462 6,662 34 6,696 3,166 16 Interest-bearing bank balances................. 200 4 204 -- 204 3,044 -- Federal funds sold and securities purchased under resale agreements...................... 6,011 887 6,898 77 6,975 139 -- -------- ------ ------- ----- ------------ ---------- --- Total cash and cash equivalents.............. 12,411 1,353 13,764 111 13,875 6,349 16 -------- ------ ------- ----- ------------ ---------- --- Trading account assets......................... 7,548 277 7,825 180 8,005 327 Securities available for sale.................. 16,690 2,233 18,923 -- 18,923 2,211 120 Investment securities.......................... 2,268 -- 2,268 6 2,274 1,413 11 Loans, net of unearned income.................. 94,904 6,522 101,426 -- 101,426 35,085 258 Allowance for loan losses.................... (1,370) (126) (1,496) -- (1,496) (679) (3) -------- ------ ------- ----- ------------ ---------- --- Loans, net................................... 93,534 6,396 99,930 -- 99,930 34,406 255 -------- ------ ------- ----- ------------ ---------- --- Premises and equipment......................... 4,056 172 4,228 66 4,294 627 9 Due from customers on acceptances.............. 837 -- 837 -- 837 791 -- Other intangible assets........................ 2,701 31 2,732 -- 2,732 287 -- Other assets................................... 3,859 809 4,668 810 5,478 1,180 9 -------- ------ ------- ----- ------------ ---------- --- Total...................................... $143,904 11,271 155,175 1,173 156,348 47,591 420 -------- ------ ------- ----- ------------ ---------- --- -------- ------ ------- ----- ------------ ---------- --- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing.......................... 18,963 1,771 20,734 -- 20,734 8,942 48 Interest-bearing............................. 72,727 5,941 78,668 -- 78,668 24,799 256 -------- ------ ------- ----- ------------ ---------- --- Total deposits............................. 91,690 7,712 99,402 -- 99,402 33,741 304 Short-term borrowings.......................... 27,623 1,922 29,545 271 29,816 4,239 64 Bank acceptances outstanding................... 837 -- 837 -- 837 789 -- Other liabilities.............................. 4,225 297 4,522 651 5,173 1,925 5 Long-term debt................................. 7,819 350 8,169 86 8,255 3,784 15 -------- ------ ------- ----- ------------ ---------- --- Total liabilities.......................... 132,194 10,281 142,475 1,008 143,483 44,478 388 -------- ------ ------- ----- ------------ ---------- --- Guaranteed preferred beneficial interests in Corporation's junior subordinated deferrable interest debentures.......................... 990 -- 990 -- 990 -- -- -------- ------ ------- ----- ------------ ---------- --- STOCKHOLDERS' EQUITY Preferred stock................................ -- -- -- 3 -- -- 8 Common stock................................... 1,894 305 2,118 17 2,152 224 15 Paid-in capital................................ 999 216 1,296 21 1,303 1,253 12 Retained earnings.............................. 7,681 435 8,116 124 8,240 2,955 (3) Unrealized gain on debt and equity securities, net.......................................... 146 34 180 -- 180 35 -- Treasury stock................................. -- -- -- -- -- (1,302) -- Unallocated shares held by ESOP................ -- -- -- -- -- (52) -- -------- ------ ------- ----- ------------ ---------- --- Total stockholders' equity................. 10,720 990 11,710 165 11,875 3,113 32 -------- ------ ------- ----- ------------ ---------- --- Total...................................... $143,904 11,271 155,175 1,173 156,348 47,591 420 -------- ------ ------- ----- ------------ ---------- --- -------- ------ ------- ----- ------------ ---------- --- FUNC, SIGNET, WHEAT, CORESTATES (IN MILLIONS) AND COVENANT ------------ ------------- ASSETS Cash and due from banks........................ 9,791 Interest-bearing bank balances................. 3,248 Federal funds sold and securities purchased under resale agreements...................... 7,114 ------------- Total cash and cash equivalents.............. 20,153 ------------- Trading account assets......................... 8,332 Securities available for sale.................. 21,254 Investment securities.......................... 3,698 Loans, net of unearned income.................. 136,769 Allowance for loan losses.................... (2,178) ------------- Loans, net................................... 134,591 ------------- Premises and equipment......................... 4,930 Due from customers on acceptances.............. 1,628 Other intangible assets........................ 3,074 Other assets................................... 6,667 ------------- Total...................................... 204,327 ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing.......................... 29,724 Interest-bearing............................. 103,723 ------------- Total deposits............................. 133,447 Short-term borrowings.......................... 34,119 Bank acceptances outstanding................... 1,626 Other liabilities.............................. 7,103 Long-term debt................................. 12,054 ------------- Total liabilities.......................... 188,349 ------------- Guaranteed preferred beneficial interests in Corporation's junior subordinated deferrable interest debentures.......................... 990 ------------- STOCKHOLDERS' EQUITY Preferred stock................................ -- Common stock................................... 3,231 Paid-in capital................................ 1,492 Retained earnings.............................. 10,050 Unrealized gain on debt and equity securities, net.......................................... 215 Treasury stock................................. -- Unallocated shares held by ESOP................ -- ------------- Total stockholders' equity................. 14,988 ------------- Total...................................... 204,327 ------------- -------------
See accompanying notes to pro forma financial information. 43 PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FUNC AND SIGNET (UNAUDITED) The following unaudited pro forma combined condensed statements of income present the combined statements of income of FUNC and Signet assuming the companies had been combined for each period presented on a pooling of interests accounting basis. The Signet acquisition was consummated on November 28, 1997.
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------- --------------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1996 1995 1994 1993 1992 - ----------------------------------------------------- -------- ------- ------- ------- ------- ------- ------- CONSOLIDATED SUMMARIES OF INCOME Interest income...................................... $ 8,187 7,812 10,459 9,553 8,038 7,406 7,376 Interest expense..................................... 3,859 3,719 4,994 4,425 3,090 2,757 3,273 -------- ------- ------- ------- ------- ------- ------- Net interest income.................................. 4,328 4,093 5,465 5,128 4,948 4,649 4,103 Provision for loan losses............................ 515 299 449 258 193 417 711 -------- ------- ------- ------- ------- ------- ------- Net interest income after provision for loan losses............................................. 3,813 3,794 5,016 4,870 4,755 4,232 3,392 Securities available for sale transactions........... 19 20 36 45 9 37 49 Investment security transactions..................... 3 3 4 6 4 7 (21) Noninterest income................................... 2,457 1,839 2,597 2,125 2,130 1,903 1,641 Merger-related restructuring charges................. -- 281 281 94 -- -- -- SAIF special assessment.............................. -- 133 133 -- -- -- -- Noninterest expense.................................. 3,930 3,501 4,740 4,563 4,593 4,134 3,942 -------- ------- ------- ------- ------- ------- ------- Income before income taxes........................... 2,362 1,741 2,499 2,389 2,305 2,045 1,119 Income taxes......................................... 828 611 875 848 779 654 311 -------- ------- ------- ------- ------- ------- ------- Net income........................................... 1,534 1,130 1,624 1,541 1,526 1,391 808 Dividends on preferred stock......................... -- 8 9 26 46 46 53 -------- ------- ------- ------- ------- ------- ------- Net income applicable to common stockholders before redemption premium................................. 1,534 1,122 1,615 1,515 1,480 1,345 755 Redemption premium on preferred stock................ -- -- -- -- 41 -- -- -------- ------- ------- ------- ------- ------- ------- Net income applicable to common stockholders after redemption premium................................. $ 1,534 1,122 1,615 1,515 1,439 1,345 755 -------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- ------- PER COMMON SHARE DATA Net income before redemption premium............... $ 2.43 1.80 2.59 2.43 2.36 2.21 1.32 Net income after redemption premium................ $ 2.43 1.80 2.59 2.43 2.29 2.21 1.32 Average common shares outstanding (IN THOUSANDS)... 630,384 624,554 624,363 623,163 626,974 607,488 572,068 FUNC HISTORICAL PER COMMON SHARE DATA Net income before redemption premium............... $ 2.60 1.85 2.67 2.52 2.36 2.15 1.26 Net income after redemption premium................ $ 2.60 1.85 2.67 2.52 2.29 2.15 1.26 Average common shares outstanding (IN THOUSANDS)... 562,534 557,968 557,624 557,354 563,325 544,876 510,768
See accompanying notes to pro forma financial information. 44 PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FUNC, SIGNET AND WHEAT (UNAUDITED) The following unaudited pro forma combined condensed statements of income present the combined statements of income of FUNC, Signet and Wheat assuming the companies had been combined for each period presented on a pooling of interests accounting basis with respect to the Merger and the Signet acquisition. Such information for Wheat for the 12-month periods ended March 31 has been added to comparable information related to FUNC and Signet for the preceding 12-month periods ended December 31, to reflect the combined results of operations. The Signet acquisition was consummated on November 28, 1997.
NINE MONTHS ENDED SEPTEMBER 30, TWELVE MONTHS ENDED (IN MILLIONS, EXCEPT PER SHARE ------------------- ------------------------------------------------------------- DATA) 1997 1996 1997/1996 1996/1995 1995/1994 1994/1993 1993/1992 - ----------------------------------- -------- ------- --------- --------- --------- --------- --------- CONSOLIDATED SUMMARIES OF INCOME Interest income.................... $ 8,227 7,845 10,508 9,593 8,072 7,430 7,394 Interest expense................... 3,877 3,733 5,016 4,444 3,106 2,766 3,279 -------- ------- --------- --------- --------- --------- --------- Net interest income................ 4,350 4,112 5,492 5,149 4,966 4,664 4,115 Provision for loan losses.......... 515 299 449 258 193 417 711 -------- ------- --------- --------- --------- --------- --------- Net interest income after provision for loan losses.................. 3,835 3,813 5,043 4,891 4,773 4,247 3,404 Securities available for sale transactions..................... 86 87 124 125 79 111 129 Investment security transactions... 3 3 4 6 4 7 (21) Noninterest income................. 2,775 2,095 2,954 2,418 2,345 2,154 1,854 Merger-related restructuring charges.......................... -- 281 281 94 -- -- -- SAIF special assessment............ -- 133 133 -- -- -- -- Noninterest expense................ 4,282 3,802 5,160 4,910 4,862 4,438 4,214 -------- ------- --------- --------- --------- --------- --------- Income before income taxes......... 2,417 1,782 2,551 2,436 2,339 2,081 1,152 Income taxes....................... 850 628 896 867 792 669 324 -------- ------- --------- --------- --------- --------- --------- Net income......................... 1,567 1,154 1,655 1,569 1,547 1,412 828 Dividends on preferred stock....... -- 8 9 26 46 46 53 -------- ------- --------- --------- --------- --------- --------- Net income applicable to common stockholders before redemption premium.......................... 1,567 1,146 1,646 1,543 1,501 1,366 775 Redemption premium on preferred stock............................ -- -- -- -- 41 -- -- -------- ------- --------- --------- --------- --------- --------- Net income applicable to common stockholders after redemption premium.......................... $ 1,567 1,146 1,646 1,543 1,460 1,366 775 -------- ------- --------- --------- --------- --------- --------- -------- ------- --------- --------- --------- --------- --------- PER COMMON SHARE DATA Net income before redemption premium........................ $ 2.45 1.80 2.59 2.44 2.36 2.21 1.33 Net income after redemption premium........................ $ 2.45 1.80 2.59 2.44 2.29 2.21 1.33 Average common shares outstanding (IN THOUSANDS)................. 640,651 634,821 634,630 633,430 637,241 617,755 582,335 FUNC HISTORICAL PER COMMON SHARE DATA Net income before redemption premium........................ $ 2.60 1.85 2.67 2.52 2.36 2.15 1.26 Net income after redemption premium........................ $ 2.60 1.85 2.67 2.52 2.29 2.15 1.26 Average common shares outstanding (IN THOUSANDS)................. 562,534 557,968 557,624 557,354 563,325 544,876 510,768 (IN MILLIONS, EXCEPT PER SHARE DATA) - ----------------------------------- CONSOLIDATED SUMMARIES OF INCOME Interest income.................... Interest expense................... Net interest income................ Provision for loan losses.......... Net interest income after provision for loan losses.................. Securities available for sale transactions..................... Investment security transactions... Noninterest income................. Merger-related restructuring charges.......................... SAIF special assessment............ Noninterest expense................ Income before income taxes......... Income taxes....................... Net income......................... Dividends on preferred stock....... Net income applicable to common stockholders before redemption premium.......................... Redemption premium on preferred stock............................ Net income applicable to common stockholders after redemption premium.......................... PER COMMON SHARE DATA Net income before redemption premium........................ Net income after redemption premium........................ Average common shares outstanding (IN THOUSANDS)................. FUNC HISTORICAL PER COMMON SHARE DATA Net income before redemption premium........................ Net income after redemption premium........................ Average common shares outstanding (IN THOUSANDS).................
See accompanying notes to pro forma financial information. 45 PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FUNC, SIGNET, WHEAT, CORESTATES AND COVENANT (UNAUDITED) The following unaudited pro forma combined condensed statements of income present the combined statements of income of FUNC, Signet, Wheat, CoreStates and Covenant assuming the companies had been combined for each period presented on a pooling of interests accounting basis with respect to the Merger and the Signet and CoreStates acquisitions, and on a purchase accounting basis with respect to the Covenant acquisition (only for the nine months ended September 30, 1997, and the year ended December 31, 1996). Such information for Wheat for the 12-month periods ended March 31 has been added to comparable information related to FUNC, Signet, CoreStates and Covenant for the preceding 12-month periods ended December 31, to reflect the combined results of operations. The Signet acquisition was consummated on November 28, 1997.
NINE MONTHS ENDED SEPTEMBER 30, TWELVE MONTHS ENDED ------------------- ------------------------------------------------ (IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1997/1996 1996/1995 1995/1994 1994/1993 - ----------------------------------------------- -------- ------- --------- --------- --------- --------- CONSOLIDATED SUMMARIES OF INCOME Interest income................................ $ 10,787 10,308 13,831 13,068 11,086 10,335 Interest expense............................... 4,839 4,591 6,187 5,752 4,052 3,660 -------- ------- --------- --------- --------- --------- Net interest income............................ 5,948 5,717 7,644 7,316 7,034 6,675 Provision for loan losses...................... 658 488 679 402 472 606 -------- ------- --------- --------- --------- --------- Net interest income after provision for loan losses....................................... 5,290 5,229 6,965 6,914 6,562 6,069 Securities available for sale transactions..... 101 142 184 156 97 154 Investment security transactions............... 3 3 4 6 4 7 Noninterest income............................. 3,438 2,715 3,794 3,269 3,115 2,944 Restructuring and merger-related charges....... -- 411 422 233 107 -- SAIF special assessment........................ -- 147 148 -- -- -- Noninterest expense............................ 5,497 5,018 6,802 6,656 6,673 6,332 -------- ------- --------- --------- --------- --------- Income before income taxes..................... 3,335 2,513 3,575 3,456 2,998 2,842 Income taxes................................... 1,173 905 1,278 1,232 1,018 908 -------- ------- --------- --------- --------- --------- Net income..................................... 2,162 1,608 2,297 2,224 1,980 1,934 Dividends on preferred stock................... -- 8 10 26 46 46 -------- ------- --------- --------- --------- --------- Net income applicable to common stockholders before redemption premium.................... 2,162 1,600 2,287 2,198 1,934 1,888 Redemption premium on preferred stock.......... -- -- -- -- 41 -- -------- ------- --------- --------- --------- --------- Net income applicable to common stockholders after redemption premium..................... $ 2,162 1,600 2,287 2,198 1,893 1,888 -------- ------- --------- --------- --------- --------- -------- ------- --------- --------- --------- --------- PER COMMON SHARE DATA Net income before redemption premium......... $ 2.22 1.61 2.31 2.21 1.93 1.91 Net income after redemption premium.......... $ 2.22 1.61 2.31 2.21 1.89 1.91 Average common shares outstanding (IN THOUSANDS)................................. 973,263 990,901 989,106 993,504 1,003,740 988,055 FUNC HISTORICAL PER COMMON SHARE DATA Net income before redemption premium......... $ 2.60 1.85 2.67 2.52 2.36 2.15 Net income after redemption premium.......... $ 2.60 1.85 2.67 2.52 2.29 2.15 Average common shares outstanding (IN THOUSANDS)................................. 562,534 557,968 557,624 557,354 563,325 544,876 (IN MILLIONS, EXCEPT PER SHARE DATA) 1993/1992 - ----------------------------------------------- --------- CONSOLIDATED SUMMARIES OF INCOME Interest income................................ 10,480 Interest expense............................... 4,477 --------- Net interest income............................ 6,003 Provision for loan losses...................... 972 --------- Net interest income after provision for loan losses....................................... 5,031 Securities available for sale transactions..... 146 Investment security transactions............... (21) Noninterest income............................. 2,691 Restructuring and merger-related charges....... -- SAIF special assessment........................ -- Noninterest expense............................ 6,246 --------- Income before income taxes..................... 1,601 Income taxes................................... 455 --------- Net income..................................... 1,146 Dividends on preferred stock................... 53 --------- Net income applicable to common stockholders before redemption premium.................... 1,093 Redemption premium on preferred stock.......... -- --------- Net income applicable to common stockholders after redemption premium..................... 1,093 --------- --------- PER COMMON SHARE DATA Net income before redemption premium......... 1.17 Net income after redemption premium.......... 1.17 Average common shares outstanding (IN THOUSANDS)................................. 933,400 FUNC HISTORICAL PER COMMON SHARE DATA Net income before redemption premium......... 1.26 Net income after redemption premium.......... 1.26 Average common shares outstanding (IN THOUSANDS)................................. 510,768
See accompanying notes to pro forma financial information. 46 NOTES TO PRO FORMA FINANCIAL INFORMATION (1) The unaudited pro forma information presented herein is not necessarily indicative of the results of operations or the combined financial position that would have resulted had the Merger, the Signet acquisition or either of the CoreStates or Covenant acquisitions been consummated at the beginning of the applicable periods indicated, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined entities. Consummation of the Merger or either of the CoreStates or Covenant acquisitions is not contingent upon consummation of any other of such acquisitions. Pro forma financial information with respect to the Merger and the Signet and CoreStates acquisitions assumes such acquisitions were consummated as of the beginning of each period presented. Such information for Wheat for the 12-month periods ended March 31 has been added to comparable information related to FUNC, Signet and CoreStates for the preceding 12-month periods ended December 31, as appropriate. Pro forma financial information for the Covenant acquisition is included only for the nine months ended September 30, 1997, and December 31, 1996. See "RECENT DEVELOPMENTS" and "THE MERGER -- Accounting Treatment". (2) It is assumed that the Merger will be accounted for on a pooling of interests accounting basis, and accordingly, the related pro forma adjustments herein reflect, where applicable, an Exchange Ratio of 1.1621 shares of FUNC Common Stock for each of the 209,000 shares of Wheat Preferred Stock and 8,599,000 shares of Wheat Common Stock which were outstanding at September 30, 1997. The 1.1621 Exchange Ratio is subject to possible adjustment under certain circumstances. See "THE MERGER -- General; Consideration". As a result, information was adjusted for the Merger by the (i) addition of 10,267,000 shares of FUNC Common Stock amounting to $34 million; (ii) elimination of 209,000 shares of Wheat Preferred Stock amounting to $3 million; (iii) elimination of 8,599,000 shares of Wheat Common Stock amounting to $17 million; and (iv) recordation of the remaining amount of $14 million as a reduction of paid-in capital at September 30, 1997. As of September 30, 1997, FUNC had 50,530,000 shares, and Wheat had no shares, of common stock reserved for issuance primarily for stock option plans (excluding, as to FUNC, shares reserved for issuance in connection with the Merger, the Signet acquisition and the CoreStates and Covenant acquisitions, or upon exercise of the rights attached to shares of FUNC Common Stock), which are not included in the unaudited pro forma financial information presented herein. For the nine months ended September 30, 1997, Wheat had net income applicable to common stockholders of $33 million, which includes $9 million related to Wheat's results of operations in the fourth quarter ended March 31, 1997. (3) The Signet acquisition, which was consummated on November 28, 1997, will be accounted for on a pooling of interests accounting basis, and accordingly, the related pro forma adjustments herein reflect, where applicable, an exchange ratio of 1.10 shares of FUNC Common Stock for each of the 60,944,000 shares of Signet common stock which were outstanding at September 30, 1997. As a result, information was adjusted for the Signet acquisition by the (i) addition of 67,038,000 shares of FUNC Common Stock amounting to $224 million; (ii) elimination of 60,944,000 shares of Signet common stock amounting to $305 million; and (iii) recordation of the remaining amount of $81 million as an increase to paid-in capital at September 30, 1997. As of September 30, 1997, FUNC and Signet had 50,530,000 and 3,501,000 shares of common stock reserved for issuance primarily for stock option plans, respectively, (excluding, as to FUNC, shares reserved for issuance in connection with the Merger, the Signet acquisition and the CoreStates and Covenant acquisitions, or upon exercise of the rights attached to shares of FUNC Common Stock and, as to Signet, shares reserved for issuance upon exercise of the rights attached to shares of Signet common stock), which are not included in the unaudited pro forma financial information presented herein. For the nine months ended September 30, 1997, Signet had net income applicable to common stockholders of $73 million. (4) It is assumed that the CoreStates acqusition will be accounted for on a pooling of interests accounting basis, and accordingly, the related pro forma adjustments herein reflect, where applicable, an exchange ratio of 1.62 shares of FUNC Common Stock for each of the 199,779,000 shares of CoreStates common stock which were outstanding at September 30, 1997. The 1.62 exchange ratio is subject to possible adjustment under certain circumstances. As a result, information was adjusted for the CoreStates acquisition by the (i) addition of 323,642,000 shares of FUNC Common Stock amounting to $1.1 billion (excluding an estimated 3.5 million shares of CoreStates common stock that 47 CoreStates expects to issue in order to qualify the CoreStates acquisition as a pooling of interests and including 2,182,000 shares of CoreStates common stock allocated to the CoreStates ESOP); (ii) elimination of 199,779,000 shares of outstanding CoreStates common stock amounting to $200 million; (iii) elimination of the cost of CoreStates treasury stock of $1.3 billion of which $1.1 billion reduced retained earnings; (iv) reclassification of the cost of unallocated shares held by the CoreStates ESOP of $52 million; and (v) recordation of the remaining amount of $1.0 billion as a reduction of paid-in capital at September 30, 1997. As of September 30, 1997, FUNC and CoreStates had 50,530,000 and 16,915,000 shares of common stock reserved for issuance primarily for stock option plans, respectively, (excluding, as to FUNC, shares reserved for issuance in connection with the Merger, the Signet acquisition and the CoreStates and Covenant acquisitions, or upon exercise of the rights attached to shares of FUNC Common Stock), which are not included in the unaudited pro forma financial information presented herein. For the nine months ended September 30, 1997, CoreStates had net income applicable to common stockholders of $597 million. In 1993, CoreStates changed its method of accounting for postemployment benefits, and in 1993 CoreStates reported additional expense as a cumulative effect of a change in accounting principle, net of tax of $16 million in 1993 and $108 million in 1992. Such amounts have been included in noninterest expense in 1993 and 1992, respectively, in the pro forma financial information presented herein. (5) The Covenant acquisition will be accounted for on a purchase accounting basis, and accordingly, the related pro forma adjustments herein reflect, where applicable, (i) an exchange ratio of (a) 1.516 shares of FUNC Common Stock for each of the 138,000 shares of Covenant series A preferred stock which were outstanding at September 30, 1997, (b) an exchange ratio of 1.2 shares of FUNC Common Stock for each of the 162,000 shares of Covenant series B preferred stock which were outstanding at September 30, 1997, (c) an exchange ratio of .3813 shares of FUNC Common Stock for each of the 3,057,000 shares of Covenant common stock which were outstanding at September 30, 1997, and (d) the resulting issuance of 1,743,000 shares of FUNC Common Stock; (ii) the repurchase of such aggregate shares in the open market at a cost of $87 million; and (iii) an increase in goodwill and deposit base premium of $49 million and $6 million, respectively. The Covenant series A preferred stock will be converted into shares of Covenant common stock on December 31, 1997, in accordance with the terms of the Covenant series A preferred stock. Additionally, the pro forma adjustments related to the unaudited pro forma combined condensed statements of income with respect to Covenant reflect a (i) 5.51 percent and 5.27 percent cost of funds for the nine months ended September 30, 1997, and for the year ended December 31, 1996, respectively; (ii) ten-year sum-of-the-years' digits method related to deposit base premium; and (iii) 25-year straight-line life related to goodwill. As a result, for the nine months ended September 30, 1997, and the year ended December 31, 1996, these adjustments amounted to (i) an increase in noninterest expense of $2 million and $10 million, respectively; and (ii) reductions in (a) interest income of $2 million and $4 million, respectively; (b) income taxes of $1 million and $5 million, respectively, and (c) net income applicable to common stockholders of $5 million and $9 million, respectively. (6) In the second quarter of 1997, FUNC acquired the Bank of Boca Raton with assets of $29 million, net loans of $15 million and deposits of $27 million for $2 million in cash. This purchase accounting acquisition has been reflected in the pro forma financial information only from the date of consummation. From January 1, 1997, through September 30, 1997, FUNC has purchased 24 million shares of FUNC Common Stock in the open market at a cost of $1.0 billion, of which 1.65 million shares relate to the Covenant acquisition as noted above. The historical financial statements of FUNC will be restated for the CoreStates acquisition for all periods presented and for the Signet acquisition only for periods on and after January 1, 1995. Such statements will not be restated as a result of the Merger or the Covenant acquisition. (7) Income per share data has been computed based on the combined historical net income applicable to common stockholders of FUNC, Signet, Wheat, CoreStates and Covenant using the historical weighted average shares outstanding of FUNC Common Stock and the weighted average outstanding shares, adjusted to equivalent shares of FUNC Common Stock, as of the earliest applicable period presented, as appropriate. 48 (8) Certain insignificant reclassifications have been included herein to conform to statement presentations. Transactions conducted in the ordinary course of business between FUNC, Signet, Wheat, CoreStates and Covenant are immaterial, and accordingly, have not been eliminated. (9) The unaudited pro forma financial information does not include any material merger-related expenses or any material expenses related to the Merger, the Signet acquisition or the CoreStates and Covenant acquisitions. FUNC currently estimates after-tax restructuring and merger-related charges of approximately (i) $135 million related to the Signet acquisition, or $0.42 per share of FUNC Common Stock, expected to be taken in the fourth quarter of 1997, and (ii) $795 million related to the CoreStates acquisition, or $0.81 per share of FUNC Common Stock, expected to be taken in the second quarter of 1998. In addition, FUNC expects to incur an estimated $75 million in pre-tax restructuring and merger-related expenses in the 12-month period following the CoreStates acquisition. (10) FUNC expects to realize significant revenue enhancements and cost savings from the Signet acquisition and the CoreStates acquisition. The pro forma financial information, which does not reflect any revenue enhancements, direct costs or potential savings from the consolidation of operations of FUNC, Signet, Wheat, CoreStates and Covenant, is not indicative of the results of future operations. No assurance can be given with respect to the ultimate level of such revenue enhancements or cost savings. As indicated by the foregoing unaudited pro forma financial information and based solely on the foregoing assumptions, consummation of the Merger, the Signet acquisition and the CoreStates and Covenant acquisitions would have diluted FUNC's historical net income per common share for the nine months ended September 30, 1997, and the year ended December 31, 1996, by 15 percent and 13 percent, respectively. WHEAT GENERAL Financial and other information relating to Wheat, including information about Wheat's directors and executive officers, is set forth in ANNEX D to this Prospectus/Proxy Statement. HISTORY AND BUSINESS GENERAL Wheat is a diversified financial services holding company that provides, through its subsidiaries, a wide range of investment and financial services to individuals, corporations, institutions, and state and local governments. WHEAT, FIRST SECURITIES, INC. WFSI is a wholly-owned subsidiary of Wheat and has been conducting business since 1934. WFSI, which conducts business under the servicemarks "Wheat First Butcher Singer", "Wheat First Butcher Singer Capital Markets" and WFS Clearing Services", operates 128 retail and institutional offices in 20 states and Washington, D.C., and employs approximately 1,100 retail and institutional financial consultants. WFSI is a member of the NYSE, the American Stock Exchange, the Boston Stock Exchange, the Chicago Stock Exchange, the Philadelphia Stock Exchange, the National Futures Association and the NASD. WFSI's headquarters are at Riverfront Plaza, West Tower, 901 East Byrd Street, Richmond, Virginia 23219. WFSI, directly and through its subsidiaries, offers brokerage services to retail and institutional investors, investment banking, fully-disclosed securities clearing services and asset management services. In support of these investment services, WFSI effects transactions in equity and debt securities as both agent and principal, provides access to mutual funds, insurance and annuities and direct investments and provides investment advice on selected sectors of the financial markets through its Research Department. WFSI makes a market in numerous over-the-counter ("OTC") securities, including the common and preferred stock of Covenant. See "RECENT DEVELOPMENTS -- Pending FUNC Acquisitions". Certain of the foregoing and following services are provided by WFSI to, or together with, FUNC and its affiliates in the ordinary course of business. SECURITIES COMMISSIONS Wheat derives most of its income from its securities brokerage and investment banking activities. WFSI provides securities brokerage services to individual and institutional investors and effects transaction in equity and debt securities as both agent and principal. For the fiscal year ended March 31, 1997, WFSI's revenues from commissions and principal transactions amounted to $267.9 million. WFSI charges commissions on both exchange and OTC agency transactions for individual clients in accordance with a schedule that is revised periodically. In some cases, WFSI may grant discounts from the schedule 49 to certain clients. In addition, a substantial portion of WFSI's commission revenues generally is attributable to investment advice and/or research services given to individual and institutional investors. WFSI also provides research and other services to institutional clients. Institutional clients include banks, retirement funds, mutual funds, investment advisers, insurance companies, and state and local governments. Institutional investors typically purchase and sell securities in large block transactions. Revenues from securities transactions with institutional clients are based on negotiated rates that typically represent a significant discount from WFSI's regular commission schedules. PRINCIPAL TRANSACTIONS In addition to executing trades as agent, WFSI regularly acts as principal in executing trades in OTC equity securities, municipal bonds and corporate debt, as well as United States government and agency securities. WFSI carries inventories of OTC equities securities, municipal bonds and corporate debt, as well as U.S. government and agency securities to facilitate sales to clients and other dealers. When transactions are executed on a principal basis, WFSI receives mark-ups or mark-downs in lieu of commissions. OTC SECURITIES. WFSI makes a market by buying and selling as principal in approximately 310 common stocks and other securities traded on The Nasdaq Stock Market or otherwise in the OTC market. A majority of the equity securities for which WFSI makes a market are in the broad industry areas followed by WFSI's research analysts. Principal transactions with clients are generally effected at a net price within or equal to the current inter-dealer price, plus or minus a mark-up or mark-down. FIXED INCOME SECURITIES. WFSI buys and sells as principal a wide range of state, county and municipal securities, corporate fixed income securities, certificates of deposit and U.S. government and agency obligations. State, county and municipal securities include general obligations and revenue bonds and notes issued by states, counties and cities, as well as state and local government agencies and authorities. Corporate fixed income securities include industrial and utility bonds and preferred stocks. Certificates of deposit include those issued by banks and savings and loan associations. United States government and agency obligations include direct U.S. government obligations and government-guaranteed securities and agency obligations such as Government National Mortgage Association securities and Federal Home Loan Mortgage Corporation Participation Certificates. INVESTMENT BANKING Investment banking revenues are derived from management of, participation in and sale of public offerings of equity and debt securities, as well as from advisory fees received in connection with mergers and acquisitions, financial advisory assignments and private placements of securities. WFSI had total investment banking revenues of $66.2 million in fiscal 1997 and $51.0 million in fiscal 1996. UNDERWRITING. WFSI is a major underwriter of corporate and municipal securities. Wheat's corporate underwriting activities are conducted by WFSI's Capital Markets Division (the "Division"). During the calendar year ended December 31, 1996, WFSI managed or co-managed 42 corporate equity and debt offerings with principal values amounting to $2.4 billion, and 177 municipal offerings with principal values amounting to $4.9 billion. CORPORATE FINANCE. The Division provides financial advice to and raises capital for a broad range of corporate clients. The Division manages and participates in public offerings and arranges the private placement of equity and debt securities directly with institutional and individual investors. A majority of the public offerings managed and co-managed by the Division involve equity securities. The Division also provides advice on a fee basis to clients on a wide range of financial matters, including mergers and acquisitions, divestitures, financial planning, corporate reorganizations and recapitalizations, opinion letters, valuations and various other services. MUNICIPAL FINANCE. The Municipal Finance Department provides financial advice to and raises capital for many types of issuers of tax-exempt securities, including states, counties, cities, transportation authorities, sewer and water authorities, and housing, health and higher education agencies. Most of these issuers are located in Virginia, Pennsylvania, West Virginia, North Carolina, New Jersey, Maryland, Delaware and Washington, D.C. RESEARCH WFSI's Research Department develops market information and investment recommendations primarily with respect to selected industries. The Research Department employs 21 analysts, of whom seven are Chartered Financial Analysts, and follows approximately 300 companies. WFSI's research activities include review and analysis of general market conditions, 50 industries and specific companies; recommendations with regard to industries and specific companies; provision of information to retail and institutional clients; and responses to inquiries from clients and WFSI's financial consultants. In addition, WFSI hosts periodic seminars in which presentations with respect to specific companies, industries and industry trends are made by representatives and industry authorities. ASSET MANAGEMENT Wheat earns asset management and related service fees through WFSI and another subsidiary, Mentor. WFSI provides investment consulting services on a wrap-fee or directed commission basis on customer assets of approximately $4.1 billion. WFSI's investment consulting services include direct portfolio management; evaluation, recommendation and monitoring of independent financial advisor performance; and brokerage services on a fee basis in lieu of commission. Mentor Group and its subsidiaries manage assets of private, institutional, pension and mutual fund portfolios amounting to approximately $11.5 billion. EVEREN Securities Holding, Inc. has a 20 percent ownership interest in Mentor and may acquire additional ownership based principally on the amount of Mentor's revenues attributable to clients of EVEREN Securities, Inc., and its affiliates. WFS CLEARING SERVICES WFSI executes and clears client and proprietary accounts of approximately 54 introducing firms on a fully disclosed basis under the service name WFS Clearing Services. The introducing firms are registered broker dealers and banks whose clients are accounts of WFSI for regulatory purposes, including client margin account rules. Approximately 25 percent of all customer accounts and 30 percent of all trades processed by WFSI are conducted on a fully disclosed basis. WFSI had execution and clearing fees of $14.0 million in fiscal 1997 and $13.9 million in fiscal 1996. The client brokerage account and money market balances introduced on a fully disclosed basis also contribute to WFSI's net interest income and Mentor's asset management fees. NET CAPITAL REQUIREMENTS As a broker/dealer, Wheat is subject to the net capital rules of the Commission, the NYSE, and the Commodity Futures Trading Commission and elects to compute its net capital requirements in accordance with the alternative method. Under this method, Wheat is required to maintain minimum net capital, as defined, equal to two percent of aggregate debit balances arising from customer transactions, as defined. The net capital rules also provide that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than five percent of aggregate debits. At September 30, 1997, Wheat's net capital of $114.9 million was $101.4 million in excess of the minimum net capital required. DESCRIPTION OF WHEAT CAPITAL STOCK THE FOLLOWING DESCRIPTIVE INFORMATION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ALL RESPECTS BY REFERENCE TO THE PROVISIONS OF THE WHEAT ARTICLES, WHEAT BYLAWS AND THE VSCA. GENERAL The authorized capital stock of Wheat consists of 19,000,000 shares of Wheat Common Stock, $2.00 par value; 500,000 shares of Non-Voting Common Stock, $2 par value; and 1,000,000 shares of Wheat Preferred Stock, without par value. On the Record Date, 8,626,044 shares of Wheat Common Stock were outstanding, owned by 378 stockholders of record, 208,900 shares of Wheat Preferred Stock were outstanding and owned by the Grantor Trust (which are represented by the Trust Shares owned by 239 holders of record) and no shares of Non-Voting Common Stock were outstanding. COMMON STOCK Wheat Common Stock and Non-Voting Common Stock are identical except for the right to vote. Each holder of Wheat Common Stock is entitled to one vote for each share held of record on each matter submitted to stockholders. Non-Voting Common Stock has no right to vote except where that right is conferred by the laws of Virginia. Cumulative voting in the election of directors is not permitted. As a result, the holders of 50 percent of the outstanding shares of Wheat Common Stock have the power to elect all directors. The quorum required at a stockholder meeting for consideration of any matter is a majority of the shares entitled to vote on that matter, represented in person or by proxy. If a quorum is present, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the matter is required for stockholder approval except in the case of certain major corporate actions, such as a merger or liquidation of Wheat, an amendment to the Wheat Articles or sale of all or substantially all of Wheat's assets, all of which Virginia law requires to be approved by the affirmative vote of more than two-thirds of all shares entitled to vote on the matter. In addition, under Virginia law, certain material transactions between Wheat and interested stockholders must be approved by a majority of disinterested directors or 51 by two-thirds vote of disinterested stockholders unless disinterested stockholders are paid the "fair market value" of their shares. The holders of shares of Wheat Common Stock are entitled to receive dividends when, as and if declared by the Wheat Board out of funds legally available therefor. In the event of liquidation, dissolution or winding up of Wheat, stockholders are entitled to share ratably in all assets remaining after the payment of liabilities. Stockholders have no preemptive or other subscription rights, conversion rights, or redemption or sinking fund provisions with respect to shares of Wheat Common Stock except as described above and in the Redemption Agreements to which stockholders are parties. WHEAT PREFERRED STOCK Except as otherwise provided by the VSCA, Wheat Preferred Stock has no vote. Wheat Preferred Stock is not convertible into Wheat Common Stock or Non-Voting Common Stock, and is entitled to receive dividends in the same per share amounts and at the same time as is declared on Wheat Common Stock. In the event of any liquidation, dissolution or winding up of Wheat, holders of Wheat Preferred Stock are entitled to be paid out of assets of Wheat available for distribution to its stockholders before any payment or declaration in respect of Wheat Common Stock or Non-Voting Common Stock, a per share ratable amount with each share of Wheat Common Stock and each share of Non-Voting Common Stock, plus the amount of any declared but unpaid dividends and distributions. If, upon liquidation, the assets to be distributed to holders of Wheat Preferred Stock are insufficient to permit payment in full to such stockholder of the preferred stock preference, than all assets of Wheat are to be distributed to holders of Wheat Preferred Stock. All of the outstanding shares of Wheat Preferred Stock are owned by the Grantor Trust and are represented by the Trust Shares. WHEAT ARTICLES The Wheat Articles contain provisions similar to those in the Redemption Agreements to which all stockholders of Wheat (including holders of the Trust Shares) are parties, excluding the Wheat ASOP. The Wheat Articles generally prohibit any holder from selling, donating, pledging or in any other way transferring his or her stock without the prior written consent of the Wheat Board or its Executive Committee. If the stockholder is a party to a Redemption Agreement, the terms of the Redemption Agreement are controlling, but if he or she is not a party to such agreement the Wheat Articles are controlling. If the Wheat Board declines to consent to such transfer, Wheat may be required to purchase the shares proposed to be transferred, the price and terms to be reached by agreement or, if no agreement can be reached, to be determined by appraisal. The Wheat Articles also provide that if a stockholder violates any agreement with Wheat or the NYSE, is suspended or expelled from the NYSE or, is an officer or employee of Wheat or a subsidiary and ceases to be so employed except by reason of death or disability, or retirement, Wheat has the right to redeem the stockholder's shares at their book value as of the end of the calendar quarter preceding the date of redemption. See "; STOCK REDEMPTION AGREEMENTS". STOCK REDEMPTION AGREEMENTS The holders of Wheat Common Stock and Wheat Preferred Stock (including the holders of Trust Shares) (together, the "Wheat Holders"), excluding the Wheat ASOP, are subject to Stock Redemption Agreements (the "Redemption Agreements") with Wheat or the Grantor Trust, as applicable, that place restrictions on the sale or transfer of such shares. Under the Redemption Agreements, a disabled Wheat Holder may elect to sell to Wheat or the Grantor Trust, as applicable, all or part of his Wheat shares or Trust Shares, as applicable. The purchase price of such shares is either the book value per share ("Book Value") or an amount determined under the earnings formula set forth in the Redemption Agreement (the "Earnings Formula"), as elected by the Wheat Holder. Similarly, after receiving the approval of the Executive Committee of the Wheat Board, a Wheat Holder whose age plus years of service exceeds 75 may elect to sell a certain portion of his shares held for at least ten years for either the Book Value per share or the price determined by the Earnings Formula. In addition, upon retirement, the Wheat Holder must sell all of the Wheat Holder's shares to Wheat or the Grantor Trust, as applicable. If the shares have been held by the Wheat Holder for at least ten years, the purchase price for such shares is either the Book Value per share or the amount determined by the Earnings Formula, as elected by the Wheat Holder. Wheat must purchase shares held for fewer than ten years at the Book Value per share. Moreover, upon the death of a Wheat Holder, Wheat or the Grantor Trust, as applicable, must purchase and the Wheat Holder's representative must sell all of the Wheat Holder's shares at either the Book Value per share or the price determined by the Earnings Formula. Finally, in the following circumstances, Wheat has the right to purchase at Book Value all shares held by a Wheat Holder: (i) the Wheat Holder has proposed to sell shares without the approval of the Executive Committee of the Wheat Board, (ii) the Wheat Holder has violated an agreement made by the Wheat Holder with Wheat, its affiliates or the NYSE, (iii) the Wheat Holder desires to sell his shares to Wheat or the Grantor Trust, as applicable, (iv) the Wheat Holder is suspended or expelled from the NYSE or any other national securities or commodities exchange, or (v) the Wheat Holder 52 ceases to be employed, either voluntarily or involuntarily (except by reason of death, disability or retirement), as an officer or employee of Wheat or an affiliate of Wheat. Payments pursuant to the Redemption Agreements where the Wheat Holder has elected the Earnings Formula are evidenced by promissory notes issued by Wheat (the "Redemption Notes"). The Redemption Notes are payable in equal annual installments, generally over a four-year period at a rate of interest of nine percent per annum. As of December 5, 1997, Wheat owed an aggregrate of $8,561,964 pursuant to the Redemption Notes, including an aggregate of $534,520 payable to a director of Wheat. Shares distributed from the Wheat ASOP are valued according to an independent appraisal, which historically has been performed as of June 30 and December 31 of each year. Since 1983 the valuation has been performed by Piper Jaffray. Piper Jaffray has valued the Wheat Common Stock on the basis of minority interest value. In estimating this fair market value, Piper Jaffray considered Wheat as a going concern engaged in the business in which it was engaged as of the valuation date. Piper Jaffray's valuations, for Wheat ASOP purposes, of the fair market value per share of Wheat Common Stock on December 31, 1995, June 30, 1996, December 31, 1996 and June 30, 1997 were $20.75-$21.25; $22.50-$23.00; $29.50-$30.00; and $39.25-$39.75, respectively. In providing its opinions, Piper Jaffray assumed that all information and data furnished to it by Wheat or otherwise made available to it is accurate and complete, and it made no independent verification of such information and data. Piper Jaffray further relied upon the assurance of Wheat's management that it is not aware of any information or facts that would make the information incomplete or misleading. In arriving at its opinion, Piper Jaffray did not perform any appraisal or valuation of specific assets of Wheat and expressed no opinion regarding its liquidation value. NOTES From time to time, shares of Wheat Common Stock and Trust Shares have been offered for sale by Wheat to selected employees of Wheat. The purchase price for such shares has been the most recent book value per share of Wheat prior to the offering. The purchase price for such shares is payable in accordance with the terms of the Notes. The Notes relating to shares of Wheat Common Stock are payable to Wheat. The Notes relating to Trust Shares are payable to the Grantor Trust, which in turn has issued corresponding Notes to Wheat for the corresponding shares of Wheat Preferred Stock purchased by the Grantor Trust with the proceeds from the sale of the Trust Shares. See "THE MERGER -- Exchange of Wheat Stock". The Notes are payable over either a four-year or an eight-year period with interest at a rate of nine percent per annum. Notes payable over the four-year period are payable in four equal annual installments. Notes payable over the eight-year period are payable on or before their maturity date and may be paid by Wheat withholding 25 percent of the gross amount of any incentive compensation paid by Wheat to the Noteholder. The Notes are secured by the shares of Wheat Common Stock or Trust Shares to which they relate. As of December 5, 1997, Wheat was owed an aggregate of $2,927,213 pursuant to outstanding Notes, including an aggregate of $199,423 payable by three directors of Wheat. BOOK ENTRY SYSTEM Wheat uses a "book entry" system to evidence ownership of Wheat Common Stock. Under this system, certificates for shares of Wheat Common Stock are not issued in the name of individual stockholders, and stockholders have no right to have such certificates issued. Instead, all of the shares of Wheat Common Stock issued on or after September 30, 1992, are represented by one or more master stock certificates registered in the name of (and held by) Wheat, as nominee. Individual ownership interests, including any security interests related to the financing of the purchase price of any shares, are represented by entries on the stock records of Wheat. TRANSFER AGENT AND REGISTRAR Wheat acts as its transfer agent and registrar for the shares of Wheat Common Stock and Wheat Preferred Stock (including the Trust Shares). See "CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT AND FUNC STOCKHOLDERS". 53 FUNC GENERAL Financial and other information relating to FUNC, including information relating to FUNC's directors and executive officers, is set forth in FUNC's 1996 Annual Report on Form 10-K, 1997 Quarterly Reports on Form 10-Q, 1997 Annual Meeting Proxy Statement and 1997 Current Reports on Form 8-K, each of which is incorporated by reference herein and copies of which may be obtained from FUNC as indicated under "AVAILABLE INFORMATION". HISTORY AND BUSINESS FUNC was incorporated under the laws of North Carolina in 1967, and FUNC is registered as a bank holding company under the BHCA. Pursuant to a corporate reorganization in 1968, First Union National Bank, based in Charlotte, North Carolina ("FUNB"), and First Union Mortgage Corporation, a mortgage banking firm acquired by FUNB in 1964, became subsidiaries of FUNC. In addition to FUNB (which, as a result of corporate reorganizations in June and July 1997, conducts commercial banking operations in Florida, Georgia, South Carolina, North Carolina, Tennessee, Virginia, Maryland, Connecticut and Washington, D.C.), FUNC also owns banks conducting operations in Delaware, New Jersey, Pennsylvania and New York. In addition to providing a wide range of commercial and retail banking and trust services through its banking subsidiaries, FUNC also provides various other financial services, including mortgage banking, home equity lending, credit cards, leasing, investment banking, insurance and securities' brokerage services, through other subsidiaries. Since the 1985 Supreme Court decision upholding regional interstate banking legislation, FUNC has concentrated its efforts on building a large, regional banking organization in what it perceives to be some of the better banking markets in the eastern region of the United States. Since November 1985, FUNC has completed over 70 banking-related acquisitions and has pending three acquisitions (including Wheat), including the more significant acquisitions (I.E., involving the acquisition of $3.0 billion or more of assets or deposits) set forth in the following table. See "RECENT DEVELOPMENTS -- Pending and Recent FUNC Acquisitions".
ASSETS/ CONSIDERATION/ NAME HEADQUARTERS DEPOSITS(1)(2) ACCOUNTING TREATMENT COMPLETION DATE - --------------------------------------------- --------------- -------------- ------------------------- --------------- Atlantic Bancorporation...................... Florida $ 3.8 billion common stock/pooling November 1985 Northwestern Financial Corporation........... North Carolina 3.0 billion common stock/pooling December 1985 First Railroad & Banking Company of Georgia.................................... Georgia 3.7 billion common stock/pooling November 1986 Florida National Banks of Florida, Inc....... Florida 7.9 billion cash and preferred January 1990 stock/purchase Southeast banks.............................. Florida 9.9 billion cash, notes and preferred September 1991 stock/ purchase Resolution Trust Company ("RTC") 5.3 billion cash/purchase 1991-1994 acquisitions............................... Florida, Georgia, Virginia Dominion Bankshares Corporation.............. Virginia 8.9 billion common stock and March 1993 preferred stock/pooling Georgia Federal Bank, FSB.................... Georgia 4.0 billion cash/purchase June 1993 First American Metro Corp.................... Virginia 4.6 billion cash/purchase June 1993 American Savings of Florida, F.S.B........... Florida 3.6 billion common stock/purchase July 1995 FFB.......................................... New Jersey, Pennsylvania 35.3 billion common stock and January 1996 preferred stock/pooling Center Financial Corporation................. Connecticut 4.0 billion common stock/purchase November 1996 Signet....................................... Virginia 11.9 billion common stock/pooling November 1997 CoreStates................................... Pennsylvania $ 47.6 billion common stock/pooling pending
- --------------- (1) The dollar amounts indicated represent the assets of the related organization as of the last reporting period prior to acquisition, except for (i) the dollar amount relating to RTC acquisitions, which represents savings and loan deposits 54 acquired from the RTC, and (ii) the dollar amount relating to Southeast banks, which represents assets of the two banking subsidiaries of Southeast Banking Corporation acquired from the FDIC. (2) In addition, FUNC acquired (i) Lieber & Company, a mutual fund advisory company with approximately $3.4 billion in assets under management, in June 1994, and (ii) Keystone Investments, Inc., a mutual fund advisory company with approximately $11.6 billion in assets under management, in December 1996. The consideration paid by FUNC in each acquisition was FUNC Common Stock. Since such assets are not owned by these mutual fund advisory companies, they are not reflected on FUNC's balance sheet. FUNC is continually evaluating acquisition opportunities and frequently conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations frequently take place and future acquisitions involving cash, debt or equity securities can be expected. Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of FUNC's book value and net income per common share may occur in connection with any future transactions. CERTAIN REGULATORY CONSIDERATIONS AS A BANK HOLDING COMPANY, FUNC IS SUBJECT TO REGULATION UNDER THE BHCA AND TO ITS EXAMINATION AND REPORTING REQUIREMENTS. THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE MATERIAL ELEMENTS OF THE REGULATORY FRAMEWORK APPLICABLE TO BANK HOLDING COMPANIES AND THEIR SUBSIDIARIES AND PROVIDES CERTAIN SPECIFIC INFORMATION RELEVANT TO FUNC. TO THE EXTENT THAT THE FOLLOWING INFORMATION DESCRIBES STATUTORY AND REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE APPLICABLE STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN APPLICABLE STATUTES, REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT ON THE BUSINESS OF FUNC. GENERAL As a bank holding company, FUNC is subject to regulation under the BHCA and to its examination and reporting requirements. Under the BHCA, bank holding companies may not directly or indirectly acquire the ownership or control of more than five percent of the voting shares or substantially all of the assets of any company, including a bank, without the prior approval of, or a waiver of the requirement for such approval by, the Federal Reserve Board. In addition, bank holding companies are generally prohibited under the BHCA from engaging in nonbanking activities, subject to certain exceptions. The earnings of FUNC are affected by the legislative and governmental actions of various regulatory authorities, including the Federal Reserve Board, the OCC and the FDIC. In addition, there are numerous governmental requirements and regulations which affect the activities of FUNC. PAYMENT OF DIVIDENDS FUNC is a legal entity separate and distinct from its banking and other subsidiaries. A major portion of FUNC's revenues result from amounts paid as dividends to FUNC by its national bank subsidiaries. The prior approval of the OCC is required for the payment of any dividend by a national bank if the total of all dividends declared by the board of directors of such bank in any calendar year will exceed the sum of such bank's net profits for that year and its retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits any national bank from paying dividends which would be greater than such bank's undivided profits after deducting statutory bad debt in excess of such bank's allowance for loan losses. In addition to its national bank subsidiaries, FUNC has one state-chartered bank subsidiary which is subject to dividend limitations under applicable state laws. Under the foregoing dividend restrictions and certain restrictions applicable to certain of FUNC's nonbanking subsidiaries, as of September 30, 1997, FUNC's subsidiaries, without obtaining affirmative governmental approvals, could pay aggregate dividends of $880 million to FUNC. In the first nine months of 1997, FUNC's subsidiaries paid $896 million in cash dividends to FUNC. In addition, the corporate reorganization of certain of FUNC's subsidiary banks into FUNB resulted in a reduction of capital in the amount of $835 million, which was paid to FUNC. In addition, FUNC and its bank subsidiaries are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal regulatory authority is authorized to determine, under certain circumstances relating to the financial condition of a national bank or bank holding company, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The OCC (the appropriate agency with respect to FUNC's national bank subsidiaries) and the 55 FDIC (the appropriate agency with respect to FUNC's state-chartered bank subsidiary) have indicated that paying dividends that deplete a bank's capital base to an inadequate level would be an unsound and unsafe banking practice. The OCC, the FDIC and the Federal Reserve Board have each indicated that banking organizations should generally pay dividends only out of current operating earnings. BORROWINGS; ETC. There are also various legal restrictions on the extent to which each of FUNC and certain of its nonbank subsidiaries can borrow or otherwise obtain credit from its bank subsidiaries. In general, these restrictions require that any such extensions of credit must be secured by designated amounts of specified collateral and are limited, as to any one of FUNC or such nonbank subsidiaries, to ten percent of the lending bank's capital stock and surplus, and as to FUNC and all such nonbank subsidiaries in the aggregate, to 20 percent of such lending bank's capital stock and surplus. The Federal Deposit Insurance Act, as amended (the "FDIA") imposes liability on an institution whose deposits are insured by the FDIC, such as FUNC's subsidiary banks, for certain potential losses of the FDIC incurred in connection with other FDIC-insured institutions under common control with such institution. Under the National Bank Act, if the capital stock of a national bank is impaired by losses or otherwise, the OCC is authorized to require payment of the deficiency by assessment upon the bank's stockholders, pro rata and, to the extent necessary, if any such assessment is not paid by any stockholder after three months notice, to sell the stock of such stockholder to make good the deficiency. Under Federal Reserve Board policy, FUNC is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources to support each of such subsidiaries. This support may be required at times when, absent such Federal Reserve Board policy, FUNC may not find itself willing or able to provide it. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. CAPITAL ADEQUACY The Federal Reserve Board, the FDIC and the OCC have adopted substantially similar risk-based and leverage capital guidelines for United States banking organizations. Under these risked-based capital standards, the minimum consolidated ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) is eight percent. At least half of the total capital is to be composed of common stockholder's equity, retained earnings, a limited amount of qualifying perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, less goodwill and certain intangibles ("tier 1 capital" and, together with tier 2 capital, "total capital"). The remainder of total capital may consist of mandatory convertible debt securities and a limited amount of subordinated debt, qualifying preferred stock and loan loss allowance ("tier 2 capital"). At September 30, 1997, FUNC's tier 1 and total capital ratios were 8.18 percent and 13.72 percent, respectively. On an FUNC, Signet and Wheat combined basis, such ratios at September 30, 1997, would have been 8.46 percent and 13.86 percent, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum leverage ratio of tier 1 capital to adjusted average quarterly assets less certain amounts ("leverage ratio") equal to three percent for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies will generally be required to maintain a leverage ratio of from at least four to five percent. FUNC's leverage ratio at September 30, 1997, was 6.53 percent. On an FUNC, Signet and Wheat combined basis, such ratio at September 30, 1997, would have been 6.72 percent. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the guidelines indicate that the Federal Reserve Board will continue to consider a "tangible tier 1 leverage ratio" (deducting all intangibles) in evaluating proposals for expansion or new activity. The Federal Reserve Board has not advised FUNC of any specific minimum leverage ratio or tangible tier 1 leverage ratio applicable to it. Each of FUNC's subsidiary banks is subject to similar capital requirements adopted by the OCC or the FDIC. Each of FUNC's subsidiary banks had a leverage ratio in excess of 5.87 percent as of September 30, 1997. The federal banking agencies have not advised any of the subsidiary banks of any specific minimum leverage ratio applicable to it. 56 PROMPT CORRECTIVE ACTION The FDIA, among other things, requires the federal banking agencies to take "prompt corrective action" in respect of depository institutions that do not meet minimum capital requirements. The FDIA establishes five capital tiers: "well capitalized"; "adequately capitalized"; "undercapitalized"; "significantly undercapitalized"; and "critically undercapitalized". A depository institution's capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation. The federal bank regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels applicable to FDIC-insured banks. The relevant capital measures are the total capital ratio, tier 1 capital ratio and the leverage ratio. Under the regulations, a FDIC-insured bank will be (i) "well capitalized" if it has a total capital ratio of ten percent or greater, a tier 1 capital ratio of six percent or greater and a leverage ratio of five percent or greater and is not subject to any order or written directive by the OCC to meet and maintain a specific capital level for any capital measure; (ii) "adequately capitalized" if it has a total capital ratio of eight percent or greater, a tier 1 capital ratio of four percent or greater and a leverage ratio of four percent or greater (three percent in certain circumstances) and is not "well capitalized"; (iii) "undercapitalized" if it has a total capital ratio of less than eight percent, a tier 1 capital ratio of less than four percent or a leverage ratio of less than four percent (three percent in certain circumstances); (iv) "significantly undercapitalized" if it has a total capital ratio of less than six percent, a tier 1 capital ratio of less than three percent or a leverage ratio of less than three percent; and (v) "critically undercapitalized" if its tangible equity is equal to or less than two percent of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. As of September 30, 1997, all of FUNC's deposit-taking subsidiary banks had capital levels that qualify them as being "well capitalized" under such regulations. The FDIA generally prohibits a FDIC-insured depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be "undercapitalized". "Undercapitalized" depository institutions are subject to growth limitations and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of: (i) an amount equal to five percent of the depository institution's total assets at the time it became "undercapitalized"; and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is "significantly undercapitalized". "Significantly undercapitalized" insured depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become "adequately capitalized", requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. "Critically undercapitalized" institutions are subject to the appointment of a receiver or conservator. A bank that is not "well capitalized" is subject to certain limitations relating to so-called "brokered" deposits. DEPOSITOR PREFERENCE STATUTE Under federal law, deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the "liquidation or other resolution" of such an institution by any receiver. INTERSTATE BANKING AND BRANCHING LEGISLATION The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "IBBEA") authorized interstate acquisitions of banks and bank holding companies without geographic limitation beginning one year after enactment. In addition, it authorized, beginning June 1, 1997, a bank to merge with a bank in another state as long as neither of the states has opted out of interstate branching between the date of enactment of the IBBEA and May 31, 1997. In addition, a bank may establish and operate a DE NOVO branch in a state in which the bank does not maintain a branch if that state expressly permits DE NOVO interstate branching. It was pursuant to authority from IBBEA that FUNB completed its reorganizations in June and July 1997. In addition, First Union National Bank, which conducts banking operations in New York, New Jersey and Pennsylvania, is to be merged with FUNB in February 1998, pending regulatory approval. 57 FDIC INSURANCE ASSESSMENTS; DIFA Effective January 1, 1996, the FDIC reduced the insurance premiums it currently charges on bank deposits insured by the Bank Insurance Fund ("BIF") to the statutory minimum of $2,000 for "well capitalized" banks. The Deposit Insurance Funds Act of 1996, which was enacted on September 30, 1996 ("DIFA"), reduced the amount of semi-annual FDIC insurance premiums for savings association deposits acquired by banks and insured by SAIF to the same levels assessed for deposits insured by BIF. DIFA also provided for a special one-time assessment imposed on deposits insured by SAIF, including such deposits held by banks, to bring the SAIF up to statutorily required levels. FUNC accrued for the one-time assessment in the third quarter of 1996 in the amount of $86 million after tax in connection with the SAIF recapitalization. DIFA further provides for assessments to be imposed on insured depository institutions with respect to deposits insured by the BIF, and continues the assessments currently imposed on depository institutions with respect to SAIF-insured deposits, to pay for the cost of Financing Corporation funding. DESCRIPTION OF FUNC CAPITAL STOCK THE DESCRIPTIVE INFORMATION SUPPLIED HEREIN OUTLINES CERTAIN PROVISIONS OF THE FUNC ARTICLES, THE FUNC BYLAWS AND THE NCBCA. THE INFORMATION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ALL RESPECTS BY REFERENCE TO THE PROVISIONS OF THE FUNC ARTICLES, THE FUNC BYLAWS AND THE NCBCA. AUTHORIZED CAPITAL The authorized capital stock of FUNC consists of 750,000,000 shares of FUNC Common Stock, 10,000,000 shares of Preferred Stock, no-par value per share ("FUNC Preferred Stock"), and 40,000,000 shares of FUNC Class A Preferred Stock, no-par value per share ("FUNC Class A Preferred Stock"). As of September 30, 1997, there were 568,296,416 shares of FUNC Common Stock, no shares of FUNC Preferred Stock and no shares of FUNC Class A Preferred Stock issued and outstanding. In connection with the CoreStates acquisition, FUNC stockholders will vote on a proposal to increase the authorized shares of FUNC Common Stock from 750,000,000 to 2,000,000,000. See "RECENT DEVELOPMENTS -- Pending and Recent FUNC Acquisitions; CORESTATES". The FUNC Preferred Stock and FUNC Class A Preferred Stock are each issuable in one or more series, and with respect to any series, the FUNC Board of Directors, subject to certain limitations, is authorized to fix the number of shares, dividend rates, liquidation prices, liquidation rights of holders, redemption, conversion and voting rights and other terms of the series. Shares of FUNC Class A Preferred Stock and FUNC Preferred Stock that are redeemed, repurchased or otherwise acquired by FUNC have the status of authorized, unissued and undesignated shares of FUNC Class A Preferred Stock and FUNC Preferred Stock, respectively, and may be reissued. FUNC COMMON STOCK Subject to the prior rights of the holders of any FUNC Preferred Stock and any FUNC Class A Preferred Stock then outstanding, holders of FUNC Common Stock are entitled to receive such dividends as may be declared by the FUNC Board of Directors out of funds legally available therefor, and in the event of liquidation or dissolution, to receive the net assets of FUNC remaining after payment of all liabilities and after payment to holders of all shares of FUNC Preferred Stock and FUNC Class A Preferred Stock of the full preferential amounts to which such holders are respectively entitled, in proportion to their respective holdings. See "FUNC -- Certain Regulatory Considerations; PAYMENT OF DIVIDENDS". Pursuant to an indenture dated as of November 27, 1996, between FUNC and Wilmington Trust Company, as trustee, under which certain of FUNC's outstanding junior subordinated debt securities have been issued, FUNC has covenanted that it generally will not declare or pay any dividends or distributions on, or redeem, repurchase, acquire or make a liquidation payment with respect to, any of FUNC's capital stock, including FUNC Common Stock, FUNC Preferred Stock and FUNC Class A Preferred Stock if, at such time, certain defaults have occurred under such indenture or a related guarantee of FUNC or FUNC shall have exercised its right under such indenture to defer interest payments on the securities issued thereunder. Subject to the rights of the holders of any FUNC Preferred Stock and any FUNC Class A Preferred Stock then outstanding, all voting rights are vested in the holders of the shares of FUNC Common Stock, each share being entitled to one vote on all matters requiring stockholder action and in the election of directors. Holders of FUNC Common Stock have no preemptive, subscription or conversion rights. All of the outstanding shares of FUNC Common Stock are fully paid and nonassessable, and the FUNC Common Shares issuable to the stockholders of Wheat upon consummation of the Merger will, upon issuance, be fully paid and nonassessable. 58 FUNC PREFERRED STOCK All shares of each series of FUNC Preferred Stock must be of equal rank and have the same powers, preferences and rights and be subject to the same qualifications, limitations and restrictions, except with respect to dividend rates, redemption prices, liquidation amounts, terms of conversion or exchange and voting rights. FUNC CLASS A PREFERRED STOCK Shares of FUNC Class A Preferred Stock rank prior or superior to FUNC Common Stock and on a parity with or junior to (but not prior or superior to) FUNC Preferred Stock or any series thereof, in respect of the right to receive dividends and/or the right to receive payments out of the net assets of FUNC upon any involuntary or voluntary liquidation, dissolution or winding up of FUNC. Subject to the foregoing and to the terms of any particular series of FUNC Class A Preferred Stock, each series of FUNC Class A Preferred Stock may vary as to priority. FUNC RIGHTS PLAN Each outstanding share of FUNC Common Stock currently has attached to it one right (an "FUNC Right") issued pursuant to a Shareholder Protection Rights Agreement (as amended, the "FUNC Rights Agreement"). Accordingly, in the Merger, holders of Wheat Common Stock and Wheat Preferred Stock would receive one FUNC Right with respect to each share of FUNC Common Stock they receive, which FUNC Right will be attached to the related shares of FUNC Common Stock, unless the Separation Time (as defined below) has occurred, in which case holders of Wheat Common Stock and Wheat Preferred Stock would receive separate certificates with respect to such FUNC Rights. Each FUNC Right entitles its registered holder to purchase one one-hundredth of a share of a junior participating series of FUNC Class A Preferred Stock designed to have economic and voting terms similar to those of one share of FUNC Common Stock, for $105.00 (as adjusted to reflect the FUNC Stock Split), subject to adjustment (the "Rights Exercise Price"), but only after the earlier to occur (the "Separation Time") of: (i) the tenth business day (subject to extension) after any person (an "Acquiring Person") (x) commences a tender or exchange offer, which, if consummated, would result in such person becoming the beneficial owner of 15 percent or more of the outstanding shares of FUNC Common Stock, or (y) is determined by the Federal Reserve Board to "control" FUNC within the meaning of the BHCA (see " -- Other Provisions" below), subject to certain exceptions; and (ii) the tenth business day after the first date (the "Flip-in Date") of a public announcement by FUNC that a person has become an Acquiring Person. The FUNC Rights will not trade separately from the shares of FUNC Common Stock unless and until the Separation Time occurs. The FUNC Rights Agreement provides that a person will not become an Acquiring Person under the BHCA control-based test described above if either (i) the Federal Reserve Board's control determination would not have been made but for such person's failure to make certain customary passivity commitments, or such person's violation of such commitments made, to the Federal Reserve Board, so long as the Federal Reserve Board determines that such person no longer controls FUNC within 30 days (or 60 days in certain circumstances), or (ii) the Federal Reserve Board's control determination was not based on such a failure or violation and such person (x) obtains a noncontrol determination within three years, and (y) is using its best efforts to allow FUNC to make any acquisition or engage in any legally permissible activity notwithstanding such person's being deemed to control FUNC for purposes of the BHCA. The FUNC Rights will not be exercisable until the business day following the Separation Time. The FUNC Rights will expire on the earliest of: (i) the Exchange Time (as defined below); (ii) the close of business on December 28, 2000; and (iii) the date on which the FUNC Rights are redeemed or terminated as described below (in any such case, the "Expiration Time"). The Rights Exercise Price and the number of FUNC Rights outstanding, or in certain circumstances the securities purchasable upon exercise of the FUNC Rights, are subject to adjustment upon the occurrence of certain events. In the event that prior to the Expiration Time a Flip-in Date occurs, FUNC will take such action as shall be necessary to ensure and provide that each FUNC Right (other than FUNC Rights beneficially owned by an Acquiring Person or any affiliate, associate or transferee thereof, which FUNC Rights shall become void) shall constitute the right to purchase, from FUNC, shares of FUNC Common Stock having an aggregate market price equal to twice the Rights Exercise Price for an amount in cash equal to the then current Rights Exercise Price. In addition, the FUNC Board of Directors may, at its option, at any time after a Flip-in Date, elect to exchange all of the then outstanding FUNC Rights for shares of FUNC Common Stock, at an exchange ratio of two shares of FUNC Common Stock per FUNC Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the Separation Time (the "Rights Exchange Rate"). Immediately upon such action by the FUNC Board of Directors (the "Exchange Time"), the right to exercise the FUNC Rights will terminate, and each FUNC Right will thereafter represent only the right to receive a number of shares of FUNC Common 59 Stock equal to the Rights Exchange Rate. If FUNC becomes obligated to issue shares of FUNC Common Stock upon exercise of or in exchange for FUNC Rights, FUNC, at its option, may substitute therefor shares of junior participating FUNC Class A Preferred Stock upon exercise of each FUNC Right at a rate of two one-hundredths of a share of junior participating FUNC Class A Preferred Stock upon the exchange of each FUNC Right. The FUNC Rights may be canceled and terminated without any payment to holders thereof at any time prior to the date that they become exercisable and are redeemable by FUNC at $.01 per FUNC Right, subject to adjustment upon the occurrence of certain events, at any date between the date on which they become exercisable and the Flip-In Date. The FUNC Rights have no voting rights and are not entitled to dividends. The FUNC Rights will not prevent a takeover of FUNC. The FUNC Rights, however, may cause substantial dilution to a person or group that acquires 15 percent or more of FUNC Common Stock (or that acquires "control" of FUNC within the meaning of the BHCA) unless the FUNC Rights are first redeemed or terminated by the FUNC Board of Directors. Nevertheless, the FUNC Rights should not interfere with a transaction that is in the best interests of FUNC and its stockholders because the FUNC Rights can be redeemed or terminated, as hereinabove described, before the consummation of such transaction. The complete terms of the FUNC Rights are set forth in the FUNC Rights Agreement. The foregoing description of the FUNC Rights and the FUNC Rights Agreement is qualified in its entirety by reference to such document. The FUNC Rights Agreement is incorporated by reference as an exhibit to the Registration Statement. A copy of the FUNC Rights Agreement can be obtained upon written request to the Rights Agent, First Union National Bank, 1525 West W. T. Harris Blvd., Charlotte, North Carolina 28288-1153. OTHER PROVISIONS The FUNC Articles and the FUNC Bylaws contain a number of provisions which may be deemed to have the effect of discouraging or delaying attempts to gain control of FUNC. These include provisions in the FUNC Articles: (i) classifying the FUNC Board of Directors into three classes with each class to serve for three years with one class being elected annually; (ii) authorizing the FUNC Board of Directors to fix the size of the FUNC Board of Directors at between nine and 30 directors; (iii) authorizing directors to fill vacancies on the FUNC Board of Directors that occur between annual meetings, except that vacancies resulting from a removal of a director by a stockholder vote may only be filled by a stockholder vote; (iv) providing that directors may be removed only for cause and only by affirmative vote of the majority of shares entitled to be voted in the election of directors, voting as a single class; (v) authorizing only the FUNC Board of Directors, the Chairman of the FUNC Board of Directors or the President to call a special meeting of stockholders (except for special meetings called under specified circumstances for holders of classes or series of stock ranking superior to the FUNC Common Stock); and (vi) requiring an 80 percent vote of stockholders entitled to vote in the election of directors, voting as a single class, to alter any of the foregoing provisions. The FUNC Bylaws include provisions setting forth specific conditions under which: (i) business may be transacted at an annual meeting of stockholders; and (ii) persons may be nominated for election as directors of FUNC at an annual meeting of stockholders. The Change in Bank Control Act prohibits a person or group of persons from acquiring "control" of a bank holding company unless the Federal Reserve Board has been given 60 days' prior written notice of such proposed acquisition and within that time period the Federal Reserve Board has not issued a notice disapproving the proposed acquisition or extending for up to another 30 days the period during which such a disapproval may be issued, or unless the acquisition is subject to Federal Reserve Board approval under the BHCA. An acquisition may be made prior to the expiration of the disapproval period if the Federal Reserve Board issues written notice of its intent not to disapprove the action. Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of more than ten percent of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as FUNC, would, under the circumstances set forth in the presumption, constitute the acquisition of control. In addition, any "company" would be required to obtain the approval of the Federal Reserve Board under the BHCA before acquiring 25 percent (five percent in the case of an acquiror that is a bank holding company) or more of the outstanding shares of FUNC Common Stock, or otherwise obtaining "control" over FUNC. Under the BHCA, "control" generally means (i) the ownership or control of 25 percent or more of any class of voting securities of the bank holding company, (ii) the ability to elect a majority of the bank holding company's directors, or (iii) the ability otherwise to exercise a controlling influence over the management and policies of the bank holding company. 60 Two North Carolina "anti-takeover" statutes adopted in 1987, The North Carolina Shareholder Protection Act and The North Carolina Control Share Acquisition Act, allowed North Carolina corporations to elect to either be covered or not be covered by such statutes. FUNC elected not to be covered by such statutes. In addition to the foregoing, in certain instances the ability of the FUNC Board of Directors to issue authorized but theretofore unissued shares of FUNC Common Stock, FUNC Class A Preferred Stock or FUNC Preferred Stock may have an anti-takeover effect. The existence of the foregoing provisions could (i) result in FUNC being less attractive to a potential acquiror, or (ii) result in FUNC stockholders receiving less for their shares of FUNC Common Stock than otherwise might be available in the event of a takeover attempt. CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT AND FUNC STOCKHOLDERS GENERAL FUNC is a North Carolina corporation subject to the provisions of the NCBCA, and Wheat is a Virginia corporation subject to the provisions of the VSCA. Stockholders of Wheat will, upon consummation of the Merger, become stockholders of FUNC. The rights of such stockholders as stockholders of FUNC will then be governed by the FUNC Articles and the FUNC Bylaws, in addition to the NCBCA. Set forth below are the material differences between the rights of a Wheat stockholder under the VSCA, the Wheat Articles and the Wheat Bylaws, on the one hand, and the rights of an FUNC stockholder under the NCBCA, the FUNC Articles and the FUNC Bylaws, on the other hand. This summary does not purport to be a complete discussion of, and is qualified in its entirety by reference to, the governing law and the articles of incorporation and bylaws of each corporation. AUTHORIZED CAPITAL WHEAT. Wheat's authorized capital is set forth under "WHEAT -- Description of Wheat Capital Stock; GENERAL". FUNC. FUNC's authorized capital is set forth under "DESCRIPTION OF FUNC CAPITAL STOCK -- Authorized Capital". AMENDMENT TO ARTICLES OF INCORPORATION OR BYLAWS WHEAT. Except for certain minor amendments specified in the VSCA, any proposed amendment to the Wheat Articles must receive approval from both the Wheat Board and the stockholders. The Wheat Board may propose an amendment to the Wheat Articles for submission to the stockholders. For the amendment to be adopted, the Wheat Board must recommend the amendment to the stockholders, unless it determines that it should not make a recommendation because of a conflict of interest or other special circumstances. In accordance with the VSCA, the Wheat Board may condition its submission of a proposed amendment on any basis. The Wheat stockholders then must approve the amendment by more than two-thirds of the votes entitled to be cast by each voting group. In certain circumstances, a class or series of shares is entitled to vote as a separate voting group on a proposed amendment. Either the Wheat Board or the stockholders may amend the Wheat Bylaws. The Wheat stockholders may prescribe that any bylaw made by them shall not be altered, amended or repealed by the Wheat Board. FUNC. Under North Carolina law, an amendment to the FUNC Articles generally requires the recommendation of the FUNC Board of Directors and the approval of either a majority of all shares entitled to vote thereon or a majority of the votes cast thereon, depending on the nature of the amendment. In accordance with North Carolina law, the FUNC Board of Directors may condition its submission of the proposed amendment on any basis. An amendment to the FUNC Bylaws generally requires the approval of either the stockholders or the FUNC Board of Directors. The FUNC Board of Directors generally may not amend any bylaw approved by the stockholders. Under certain circumstances, the approval of the holders of at least two-thirds, or in some cases a majority, of the outstanding shares of any series of FUNC Preferred Stock or FUNC Class A Preferred Stock may be required to amend the FUNC Articles. In addition, certain amendments to the FUNC Articles or the FUNC Bylaws require the approval of not less than 80 percent of the outstanding shares of FUNC entitled to vote in the election of directors, voting together as a single class. See "DESCRIPTION OF FUNC CAPITAL STOCK". SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS WHEAT. The number of Wheat directors currently is determined by the Wheat Board between annual meetings of the stockholders, but must always be at least three. Under the VSCA, Wheat stockholders may adopt a bylaw fixing the number 61 of directors and may direct that such bylaw may not be amended by the Wheat Board. The number of directors of Wheat is currently set at 12. FUNC. The size of the FUNC Board of Directors is determined by the affirmative vote of a majority of the FUNC Board of Directors, provided that the FUNC Board may not set the number of directors at less than nine nor more than 30, and provided further that no decrease in the number of directors may shorten the term of any director then in office. The number of directors of FUNC is currently set at 29. See "RECENT DEVELOPMENTS -- Pending and Recent FUNC Acquisitions". The FUNC Board of Directors is divided into three classes, each as nearly as possible equal in number as the others, with one class being elected annually. REMOVAL OF DIRECTORS WHEAT. Any Wheat director may be removed, with or without cause, by the vote of the holders of a majority of shares of the voting group who elected such director, given either at a special meeting of such stockholders duly called for such purpose or pursuant to a written consent of such stockholders. Any vacancy in the Wheat Board created by such removal may be filled by the holders of the shares of such voting group represented at such meeting or pursuant to such written consent. FUNC. Except for directors elected under specified circumstances by holders of any class or series of stock having a preference over FUNC Common Stock as to dividends or upon liquidation, directors of FUNC may be removed only for cause and only by a vote of the holders of a majority of the shares then entitled to vote in the election of directors, voting together as a single class. DIRECTOR EXCULPATION WHEAT. The Wheat Articles provide that, in any proceeding brought by or in the right of Wheat or brought by or on behalf of the Wheat stockholders, no Wheat director shall be liable to Wheat or its stockholders for monetary damages with respect to any single transaction, occurrence or course of conduct. The liability of any Wheat director, however, may not be limited if the director engaged in willful misconduct or a knowing violation of the criminal law or any federal or state securities law. FUNC. The FUNC Articles provide for the elimination of personal liability of each director of FUNC to the fullest extent permitted by the provisions of the NCBCA, as the same may be in effect from time to time. The NCBCA does not permit the elimination of such liability with respect to (i) acts or omissions the director knew or believed were clearly in conflict with the best interests of FUNC, (ii) any liability under the NCBCA for unlawful distributions by FUNC, or (iii) any transaction from which the director derived an improper personal benefit. DIRECTOR CONFLICT OF INTEREST TRANSACTIONS WHEAT. The VSCA provides that transactions between a corporation and a director in which the director has a direct or indirect personal interest is not voidable by the corporation solely because of the director's interest in the transaction if: (i) the material facts of the transaction and the director's interest were disclosed or known to the board of directors (or a committee thereof) and the board (or such committee) authorized, approved or ratified the transaction, (ii) the material facts of the transaction and the director's interest were disclosed to the stockholders entitled to vote and they authorized, approved or ratified the transaction, or (iii) the transaction was fair to the corporation. For purposes of clause (i) above, a conflict of interest transaction is authorized, approved or ratified if it receives the affirmative vote of the majority of directors (or committee members), who have no direct or indirect personal interest in the transaction. The presence of, or a vote cast by, a director with a direct or indirect personal interest does not affect the validity of any action taken under clause (i) above if the transaction is otherwise authorized, approved or ratified pursuant to that clause. FUNC. North Carolina law generally permits transactions involving a North Carolina corporation and an interested director of that corporation if: (i) the material facts of the transaction and the director's interest are disclosed and a majority of disinterested shares entitled to vote thereon authorizes, approves or ratifies the transaction; (ii) the material facts are disclosed and a majority of disinterested directors or a committee of the board of directors authorizes, approves or ratifies the transaction; or (iii) the transaction is fair to the corporation. North Carolina law prohibits loans to directors or the guaranteeing of their obligations by a North Carolina corporation unless approved by a majority vote of disinterested stockholders or unless the corporation's board of directors determines that the loan or guarantee benefits the corporation and either approves the specific loan or guarantee or a general plan of loans and guarantees by the corporation. 62 STOCKHOLDER MEETINGS WHEAT. A meeting of the Wheat stockholders must be held if it is called by (i) the President, (ii) by a majority of directors, or (iii) by the holders of at least one-tenth of the outstanding number of shares of Wheat capital stock entitled to vote. A quorum for a meeting of Wheat stockholders is a majority of the outstanding shares of Wheat capital stock entitled to vote. Except as set forth under " -- Required Stockholder Vote for Certain Actions; WHEAT", the Wheat Articles provide that a majority of votes cast generally is required for any action by the stockholders of Wheat. FUNC. A special meeting of stockholders may be called for any purpose only by the FUNC Board of Directors, the Chairman of the FUNC Board of Directors or the President (except for special meetings called under specified circumstances for holders of any class or series of stock having a preference over FUNC Common Stock as to dividends or upon liquidation). A quorum for a meeting of the stockholders of FUNC is a majority of the outstanding shares of FUNC entitled to vote. Except as provided in the FUNC Articles or in the NCBCA, a majority of the votes cast is generally required for any action by the stockholders of FUNC. North Carolina law provides that such quorum and voting requirements may be increased only with the approval of the stockholders of FUNC. DIRECTOR NOMINATIONS WHEAT. Neither the VSCA nor the Wheat Bylaws establish procedures for stockholders to nominate persons for election to the Wheat Board. FUNC. The FUNC Bylaws establish procedures that must be followed for stockholders to nominate persons for election to the FUNC Board of Directors. Such nominations must be made by delivering written notice to the Secretary of FUNC not less than 60 or more than 90 days prior to the annual meeting at which directors will be elected; provided, however, that if less than 70 days' notice of the date of the meeting is given, such written notice by the stockholder must be so delivered not later than the tenth day after the day on which such notice of the date of the meeting was given. Notice will be deemed to have been given more than 70 days prior to the meeting if the meeting is called on the third Tuesday of April regardless as to when public disclosure is made. The nomination notice must set forth certain information about the person to be nominated similar to that required to be disclosed in the solicitation of proxies for election of directors pursuant to Items 7(a) and 7(b) of Regulation 14A under the Exchange Act and such person's written consent to being nominated and to serving as a director if elected. The nomination notice must also set forth certain information about the person submitting the notice, including the name and address of the stockholder and the class and number of shares of FUNC Common Stock owned of record or beneficially by such stockholder. The Chairman of the meeting will, if the facts warrant, determine that a nomination was not made in accordance with the provisions prescribed by the FUNC Bylaws, and the defective nomination will be disregarded. The foregoing procedures do not apply to any director who is nominated under specified circumstances by holders of any class or series of stock having a preference over FUNC Common Stock as to dividends or upon liquidation. STOCKHOLDER PROPOSALS WHEAT. Neither the VSCA nor the Wheat Bylaws establish procedures for submission of stockholder proposals. FUNC. The FUNC Bylaws establish procedures that must be followed for a stockholder to submit a proposal to a vote of the stockholders of FUNC at an annual meeting of stockholders. Such proposal must be made by the stockholder delivering written notice to the Secretary of FUNC not less than 60 days nor more than 90 days prior to the meeting; provided, however, that if less than 70 days' notice of the date of the meeting is given, such written notice by the stockholder must be so delivered not later than the tenth day after the day on which such notice of the date of the meeting was given. Notice will be deemed to have been given more than 70 days prior to the meeting if the meeting is called on the third Tuesday of April. The stockholder proposal notice must set forth: (i) a brief description of the proposal and the reasons for its submission; (ii) the name and address of the stockholder, as they appear on FUNC's books; (iii) the classes and number of shares of FUNC stock owned by the stockholder; and (iv) any material interest of the stockholder in such proposal other than such holder's interest as a stockholder of FUNC. The chairman of the meeting will, if the facts warrant, determine that any proposal was not properly submitted in accordance with the provisions prescribed by the FUNC Bylaws, and the defective proposal will not be submitted at the meeting for a vote of the stockholders. STOCKHOLDER PROTECTION RIGHTS PLANS WHEAT. Wheat has not adopted a stockholder rights plan. 63 FUNC. FUNC has adopted the FUNC Rights Agreement. See "DESCRIPTION OF FUNC CAPITAL STOCK -- FUNC Rights Plan". STOCKHOLDER INSPECTION RIGHTS; STOCKHOLDER LISTS WHEAT. The VSCA requires a Virginia corporation to allow any stockholder to inspect and copy, after at least five business days notice to the corporation, the following records: (i) current articles of incorporation and bylaws, (ii) any board of directors resolutions creating any outstanding class or series of shares, (iii) minutes and written unanimous consents of stockholders for the past three years, (iv) written communications to stockholders for the past three years, (v) names and addresses of current directors and officers, and (vi) the most recent annual report to the State Corporation Commission. Under the VSCA, a stockholder of a Virginia corporation is entitled to inspect and copy certain other books and records of the corporation, including a list of stockholders, if (i) the stockholder has been a stockholder of record for at least six months immediately preceding his or her written demand or is the holder of at least five percent of the corporation's outstanding shares, (ii) the stockholder's demand is made in good faith and for a proper purpose, (iii) the stockholder describes with reasonable particularity the purpose of the request and the records desired to be inspected, and (iv) the records are directly connected with the stated purpose, and the stockholder gives the corporation written notice of his or her demand at least five business days before the date he or she wishes to inspect or copy. The VSCA also provides that a corporation shall make available for inspection by any stockholder during usual business hours, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, provided that such stockholder meets the requirements of the preceding sentence if the corporation has securities registered under the Exchange Act. FUNC. Under the NCBCA, qualified stockholders have the right to inspect and copy certain records of FUNC if their demand is made in good faith and for a proper purpose. Such right of inspection requires that the stockholder give FUNC at least five business days' written notice of the demand, describing with reasonable particularity his purpose and the requested records. The records must be directly connected with the stockholder's purpose. The rights of inspection and copying extend not only to stockholders of record but also to beneficial owners whose beneficial ownership is certified to FUNC by the stockholder of record. However, FUNC is under no duty to provide any accounting records or any records with respect to any matter that FUNC determines in good faith may, if disclosed, adversely affect FUNC in the conduct of its business or may constitute material non-public information, and the rights of inspection and copying are limited to stockholders who either have been stockholders for at least six months or who hold at least five percent of the outstanding shares of any class of stock of FUNC. A stockholder's agent or attorney has the same inspection and copying rights as the stockholder he or she represents. In addition, after fixing a record date for a stockholders' meeting, FUNC is required to prepare a stockholder list with respect to such stockholders' meeting and to make such list available at FUNC's principal office or at a place identified in the meeting notice to any stockholder beginning two business days after notice of such meeting is given and continuing through such meeting and any adjournment thereof. Subject to the applicable provisions of the NCBCA, a stockholder or his or her agent or attorney upon written demand at his or her own expense during regular business hours is entitled to copy such list. Such list must be available at the stockholders' meeting, and any stockholder, his or her agent or attorney, may inspect such list at any time during the meeting or any adjournment thereof. REQUIRED STOCKHOLDER VOTE FOR CERTAIN ACTIONS WHEAT. The Wheat Articles require the approval of the holders of more than two-thirds of all the votes entitled to be cast thereon by each voting group entitled to vote, on any amendment to the Wheat Articles, plan of merger, plan of share exchange, sale or other disposition of substantially all of the assets of a corporation not in the ordinary course of business or dissolution. The Wheat Articles also provide that directors shall be elected by a plurality of the votes cast by the holders of shares entitled to vote in an election at a meeting at which a quorum is present. The VSCA specifies additional voting requirements for Affiliated Transactions (as hereinafter defined) and transactions that would cause an acquiring person's voting power to meet or exceed specified thresholds, as discussed below. The VSCA contains provisions governing "Affiliated Transactions". These provisions, with several exceptions discussed below, require approval of material acquisition transactions between a Virginia corporation and any holder of more than ten percent of any class of its outstanding voting shares (an "Interested Shareholder") by the holders of at least two-thirds of the remaining voting shares. Affiliated Transactions subject to the approval requirement include mergers, share exchanges, dispositions of corporate assets with a value in excess of five percent of the corporation's net worth, any guaranty of indebtedness in excess of five percent of the corporation's net worth, disposition of voting shares with an aggregate value in excess of five 64 percent of the aggregate value of all outstanding shares, any dissolution of the corporation proposed by or on behalf of an Interested Shareholder, or any reclassification of securities, including reverse stock splits, recapitalization or merger of the corporation with its subsidiaries which increases the percentage of voting shares owned beneficially by an Interested Shareholder by more than five percent. For three years following the time that an Interested Shareholder becomes an owner of ten percent of the outstanding voting shares, a Virginia corporation cannot engage in an Affiliated Transaction with such Interested Shareholder without approval of two-thirds of the voting shares other than those shares beneficially owned by the Interested Shareholder, and majority approval of the "Disinterested Directors". A Disinterested Director means, with respect to a particular Interested Shareholder, a member of a corporation's board of directors who was (i) a member on the date on which an Interested Shareholder became an Interested Shareholder, and (ii) recommended for election by, or was elected to fill a vacancy and received the affirmative vote of, a majority of the Disinterested Directors then on the board. After the three-year moratorium has expired, an Interested Shareholder may engage in an Affiliated Transaction with the corporation, but only if it is approved by a majority of the Disinterested Directors or by two-thirds of the disinterested stockholders or unless it complies with certain statutory fair price provisions. The statutory fair price exception is designed to permit an Interested Shareholder to effect an affiliated transaction even if he is unable to obtain the approval of a majority of Disinterested Directors or more than two-thirds of the disinterested shares so long as all stockholders of the corporation receive a "fair price" for their shares. To qualify for this exception, in the Affiliated Transaction the holders of all voting shares must receive consideration in the transaction and the per share consideration for each class or series of shares must at least equal the highest of the following: (i) the highest price paid by the Interested Shareholder for shares during the two-year period prior to the date on which the stockholder became an Interested Shareholder or, if higher, in the transaction in which he became an Interested Shareholder, plus interest net of any cash dividends paid; (ii) the fair market value of the shares plus interest net of any cash dividends; (iii) if applicable, the price determined pursuant to clause (ii) multiplied by the ratio of the highest price that the Interested Shareholder paid for any shares during the two-year period prior to the date he became an Interested Shareholder to the fair market value of such shares on the first day in such two-year period in which he acquired any of the shares; or (iv) if applicable, the highest preferential amount to which the shares are entitled upon any voluntary or involuntary dissolution of the corporation. None of the foregoing limitations and special voting requirements applies to a transaction, such as the Merger, with an Interested Shareholder whose acquisition of shares making such person an Interested Shareholder was approved in advance by a majority of the Virginia corporation's Disinterested Directors. These provisions were designed to deter certain takeovers of Virginia corporations. In addition, the statute provides that, by affirmative vote of the holders of a majority of the voting shares other than shares owned by any Interested Shareholder, a corporation can adopt an amendment to its articles of incorporation or bylaws providing that the Affiliated Transactions provisions shall not apply to the corporation. Wheat has not "opted out" of (i.e., elected not to be governed by) the Affiliated Transactions provisions. Whereas the purpose of the Affiliated Transactions statute is to protect minority stockholders from self-dealing transactions by a controlling stockholder after that stockholder has acquired a potentially controlling position, Virginia's Control Share Acquisition statute is designed to give a prior approval right when a person or entity seeks to acquire a sufficient number of shares so as to be in potential or actual control of the corporation. This statute applies to any proposed acquisition by an acquiring person of shares entitled to vote generally in the election of directors within any one of the following ranges of percentage ownership: 20 percent to 33 1/3 percent, 33 1/3 percent to 50 percent and 50 percent or more. When shares are acquired within any of these ranges, the acquiring stockholder automatically loses the right to vote any shares within the range, as well as any shares acquired within 90 days before crossing the threshold and any shares acquired pursuant to a plan to make a control shares acquisition (the "Control Shares"), unless a majority of the "disinterested shares" vote to grant him voting rights. The acquiring stockholder can request a special meeting of the stockholders to consider granting rights to shares that he owns or proposes to acquire. The special meeting must be held no later than 50 days from the date of the request, and the acquiring stockholder must provide the stockholders with a disclosure statement detailing his plans for the corporation. If authorized in the corporation's articles of incorporation or bylaws before a control share acquisition has occurred, the Control Shares that the stockholders have failed to grant voting rights may be redeemed by the corporation at a per share redemption price equal to the average per share price paid by the acquiring person for such shares. If the Control Shares are accorded full 65 voting rights and the acquiring person thereby is entitled to cast a majority of votes that could be cast in an election of directors, all stockholders of the corporation other than the acquiring person have the right to dissent from the granting of voting rights and to demand payment of "fair value" for their shares. FUNC. Under North Carolina law, except as otherwise provided below or in the NCBCA, any plan of merger or share exchange to which FUNC is a party, would require adoption by the FUNC Board of Directors, which would generally be required to recommend its approval to the stockholders, who in turn would be required to approve the plan by a vote of a simple majority of the outstanding shares. Except as otherwise provided below or in the NCBCA, any sale, lease, exchange or other disposition of all or substantially all of FUNC's assets not made in the usual and regular course of business would generally require that the FUNC Board of Directors recommend the proposed transaction to the stockholders who would be required to approve the transaction by a vote of a simple majority of the outstanding shares. In accordance with North Carolina law, the submission by the FUNC Board of Directors of any such action may be conditioned on any basis, including, without limitation, conditions regarding a supermajority voting requirement or that no more than a certain number of shares indicate that they will seek dissenters' rights. With respect to a plan of merger to which FUNC is a party, no vote of the stockholders of FUNC is required if FUNC is the surviving corporation and: (i) the FUNC Articles would remain unchanged after the merger, subject to certain exceptions; (ii) each stockholder of FUNC immediately before the merger would hold an identical number of shares, with identical designations, limitations, preferences and relative rights, after the merger; (iii) the number of shares of FUNC stock entitled to vote unconditionally in the election of directors to be issued in the merger (either by the conversion of securities issued in the merger or by the exercise of rights and warrants issued in the merger) would not exceed 20 percent of the shares of FUNC stock entitled to vote unconditionally in the election of directors outstanding immediately before the merger; and (iv) the number of shares of FUNC stock entitling holders to participate without limitation in distributions to be issued in the merger (either by the conversion of securities issued in the merger or by the exercise of rights and warrants issued in the merger) would not exceed 20 percent of the shares of FUNC stock entitling holders to participate without limitation in distributions outstanding immediately before the merger. In addition, no vote of the stockholders of FUNC would be required to merge a subsidiary, of which FUNC owns at least 90 percent of the outstanding shares of each class of subsidiary shares, into FUNC, as long as no amendment is made to the FUNC Articles that could not be made without approval of FUNC's stockholders. With respect to a sale, lease, exchange or other disposition of all or substantially all the assets of FUNC made upon the authority of the FUNC Board of Directors, no vote of the stockholders of FUNC would be required if such disposition is made in the usual and regular course of business or if such disposition is made to a wholly-owned subsidiary of FUNC. ANTI-TAKEOVER PROVISIONS WHEAT. For a description of certain provisions of the VSCA which may be deemed to have an anti-takeover effect and are applicable to Wheat as a Virginia corporation, see " -- Required Stockholder Vote for Certain Actions; WHEAT". FUNC. North Carolina has two anti-takeover statutes in force, The North Carolina Shareholder Protection Act and The North Carolina Control Share Acquisition Act. These statutes restrict business combinations with, and the accumulation of shares of voting stock of, certain North Carolina corporations. In accordance with the provisions of these statutes, FUNC elected not to be covered by the restrictions imposed by these statutes. As a result, such statutes do not apply to FUNC. In addition, North Carolina has a Tender Offer Disclosure Act, which contains certain prohibitions against deceptive practices in connection with making a tender offer and also contains a filing requirement with the North Carolina Secretary of State that has been held unenforceable as to its 30-day waiting period. DISSENTERS' RIGHTS WHEAT. Article 15 of the VSCA provides stockholders of a Virginia corporation the right to dissent from and obtain payment of the fair value of their shares in the event of mergers, consolidations and certain other corporate transactions. However, Article 15 of the VSCA, also provides that stockholders of a Virginia corporation with shares listed on a national securities exchange or with at least 2,000 record stockholders are not entitled to dissenters' rights unless certain requirements are met. Because Wheat does not have more than 2,000 record stockholders, holders of Wheat Common Stock and Wheat Preferred Stock have dissenters' rights in connection with the Merger. See "THE MERGER -- Dissenters' Rights" and ANNEX C. 66 FUNC. North Carolina law generally provides dissenters' rights for mergers and certain share exchanges that would require stockholder approval, sales of all or substantially all of the assets (other than sales that are in the usual and regular course of business and certain liquidations and court-ordered sales), certain amendments to the articles of incorporation and any corporate action taken pursuant to a stockholder vote to the extent that the articles of incorporation, bylaws or a resolution of the board of directors entitle stockholders to dissent. DIVIDENDS AND OTHER DISTRIBUTIONS WHEAT. The VSCA generally provides that a corporation may make distributions to its stockholders unless, after giving effect to the distribution, (i) the corporation would not be able to pay its debts as they become due in the usual course of business, or (ii) the corporation's total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution. These requirements are applicable to Wheat as a Virginia corporation. FUNC. Under North Carolina law, FUNC generally may make dividends or other distributions to its stockholders unless after the distribution either: (i) FUNC would not be able to pay its debts as they become due in the usual course of business; or (ii) FUNC's assets would be less than the sum of its liabilities plus the amount that would be needed to satisfy the preferential dissolution rights of stockholders whose preferential rights are superior to those receiving the distribution. See "FUNC -- Certain Regulatory Considerations; PAYMENT OF DIVIDENDS" and "DESCRIPTION OF FUNC CAPITAL STOCK". VOLUNTARY DISSOLUTION WHEAT. The VSCA and the Wheat Articles provide that the Wheat Board may propose dissolution for submission to stockholders and that to be authorized, dissolution must be recommended by the Wheat Board to the stockholders and approved by the holders of more than two-thirds of all votes entitled to be cast by each voting group on the proposal. FUNC. North Carolina law provides that FUNC may be dissolved if the FUNC Board of Directors proposes dissolution and a majority of the shares of FUNC entitled to vote thereon approves. In accordance with North Carolina law, the FUNC Board of Directors may condition its submission of a proposal for dissolution on any basis. RESALE OF FUNC COMMON SHARES The FUNC Common Shares have been registered under the Securities Act, thereby allowing such shares to be traded freely and without restriction by those holders of Wheat Common Stock and Wheat Preferred Stock (including beneficial owners) who receive such shares following consummation of the Merger and who are not deemed to be "affiliates" (as defined under the Securities Act) of Wheat or FUNC. Wheat has agreed to use its reasonable best efforts to cause each holder of Wheat Common Stock and Wheat Preferred Stock (including any beneficial owner) who is deemed by Wheat to be an affiliate to enter into an agreement with FUNC providing, among other things, that such affiliate will not transfer any FUNC Common Shares received by such affiliate in the Merger except in compliance with the Securities Act. This Prospectus/Proxy Statement does not cover any resales of FUNC Common Shares received by affiliates of Wheat. In addition to the foregoing, the "affiliates" of Wheat and FUNC, subject to certain limited exceptions, may not sell or otherwise dispose of any FUNC Common Stock, Wheat Common Stock or Wheat Preferred Stock beneficially owned by them during a period commencing 30 days prior to the Effective Date and ending upon publication by FUNC of combined financial statements covering at least 30 days of the combined entities' operations after the Merger. VALIDITY OF FUNC COMMON SHARES The validity of the FUNC Common Shares being offered hereby is being passed upon for FUNC by Marion A. Cowell, Jr., Esq., Executive Vice President, Secretary and General Counsel of FUNC. Mr. Cowell is also a stockholder of FUNC and holds options to purchase additional shares of FUNC Common Stock. 67 EXPERTS The consolidated statements of financial condition of Wheat as of March 31, 1997 and 1996 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended March 31, 1997, have been included herein in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated balance sheets of FUNC as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, included in FUNC's 1996 Annual Report to Stockholders which is incorporated by reference in FUNC's 1996 Annual Report on Form 10-K and incorporated by reference herein, have been incorporated by reference herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements of CoreStates at December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, included in FUNC's Current Report on Form 8-K dated November 28, 1997 and incorporated by reference herein have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing in FUNC's Current Report on Form 8-K dated November 28, 1997, and are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated balance sheet of Meridian Bancorp, Inc. and subsidiaries as of December 31, 1995, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the two-year period ended December 31, 1995, included in FUNC's Current Report on Form 8-K dated November 28, 1997, and incorporated by reference herein, have been incorporated by reference herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. Such financial statements were combined with those of CoreStates for such periods. The consolidated balance sheet of United Counties Bancorporation and subsidiaries as of December 31, 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 1995, included in FUNC's Current Report on Form 8-K dated November 28, 1997 and incorporated by reference herein, have been incorporated by reference herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. Such financial statements were combined with those of CoreStates for such periods. 68 ANNEX A AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of the 20th day of August, 1997 (as amended and restated as of December 16, 1997, this "Plan"), by and among WHEAT FIRST BUTCHER SINGER, INC. (the "Company"), FIRST UNION CORPORATION ("First Union") and FIRST UNION VIRGINIA, INC. (the "FUNC Subsidiary"). RECITALS: (A) THE COMPANY. The Company is a corporation duly organized and validly existing in good standing under the laws of the Commonwealth of Virginia, with its principal executive offices located in Richmond, Virginia. As of the date hereof, the Company has 19,000,000 authorized shares of common stock, each of $2.00 par value ("Company Common Stock"), 1,000,000 authorized shares of preferred stock, each of no par value ("Company Preferred Stock") and 500,000 authorized shares of non-voting common stock, each of $2.00 par value ("Company Non-Voting Common Stock") (no other class of capital stock being authorized), of which 8,636,798 shares of Company Common Stock, 184,750 shares of Company Preferred Stock and no shares of Company Non-Voting Common Stock are issued and outstanding. (B) FIRST UNION. First Union is a corporation duly organized and validly existing in good standing under the laws of the State of North Carolina, with its principal executive offices located in Charlotte, North Carolina. First Union is a registered bank holding company under the Bank Holding Company Act of 1956, as amended. As of the date hereof, First Union has 750,000,000 authorized shares of common stock, each of $3.33 1/3 par value (together with the rights ("First Union Rights") issued pursuant to a Shareholder Protection Rights Agreement, dated December 18, 1990 (as amended, the "First Union Rights Agreement")) attached thereto, "First Union Common Stock"), 40,000,000 authorized shares of Class A Preferred Stock, no-par value ("First Union Class A Preferred Stock"), and 10,000,000 authorized shares of Preferred Stock, no-par value ("First Union Preferred Stock") (no other class of capital stock being authorized), of which 561,374,603 shares of First Union Common Stock, no shares of First Union Class A Preferred Stock, and no shares of First Union Preferred Stock, were issued and outstanding as of July 31, 1997. The FUNC Subsidiary is a wholly-owned subsidiary of FUNC and was organized by FUNC solely as a vehicle to effect the Merger (as hereinafter defined). (C) RIGHTS, ETC. Except as Previously Disclosed (as hereinafter defined), there are no shares of capital stock of the Company authorized and reserved for issuance, the Company has no Rights (as hereinafter defined) issued or outstanding and the Company has no commitment to authorize, issue or sell any such shares or any Rights, except pursuant to this Plan. There are no preemptive rights in respect of the Company Common Stock. (D) APPROVALS. The Board of Directors of each of the Company, the FUNC Subsidiary and First Union has approved, at meetings of each of such Boards of Directors, this Plan and has authorized the execution hereof in counterparts. First Union has approved the Plan in its capacity as sole shareholder of the FUNC Subsidiary. (E) INTENTION OF THE PARTIES. It is the intention of the parties that (1) the transactions contemplated hereby shall qualify as a "pooling of interests" under generally accepted accounting principles and (2) the Merger (as hereinafter defined) shall qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). (F) EMPLOYMENT AGREEMENTS. In connection with the transactions contemplated hereby, certain employees of the Company identified on ANNEX A hereto have entered into employment agreements with First Union in substantially the form of ANNEX B hereto. (G) VOTING AGREEMENTS. As a condition and inducement to First Union's willingness to enter into this Plan, certain individuals have entered into an agreement with First Union in the form attached hereto as EXHIBIT A (the "Voting Agreement"), pursuant to which such individuals have agreed to vote all shares of capital stock owned or acquired by them in favor of approval of the transactions contemplated by this Plan at the Meeting (as hereinafter defined). (H) RETENTION PROGRAM. First Union and the Company have agreed, in connection with the transactions contemplated hereby, to establish a retention program on substantially the terms described herein, the purposes of which is to retain the services of certain employees of the Company following the consummation of the transactions contemplated hereby. In consideration of their mutual promises and obligations, the parties hereto adopt and make this Plan and prescribe the terms and conditions thereof and the manner and basis of carrying it into effect, which shall be as follows: A-1 I. THE MERGER. 1.01. THE MERGER. On the Effective Date: (A) THE CONTINUING CORPORATION. The FUNC Subsidiary shall merge with and into the Company (the "Merger"), the separate existence of the FUNC Subsidiary shall cease and the Company (the "Continuing Corporation") shall survive as a wholly-owned subsidiary of FUNC and the name of the Continuing Corporation shall be "Wheat First Butcher Singer, Inc." (B) RIGHTS, ETC. The Continuing Corporation shall thereupon and thereafter possess all of the rights, privileges, immunities and franchises, of a public as well as of a private nature, of each of the merging corporations; and all property, real, personal and mixed, and all debts due on whatever account, and all other choses in action, and all and every other interest, of or belonging to or due to each of the corporations so merged, shall be deemed to be vested in the Continuing Corporation without further act or deed; and the title to any real estate or any interest therein, vested in each of such corporations, shall not revert or be in any way impaired by reason of the Merger. (C) LIABILITIES. The Continuing Corporation shall thenceforth be responsible and liable for all the liabilities, obligations and penalties of each of the corporations so merged, in accordance with applicable law. (D) ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS; OFFICERS. The Articles of Incorporation and Bylaws of the Continuing Corporation shall be those of the Company, as in effect immediately prior to the Merger becoming effective. The directors and officers of the FUNC Subsidiary in office immediately prior to the Merger becoming effective shall be the directors and officers of the Continuing Corporation, together with such additional directors and officers as may thereafter be elected, who shall hold office until such time as their successors are elected and qualified. 1.02. EFFECTIVE DATE. Subject to the conditions to the obligations of the parties to effect the Merger as set forth in ARTICLE VI, the effective date (the "Effective Date") of the Merger shall be such date as the parties hereto mutually agree upon; provided, however, that if the parties are not able to agree upon such date, such date shall be the date as First Union shall notify the Company in writing not less than five days prior thereto, which date shall not be more than 15 days after such conditions have been satisfied or waived in writing. Prior to the Effective Date, the FUNC Subsidiary and the Company shall execute and deliver to the Clerk of the State Corporation Commission of the Commonwealth of Virginia, Articles of Merger, in accordance with applicable law specifying the time at which the Merger shall become effective. The time on the Effective Date at which the Merger becomes effective is referred to as the "Effective Time". 1.03. INTEGRATION OF LEGAL ENTITIES. The parties hereto currently intend to effectuate, or cause to be effectuated, no earlier than the day following the Effective Time, the combination of (the "Subsidiary Combination") Wheat, First Securities, Inc., a Virginia corporation and a wholly owned subsidiary of the Company ("Wheat Securities"), with First Union Capital Markets Corp., a North Carolina corporation and a wholly owned subsidiary of First Union. The parties hereto shall cooperate and take all requisite actions, including, without limitation, executing all requisite documentation, prior to or following the Effective Time to consummate the Subsidiary Combination. The parties also agree to cooperate and take all requisite additional action prior to or following the Effective Time to merge or otherwise consolidate legal entities to the extent desirable for regulatory or other reasons. II. CONSIDERATION. 2.01. MERGER CONSIDERATION. Subject to the provisions of this Plan, at the Effective Time: (A) OUTSTANDING FUNC SUBSIDIARY COMMON STOCK. The shares of FUNC Subsidiary common stock issued and outstanding immediately prior to the Effective Date shall by virtue for the Merger, become and be converted into one share of Company Common Stock, which shall be owned by First Union. (B) OUTSTANDING COMPANY COMMON STOCK AND COMPANY PREFERRED STOCK. Each share (excluding (i) shares ("Dissenter's Shares") of Company Common Stock and Company Preferred Stock held by holders who take all of the steps required to be taken in order to entitle such holders to be paid in accordance with Sections 13.1-730 through 13.1-741 of the VSCA (as hereinafter defined) or (ii) shares held by the Company or any of its subsidiaries or by First Union or any of its subsidiaries, in each case other than in a fiduciary capacity or as a result of debts previously contracted ("Excluded Shares") of Company Common Stock and Company Preferred Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger, automatically and without any action on the part of the holder thereof, become and be converted into the right to receive the number of shares of First Union Common Stock (the "Exchange Ratio"), subject to possible adjustment as set forth in SECTION 2.05, equal to (i) 10,267,029 divided by (ii) the number of A-2 shares of Company Common Stock and Company Preferred Stock issued and outstanding immediately prior to the Effective Time (the "Outstanding Share Number"). 2.02. STOCKHOLDER RIGHTS; STOCK TRANSFERS. At the Effective Time, holders of Company Common Stock or Company Preferred Stock shall cease to be, and shall have no rights as, stockholders of the Company, other than to receive the consideration provided under this ARTICLE II, without interest. After the Effective Time, there shall be no transfers on the stock transfer books of the Company or the Continuing Corporation of the shares of Company Common Stock or Company Preferred Stock which were issued and outstanding immediately prior to the Effective Time. 2.03. FRACTIONAL SHARES. Notwithstanding any other provision hereof, no fractional shares of First Union Common Stock and no certificates or scrip therefor, or other evidence of ownership thereof, will be issued in the Merger; instead, First Union shall pay to each holder of Company Common Stock or Company Preferred Stock who would otherwise be entitled to a fractional share an amount in cash determined by multiplying such fraction by the last sale price of First Union Common Stock on the last trading day prior to the Effective Date as reported by the New York Stock Exchange, Inc. ("NYSE") Composite Transactions tape (as reported in THE WALL STREET JOURNAL). 2.04. EXCHANGE PROCEDURES. As promptly as practicable after the Effective Date, First Union will send or cause to be sent to each former stockholder of the Company of record immediately prior to the Effective Time (including holders of shares of beneficial interest ("Trust Shares"), the Wheat First Butcher Singer Grantor Trust (the "Grantor Trust"), which is the owner of record of Company Preferred Stock, in the event the Grantor Trust is liquidated as of the Effective Time), transmittal materials for use in effecting the exchange of such holder's Company Common Stock and Company Preferred Stock (or Trust Shares if the Grantor Trust is liquidated as of the Effective Time) for the consideration set forth in this ARTICLE II. The certificates representing the shares of First Union Common Stock into which shares of such stockholder's Company Common Stock and/or Company Preferred Stock (or Trust Shares if the Grantor Trust is liquidated as of the Effective Time) are converted on the Effective Date; any fractional share check which such stockholder shall be entitled to receive; and with respect to such stockholders as to which (i) below applies, any dividends paid on such shares of First Union Common Stock for which the record date for determination of stockholders entitled to such dividends is on or after the Effective Date, will be delivered to such stockholder only upon (i) delivery to First Union National Bank (the "Exchange Agent") of the certificates representing all of such shares of Company Common Stock and Company Preferred Stock (or Trust Shares if the Grantor Trust is liquidated as of the Effective Time) if such shares are in certificated form and (ii) the payment in full by such stockholder of any outstanding amounts owed to the Company relating to the purchase of such stockholder's shares of Company Common Stock and/or Company Preferred Stock or owed to the Company or to the Grantor Trust relating to the purchase of such stockholder's Trust Shares, as applicable. No interest will be paid on any fractional share check or dividends to which the holder of such shares shall be entitled to receive upon such delivery. Shares to be exchanged by any person constituting an Affiliate (as hereinafter defined) of the Company shall not be physically exchanged for certificates representing First Union Common Stock until First Union has received a written agreement from such person as specified in SECTION 5.10. 2.05. ANTI-DILUTION PROVISIONS. In the event First Union changes the number of shares of First Union Common Stock issued and outstanding prior to the Effective Date or the third anniversary of the Effective Date, as the case may be, as a result of a stock split, stock dividend, recapitalization or similar transaction with respect to the outstanding First Union Common Stock and the record date therefor shall be prior to the Effective Time, the Exchange Ratio shall be proportionately adjusted. 2.06. EXCLUDED SHARES; DISSENTER'S SHARES. Each of the Excluded Shares shall be canceled and retired at the Effective Time, and no consideration shall be issued in exchange therefor. Dissenter's Shares shall be purchased and paid for in accordance with Section 13.1-737 of the VSCA. If requested by First Union, prior to the Effective Time, the Company will establish an escrow to pay for such Dissenter's Shares. 2.07. RESERVATION OF RIGHT TO REVISE TRANSACTION. First Union may at any time change the method of effecting the acquisition of the Company (including without limitation the provisions of this ARTICLE II) if and to the extent it deems such change to be desirable; PROVIDED, HOWEVER, that no such change shall (A) alter or change the amount or kind of consideration to be issued to holders of Company Common Stock or Company Preferred Stock as provided for in this Plan, (B) adversely affect the intended tax-free treatment to the Company's stockholders as a result of receiving such consideration, or (C) materially impede or delay receipt of any approval referred to in SECTION 6.02 or the consummation of the transactions contemplated by this Plan. A-3 III. ACTIONS PENDING CONSUMMATION. 3.01. FOREBEARANCES OF THE COMPANY. From the date hereof until the Effective Time, except as expressly contemplated by this Plan or as Previously Disclosed, without the prior written consent of First Union, which consent shall not be unreasonably withheld, the Company will not, and will cause each of its Subsidiaries not to: (A) ORDINARY COURSE. Conduct the business of the Company and the Company Subsidiaries other than in the ordinary and usual course or fail to use reasonable efforts to preserve intact their business organizations and assets and maintain their rights, franchises and existing relations with clients, customers, suppliers, employees and business associates, or take any action reasonably likely to have an adverse affect upon the Company's ability to perform any of its material obligations under this Plan. (B) CAPITAL STOCK. Other than pursuant to Rights Previously Disclosed and outstanding on the date hereof, (i) issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional shares of capital stock of the Company or any Rights, (ii) enter into any agreement with respect to the foregoing, or (iii) permit any additional shares of capital stock of the Company to become subject to new grants of employee or director stock options, other Rights or similar stock-based employee rights. (C) DIVIDENDS, ETC. (a) Make, declare, pay or set aside for payment any dividend (other than dividends from wholly owned Company Subsidiaries to the Company or another wholly owned Company Subsidiary) on or in respect of, or declare or make any distribution on, any shares of capital stock of the Company or (b) directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock. (D) COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Enter into, amend, modify or renew any employment, consulting, severance or similar agreements or arrangements with any director, officer or employee of the Company or any Company Subsidiary, or grant any salary or wage increase or increase any employee benefit (including incentive or bonus payments), except (i) for normal individual increases in compensation to employees in the ordinary course of business consistent with past practice, (ii) for other changes that are required by applicable law, (iii) to satisfy Previously Disclosed contractual obligations existing as of the date hereof, or (iv) for employment arrangements for, or grants of awards to newly hired employees in the ordinary course of business consistent with past practice. (E) BENEFIT PLANS. Enter into, establish, adopt or amend (except (i) as may be required by applicable law or (ii) to satisfy Previously Disclosed contractual obligations existing as of the date hereof) any pension, retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement (or similar arrangement) related thereto, in respect of any director, officer or employee of the Company or any of the Company Subsidiaries, or take any action to accelerate the vesting or exercisability of stock options, restricted stock or other compensation or benefits payable thereunder. (F) DISPOSITIONS. Except (i) as Previously Disclosed or (ii) sales of securities or other investments or assets in the ordinary course of business consistent with past practice, sell, transfer, mortgage, encumber or otherwise dispose of or discontinue any of its assets, business or properties. (G) ACQUISITIONS. Except (i) as Previously Disclosed or (ii) the purchase of securities or other investments or assets in the ordinary course of business consistent with past practice, acquire any assets, business, or properties of any other entity. (H) GOVERNING DOCUMENTS. Amend the Company's Articles of Incorporation, by-laws or the articles of incorporation or by-laws (or similar governing documents) of any of the Company Subsidiaries. (I) ACCOUNTING METHODS. Implement or adopt any change in its accounting principles, practices or methods, other than as may be required by generally accepted accounting principles. (J) CONTRACTS. Except in the ordinary course of business consistent with past practice, enter into or terminate any material contract or amend or modify in any material respect any of its existing material contracts. (K) CLAIMS. Settle any claim, action or proceeding, except for any claim, action or proceeding involving solely money damages in an amount, individually and in the aggregate for all such settlements, not more than $250,000 and which is not reasonably likely to establish an adverse precedent or basis for subsequent settlements. (L) ADVERSE ACTIONS. (a) Take any action reasonably likely to prevent or impede the Merger from qualifying (i) for pooling of interests accounting treatment or (ii) as a reorganization within the meaning of Section 368(a) of the Code; or (b) knowingly take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set A-4 forth in this Plan being or becoming untrue in any material respect at any time at or prior to the Effective Time, (ii) any of the conditions to the Merger set forth in ARTICLE VII not being satisfied or (iii) a material violation of any provision of this Plan except, in each case, as may be required by applicable law or regulation. (M) INDEBTEDNESS. Incur any indebtedness for borrowed money other than in the ordinary course of business. (N) FUND ACTION. Except as and to the extent required, based upon the written advice of counsel, in the exercise of the fiduciary obligations of the Company or a Company Subsidiary to any Investment Company (as hereinafter defined), request that any action be taken by any Fund Board (as hereinafter defined), other than (i) routine actions that would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect on the Company or any Investment Company or (ii) actions Previously Disclosed. (O) COMMITMENTS. Agree, commit to or enter into any agreement to take any of the actions referred to in SECTION 3.01(A) through (N). 3.02. FOREBEARANCES OF FIRST UNION. From the date hereof until the Effective Time, except as expressly contemplated by this Plan, without the prior written consent of the Company, which consent shall not be unreasonably withheld, First Union will not, and will cause each of its Subsidiaries not to: (A) EXTRAORDINARY DIVIDENDS. Make, declare, pay or set aside for payment any extraordinary dividend; provided, however, the foregoing shall not apply to increases in the quarterly dividend rate payable on First Union Common Stock in the ordinary course of business consistent with past practices or the payment of dividends on any preferred stock (now or hereafter outstanding) in accordance with the terms thereof. (B) ADVERSE ACTIONS. (a) Take any action while knowing that such action would, or is reasonably likely to, prevent or impede the Merger from qualifying (i) for "pooling of interests" accounting treatment or (ii) as a reorganization within the meaning of Section 368(a) of the Code; or (b) knowingly take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Plan being or becoming untrue in any material respect at any time at or prior to the Effective Time, (ii) any of the conditions to the Merger set forth in ARTICLE VI not being satisfied or (iii) a material violation of any provision of this Plan except, in each case, as may be required by applicable law or regulation. IV. REPRESENTATIONS AND WARRANTIES. 4.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to First Union as follows: (A) RECITALS. The facts set forth in the Recitals of this Plan with respect to it are true and correct. (B) ORGANIZATION, STANDING AND AUTHORITY. It is duly qualified to do business and is in good standing in the States of the United States and foreign jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and in which the failure to be duly qualified, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on the Company. Each of the Company and the Company Subsidiaries has in effect all federal, state, local, and foreign governmental authorizations necessary for it to own or lease its properties and assets and to carry on its business as it is now conducted, except for such authorizations, the absence of which, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect on the Company. Wheat Securities is duly registered, qualified to do business and in good standing as a broker-dealer with the Securities and Exchange Commission (the "SEC"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"), the NYSE, the American Stock Exchange, Inc. (the "AMEX") and all applicable securities and commodities exchanges. (C) SHARES. The outstanding shares of Company Common Stock and Company Preferred Stock are validly issued and outstanding, fully paid and nonassessable, and are subject to no, and have not been issued in violation of any, preemptive or similar rights. Except as Previously Disclosed, there are no shares of capital stock or other equity securities of the Company outstanding and no outstanding Rights with respect thereto. (D) COMPANY SUBSIDIARIES. The Company has Previously Disclosed a list of all the Company Subsidiaries, including the states in which such Company Subsidiaries are organized, a brief description of such Company Subsidiaries' principal activities, and if any of such Company Subsidiaries is not wholly-owned by the Company or a Company Subsidiary, the percentage owned by the Company or any Company Subsidiary and the names, addresses and percentage ownership by any other individual or corporation, partnership, joint venture, business trust, limited liability corporation or partnership, association or other organization (each, a "Business Entity"). No equity securities of any of the Company Subsidiaries are or may become A-5 required to be issued (other than to the Company or a wholly-owned Company Subsidiary) by reason of any Rights with respect thereto. There are no contracts, commitments, understandings or arrangements by which any of the Company Subsidiaries is or may be bound to sell or otherwise issue any shares of its capital stock, and there are no contracts, commitments, understandings or arrangements relating to the rights of the Company to vote or to dispose of such shares. All of the shares of capital stock of each Company Subsidiary are fully paid and nonassessable and subject to no preemptive rights and, except as Previously Disclosed, are owned by the Company or a Company Subsidiary free and clear of any Liens. Each Company Subsidiary is in good standing under the laws of the jurisdiction in which it is incorporated or organized, and is duly qualified to do business and in good standing in each jurisdiction where its ownership or leasing of property or the conduct of its business requires it to be so qualified and in which the failure to be duly qualified is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on the Company. Except as Previously Disclosed, the Company does not own beneficially, directly or indirectly, any equity securities or similar interests of any Business Entity. The term "Company Subsidiary" means any Business Entity in which the Company, directly or indirectly, owns or controls 50% or more of any class of such entity's voting securities. The Company has Previously Disclosed a list of all equity securities it or a Company Subsidiary holds involving, in the aggregate, ownership or control of 5% or more of any class of the issuer's voting securities or 25% or more of the issuer's equity (treating subordinated debt as equity). The Company has Previously Disclosed a list of all partnerships, joint ventures or similar entities, in which it owns or controls an interest, directly or indirectly. (E) CORPORATE POWER. The Company and each of the Company Subsidiaries has the corporate power and authority to carry on its business as it is now being conducted and to own or lease all its material properties and assets. The Company has Previously Disclosed a brief description of each line of business in which the Company or any Company Subsidiary is engaged. (F) CORPORATE AUTHORITY. Subject to any necessary receipt of approval by its stockholders referred to in SECTION 6.01(A), this Plan has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable in accordance with its terms, subject as to enforcement to bankruptcy, insolvency and other similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (G) NO DEFAULTS. Subject to the approval by the holders of at least two-thirds of the outstanding shares of Company Common Stock and at least two-thirds of the outstanding shares of Company Preferred Stock, the required regulatory approvals Previously Disclosed, the Previously Disclosed required filings under federal and state securities and insurance laws and the approvals of the NYSE and any other applicable exchange of the Merger and the other transactions contemplated hereby, the execution, delivery and performance of this Plan and the consummation by the Company of the transactions contemplated hereby, does not and will not (1) constitute a breach or violation of, or a default under, or cause or allow the acceleration or creation of a Lien (with or without the giving of notice, passage of time or both) pursuant to, any law, rule or regulation or any judgment, decree, order, governmental or non-governmental permit or license, or agreement, indenture or instrument of it or of any of the Company Subsidiaries or to which the Company or any of the Company Subsidiaries or its or their properties is subject or bound, which breach, violation, default or Lien is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on the Company, (2) constitute a breach or violation of, or a default under, its Articles of Incorporation, Charter or Bylaws, or (3) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental or non-governmental permit or license or the consent or approval of any other party to any such agreement, indenture or instrument, other than any such consent or approval, which if not obtained, would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on the Company. (H) COMPANY REPORTS. Except as Previously Disclosed, the Company has timely filed all material reports, registrations, statements and other filings, together with any amendments required to be made with respect thereto, that were required to be filed since December 31, 1993 with (1) the SEC and the Commodities Futures Trading Commission (the "CFTC"), (2) any applicable federal, state, local or foreign governmental authorities and (3) the NASD, the NYSE, the AMEX, the Chicago Mercantile Exchange (the "CME"), the Chicago Board of Trade (the "CBOT"), the Municipal Securities Rulemaking Board (the "MSRB") or any non-governmental self-regulatory agency, commission or authority (a "Self-Regulatory Body") (all such reports and statements, including the financial statements, exhibits and schedules thereto, being collectively referred to herein as the "Company Reports"), including without limitation, all reports, registrations, statements and filings required under the Investment Company Act of 1940 (together with the rules and regulations thereunder, the "Investment Company Act"), the Investment Advisers Act of 1940 (together with the rules and regulations thereunder, the "Investment Advisers Act"), the Securities Exchange Act of 1934 (together with the rules and regulations thereunder, the "Exchange Act"), the Securities Act of 1933 (together with the rules and regulations thereunder, the "Securities Act") or any applicable state A-6 securities or "blue sky" laws. As of their respective dates (and without giving effect to any amendments or modifications filed after the date of this Plan with respect to Company Reports filed before the date of this Plan), each of the Company Reports complied in all material respects with the statutes, rules, regulations and orders enforced or promulgated by the Regulatory Authority with which they were filed and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (I) FINANCIAL STATEMENTS (1) The Company has delivered to First Union (a) copies of the audited consolidated balance sheets and the related consolidated statements of income, consolidated statements of changes in shareholder's equity and consolidated statements of cash flows (including the related notes and schedules thereto and reports of independent auditors) of the Company and the Company Subsidiaries (the "Audited Reports") as of and for the fiscal years ended March 31, 1997, and (b) copies of the reports of the Company filed with the SEC (the "SEC Reports") pursuant to Section 17 of the Exchange Act and Rule 17a-5 thereunder for the fiscal years ended March 31, 1997, and for the quarter ended June 30, 1997 (collectively and together with all future Audited Reports and SEC Reports, the "Company Financial Statements"). The Company shall promptly deliver to First Union, upon the preparation thereof, copies of the Company Financial Statements prepared subsequent to the date hereof. (2) Except as Previously Disclosed, the Company Financial Statements (as of the dates thereof and for the periods covered thereby) (a) are and will be in accordance with the books and records of the Company in all material respects, which books and records are complete and accurate in all material respects, (b) did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading, and (c) each of the balance sheets in or incorporated by reference into the Company Financial Statements (including the related notes and schedules thereto) fairly presents and will fairly present the financial position of the entity or entities to which it relates as of its date and each of the statements of income and changes in stockholders' equity and cash flows or equivalent statements in the Company Financial Statements (including any related notes and schedules thereto) fairly presents and will fairly present the results of operations, the changes in stockholders' equity and subordinated debt and the changes in cash flows, as the case may be, of the entity or entities to which it relates for the periods set forth therein, in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, as to the Audited Reports, and in accordance with regulatory accounting principles, as to the SEC Reports, except in each case as may be noted therein, subject to normal and recurring year-end audit adjustments in the case of unaudited statements. (J) ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the Company Financial Statements prior to the date hereof, none of the Company or the Company Subsidiaries has any obligation or liability (contingent or otherwise), including liabilities under Environmental Laws (as hereinafter defined), that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on the Company. (K) ABSENCE OF CERTAIN CHANGES. Since March 31, 1997, the business of the Company and the Company Subsidiaries has been conducted in the ordinary and usual course, consistent with past practice and there has not been: (1) any event, occurrence, development or state of circumstances or facts which has had or could reasonably be expected to constitute or result in a Material Adverse Effect on the Company; or (2) except as Previously Disclosed, any event, occurrence, development or state of circumstances or facts which would result in a violation of the covenants set forth in ARTICLE III of this Plan had such events, occurrences, developments or state of circumstances or facts occurred after the date hereof. (L) PROPERTIES; SECURITIES. Except as specifically reserved against or otherwise disclosed in the Company Financial Statements (including the related notes and schedules thereto) and except for those properties and assets that have been sold or otherwise disposed of in the ordinary course of business, and except as Previously Disclosed, the Company and the Company Subsidiaries have good and marketable title, free and clear of all liens, encumbrances, charges, security interests, restrictions (including restrictions on voting rights or rights of disposition), defaults or equities of any character or claims or third party rights of whatever nature (collectively "Liens"), to all of the properties and assets, tangible and intangible, reflected in the Company Financial Statements as being owned by the Company or the Company Subsidiaries as of the dates thereof, other than those Liens that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect on the Company. The Company and the Company Subsidiaries do not, directly or indirectly, control any real property A-7 not used in the ordinary course of their business, except as Previously Disclosed. All buildings and all fixtures, equipment, and other property and assets which are held under leases or subleases by any of the Company or the Company Subsidiaries are held under valid leases or subleases enforceable in accordance with their respective terms. Each of the Company and the Company Subsidiaries has good and marketable title to all securities held by it (except securities sold under repurchase agreements or held in any fiduciary or agency capacity), free and clear of any Lien, except to the extent such securities are pledged in the ordinary course of business consistent with prudent business practices to secure obligations of each of the Company or any of the Company Subsidiaries. Such securities are valued on the books of the Company or the Company Subsidiaries in accordance with generally accepted accounting principles. (M) LITIGATION; REGULATORY ACTION. Except as Previously Disclosed, (1) no litigation, proceeding or controversy ("Litigation") before any court, arbitrator, mediator or Regulatory Authority (as hereinafter defined) is pending against the Company or the Company Subsidiaries which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on the Company, and, to the best of the Company's knowledge, no such Litigation has been threatened; (2) neither the Company nor any of the Company Subsidiaries or properties is a party to or is subject to any order, decree, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, any federal, state or municipal governmental agency or authority or Self-Regulatory Body (the "Regulatory Authorities") charged with the supervision or regulation of broker-dealers, securities underwriting or trading, stock exchanges, commodities exchanges, investment companies, investment advisers or insurance agents and brokers (including, without limitation, the SEC, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), the CFTC, the NYSE, the NASD, the AMEX, the CME, the CBOT and the Federal Trade Commission) or the supervision or regulation of the Company or any of the Company Subsidiaries; and (3) neither the Company nor any of the Company Subsidiaries has been advised by any such Regulatory Authority that such Regulatory Authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, decree, agreement, memorandum or understanding, commitment letter or similar submission. Previously Disclosed is a true and complete list, as of the date hereof, of all Litigation pending or threatened arising out of any state of facts relating to the sale of investment products by the Company, the Company Subsidiaries or any employees thereof (including, without limitation, equity or debt securities, mutual funds, insurance contracts, annuities, partnership and limited partnership interests, interests in real estate, investment banking services, securities underwritings in which the Company or any Company Subsidiary was a manager, co-manager, syndicate member or distributor, Derivatives Contracts (as hereinafter defined) or structured notes). (N) COMPLIANCE WITH LAWS. Except as Previously Disclosed, each of the Company and the Company Subsidiaries and their respective officers and employees: (1) in the conduct of its business (including without limitation, its municipal securities and NASDAQ market-making activities), is in compliance with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, and the rules of all Self-Regulatory Bodies applicable thereto; (2) has all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, all Regulatory Authorities that are required in order to permit them to own and operate their businesses as presently conducted and that are material to the business of the Company and the Company Subsidiaries, taken as a whole; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to its knowledge, no suspension or cancellation of any of them is threatened or reasonably likely; and all such filings, applications and registrations are current; (3) has received no notification or communication from any Regulatory Authority (a) asserting that any of them is not in compliance with any of the statutes, rules, regulations, or ordinances which such Regulatory Authority enforces, or has otherwise engaged in any unlawful business practice which, as a result of such noncompliance in any such instance, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on the Company, (b) threatening to revoke any license, franchise, permit, seat on any stock or commodities exchange, or governmental authorization which revocation, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on the Company, (c) requiring any of them (including any of the Company's or the Company Subsidiary's directors or controlling persons) to enter into a cease and desist order, agreement, or memorandum of understanding (or requiring the board of directors thereof to adopt any resolution or policy) or (d) restricting or disqualifying the activities of the Company or any of the Company Subsidiaries (except for restrictions generally imposed by rule, regulation or administrative policy on broker-dealers generally); A-8 (4) is not aware of any pending or threatened investigation, review or disciplinary proceedings by any Regulatory Authority against the Company, any Company Subsidiary or any officer, director or employee thereof; (5) each Investment Company has operated and is currently operating (including, but not limited to, prospectuses and periodic reports to shareholders) in compliance in all material respects with all laws, rules, regulations and orders applicable to it or its business, including, but not limited to, the Securities Act, the Exchange Act, the Investment Company Act, applicable Self-Regulatory Bodies; (6) neither the Company, nor any "affiliated person" (as defined in the Investment Company Act) thereof, is ineligible pursuant to Section 9(a) or 9(b) of the Investment Company Act to serve as an investment advisor (or in any other capacity contemplated by the Investment Company Act) to an Investment Company. Neither the Company, nor any "associated person" (as defined in the Investment Advisors Act) thereof, is ineligible pursuant to Section 203 of the Investment Advisors Act to serve as an investment advisor or as an associated person to a registered investment advisor; and (7) is not, nor is any Affiliate of any of them, subject to a "statutory disability" as defined in Section 3(a)(39) of the Exchange Act. (O) REGISTRATIONS. Except as Previously Disclosed, neither the Company nor any of the Company Subsidiaries or Affiliates is subject to regulation under the Investment Company Act or the Investment Advisors Act. The Company and the Company Subsidiaries and each of their employees which are or who are required to be registered as a broker/dealer, a registered representative, an insurance agent or a sales person with the SEC, the securities commission of any state or foreign jurisdiction or any Self-Regulatory Body are duly registered as such and such registrations are in full force and effect, except for such instances of noncompliance which, individually or in the aggregate, would not constitute a Material Adverse Effect on the Company. All federal, state and foreign registration requirements have been complied with in all material respects and such registrations as currently filed, and all periodic reports required to be filed with respect thereto, are accurate and complete in all material respects. (P) MATERIAL CONTRACTS. (1) Except as Previously Disclosed, none of the Company or the Company Subsidiaries is in default under any contract, agreement, commitment, arrangement, lease, insurance policy, or other instrument to which it is a party, by which its respective assets, business, or operations may be bound or affected, or under which it or its respective assets, business, or operations receives benefits (each, a "Contract"), which default, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on the Company, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default. Neither the Company nor any Company Subsidiary is subject to or bound by any exclusive dealing arrangement or other contract or arrangement containing covenants which limit the ability of the Company or any Company Subsidiary to compete in any line of business or with any person or which involve any restriction of geographical area in which, or method by which, the Company or any Company Subsidiary may carry on its business (other than as may be required by law or any applicable Regulatory Authority). True and complete copies of all such Contracts and all amendments thereto have been supplied to First Union and a brief description of the same is Previously Disclosed. There are no Contracts between any Affiliate of the Company, on the one hand, and the Company or any Company Subsidiary, on the other hand. (2) CONTRACTS WITH CLIENTS. (A) Each of the Company and the Company Subsidiaries is in compliance with the terms of each Contract with any customer to whom the Company or any Company Subsidiary provides services under any Contract (a "Client"), and each such Contract is in full force and effect with respect to the applicable Client. (B) Except as Previously Disclosed, no Client is (i) an employee benefit plan subject to Title I of ERISA (as hereinafter defined), or Section 4975 of the Code, or (ii) an entity whose assets are treated as assets of such a plan under ERISA or applicable regulations. (C) Each extension of credit by the Company or any of the Company Subsidiaries to any Client (i) is in full compliance with Regulation T of the Federal Reserve Board or any substantially similar regulation of any Regulatory Authority, (ii) is fully secured, and (iii) the Company or a Company Subsidiary, as the case may be, has a first priority perfected security interest in the collateral securing such extension. A-9 (Q) NO BROKERS. All negotiations relative to this Plan and the transactions contemplated hereby have been carried on by it directly with the other parties hereto and no action has been taken by it that would give rise to any valid claim against any party hereto for a brokerage commission, finder's fee or other like payment. (R) EMPLOYEE BENEFIT PLANS. (1) Previously Disclosed is a complete list of all bonus, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock and stock option plans, all employment or severance contracts, all medical, dental, health and life insurance plans, all other employee benefit plans, contracts or arrangements and any applicable "change of control" or similar provisions in any plan, contract or arrangement maintained or contributed to by it or any of the Company Subsidiaries for the benefit of employees, former employees, directors, former directors or their beneficiaries (the "Compensation and Benefit Plans"). True and complete copies of all Compensation and Benefit Plans, including, but not limited to, any trust instruments and/or insurance contracts, if any, forming a part thereof, and all amendments thereto have been supplied to First Union. (2) All "employee benefit plans" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), other than "multiemployer plans" within the meaning of Section 3(37) of ERISA ("Multiemployer Plans"), covering employees or former employees of it and the Company Subsidiaries (the "ERISA Plans"), to the extent subject to ERISA, are in substantial compliance with ERISA. Except as Previously Disclosed each ERISA Plan which is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified, under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), has received a favorable determination letter from the Internal Revenue Service with respect to "TRA" (as defined in Section 1 of Internal Revenue Service Revenue Procedure 93-39), and it is not aware of any circumstances reasonably likely to result in the revocation or denial of any such favorable determination letter or the inability to receive such a favorable determination letter. There is no pending or, to its knowledge, threatened litigation relating to the ERISA Plans. Neither it nor any of the Company Subsidiaries has engaged in a transaction with respect to any ERISA Plan that would subject it or any of the Company Subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or Section 502 (i) of ERISA in an amount which would be material. (3) No liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by it or any of the Company Subsidiaries with respect to any ongoing, frozen or terminated "single-employer plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them, or the single-employer plan of any entity which is considered one employer with it under Section 4001(a)(15) of ERISA or Section 414 of the Code (an "ERISA Affiliate"). Neither it nor any of the Company Subsidiaries presently contributes to a Multiemployer Plan, nor have they contributed to such a plan within the past five calendar years. No notice of a "reportable event", within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any Pension Plan or by any ERISA Affiliate within the past 12-month period. (4) All contributions required to be made under the terms of any ERISA Plan have been timely made. Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has an "accumulated funding deficiency" (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither it nor any of the Company Subsidiaries has provided, or is required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code. (5) Under each Pension Plan which is a single-employer plan, as of the last day of the most recent plan year, the actuarially determined present value of all "benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial assumptions contained in the plan's most recent actuarial valuation) did not exceed the then current value of the assets of such plan, and there has been no material change in the financial condition of such plan since the last day of the most recent plan year. (6) Neither it nor any of the Company Subsidiaries has any obligations for retiree health and life benefits under any plan, except as Previously Disclosed. There are no restrictions on the rights of it or any of the Company Subsidiaries to amend or terminate any such plan without incurring any liability thereunder. (7) Except as Previously Disclosed, neither the execution and delivery of this Plan nor the consummation of the transactions contemplated hereby will (a) result in any payment (including, without limitation, severance, unemployment compensation, golden parachute or otherwise) becoming due to any director or any employee of it or any of the Company Subsidiaries under any Compensation and Benefit Plan or otherwise from it or any of the Company Subsidiaries, (b) increase any benefits otherwise payable under any Compensation and Benefit Plan, (c) result in any acceleration A-10 of the time of payment or vesting of any such benefit, or (d) result in the imposition to the recipient of any excise tax pursuant to Section 4999 of the Code. (S) NO KNOWLEDGE. It knows of no reason why the regulatory approvals referred to in SECTION 6.01(B) should not be obtained without the imposition of any condition of the type referred to in the proviso following such SECTION 6.01(B). (T) LABOR RELATIONS. Each of the Company and the Company Subsidiaries is in compliance with all currently applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including, without limitation, the Immigration Reform and Control Act, the Worker Adjustment and Retraining Notification Act, any such laws respecting employment discrimination, disability rights or benefits, equal opportunity, plant closure issues, affirmative action, workers' compensation, employee benefits, severance payments, labor relations, employee leave issues, wage and hour standards, occupational safety and health requirements and unemployment insurance and related matters to the extent that non-compliance with any such laws would not be reasonably likely to have a Material Adverse Effect on the Company. None of the Company nor any of the Company Subsidiaries is engaged in any unfair labor practice and there is no unfair labor practice complaint pending or threatened against any of the Company or the Company Subsidiaries before the National Labor Relations Board. Neither it nor any of the Company Subsidiaries is a party to, or is bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is it or any of the Company Subsidiaries the subject of a proceeding asserting that it or any such Company Subsidiary has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel it or such subsidiary to bargain with any labor organization as to wages and conditions of employment, nor is there any strike or other labor dispute involving it or any of the Company Subsidiaries, pending or, to the best of its knowledge, threatened, nor is it aware of any activity involving its or any of the Company Subsidiaries' employees seeking to certify a collective bargaining unit or engaging in any other organization activity. (U) INSURANCE. The Company and the Company Subsidiaries are insured with reputable insurers against such risks and in such amounts as the management of the Company reasonably has determined to be prudent in accordance with industry practices. All of the insurance policies, binders, or bonds maintained by the Company or the Company Subsidiaries are in full force and effect; the Company and the Company Subsidiaries are not in default thereunder; and all claims thereunder have been filed in due and timely fashion. Previously Disclosed is a list of all insurance policies maintained by or for the benefit of the Company or the Company Subsidiaries or their directors, officers, employees or agents. (V) AFFILIATES. Except as Previously Disclosed, there is no person who, as of the date of this Plan, may be deemed to be an "affiliate" of the Company (each, an "Affiliate") as that term is used in Rule 145 under the Securities Act. (W) STATE TAKEOVER LAWS; ARTICLES OF INCORPORATION. It has taken all necessary action to exempt this Plan and the transactions contemplated hereby from, and this Plan and the transactions contemplated hereby are exempt from, (1) any applicable state takeover laws, including, without limitation, the provisions of Sections 13.1-725 through 13.1-728 of the Virginia Stock Corporation Act (the "VSCA"), (because a majority of the Company's disinterested directors approved such transactions for such purposes prior to any "determination date" with respect to First Union) and Sections 13.1-728.1 through 13.1-728.9 of the VSCA, (2) any applicable takeover provisions in the Company's Articles of Incorporation or By-laws, and (3) any takeover provisions set forth in any agreement to which the Company is a party or may be bound. (X) NO FURTHER ACTION. It has taken all action so that the entering into of this Plan, and the consummation of the transactions contemplated hereby (including without limitation the Merger) or any other action or combination of actions, or any other transactions, contemplated hereby do not and will not (1) require a vote of stockholders (other than the affirmative vote of more than two-thirds of the votes entitled to be cast by the holders of shares of Company Common Stock and Company Preferred Stock, each voting as a separate class, on this Plan or on any other actions necessary to facilitate the transactions contemplated hereby), or (2) result in the grant of any rights to any person under the Articles of Incorporation, Charter or Bylaws of the Company or any Company Subsidiary or under any agreement to which the Company or any of the Company Subsidiaries is a party, or (3) restrict or impair in any way the ability of First Union to exercise the rights granted hereunder. (Y) ENVIRONMENTAL MATTERS. The Company and the Company Subsidiaries have obtained and maintained in effect all material licenses, permits and other authorizations required under all applicable laws, regulations and other requirements of governmental or regulatory authorities relating to pollution or to the protection of the environment ("Environmental Laws") and is in compliance in all material respects with all Environmental Laws and with all such licenses, permits and authorizations. It has not received notice of liability to any person, governmental entity or Business Entity under the Comprehensive A-11 Environmental Response, Compensation and Liability Act, 42 U.S.C. (section mark) 9601 et seq. or any other Environmental Laws with respect to real property owned or leased by the Company or the Company Subsidiaries. (Z) TAXES. Except as Previously Disclosed, (1) all reports and returns with respect to Taxes (as defined below) and tax related information reporting requirements that are required to be filed by or with respect to it or the Company Subsidiaries, including without limitation consolidated federal income tax returns of it and the Company Subsidiaries (collectively, the "Company Tax Returns"), have been duly filed, or requests for extensions have been timely filed and have not expired, and such Company Tax Returns were true, complete and accurate in all material respects, (2) all taxes (which shall mean federal, state, local or foreign income, gross receipts, windfall profits, severance, property, production, sales, use, license, excise, franchise, employment, premium, recording, documentary, documentary stamps, real estate transfer, transfer, back-up withholding or similar taxes, together with any interest, additions, or penalties with respect thereto, imposed on the income, properties or operations of it or the Company Subsidiaries, together with any interest in respect of such additions or penalties, collectively the "Taxes") shown to be due on the Company Tax Returns have been paid in full or have been adequately reserved against on the books of the Company or the Company Subsidiaries, (3) the Company Tax Returns have been examined by the Internal Revenue Service or the appropriate state, local or foreign taxing authority or the period for assessment of the Taxes in respect of which such Company Tax Returns were required to be filed has expired, (4) all Taxes due with respect to completed and settled examinations have been paid in full, (5) no issues have been raised by the relevant taxing authority in connection with the examination of any of the Company Tax Returns which are reasonably likely, individually or in the aggregate, to result in a determination that would have a Material Adverse Effect on the Company, except as reserved against in the Company Financial Statements prior to the date of this Plan, (6) no waivers of statutes of limitations have been given by or requested with respect to any Taxes of the Company or the Company Subsidiaries, and (7) none of the Company, the Company Subsidiaries, First Union or any direct or indirect subsidiary of First Union, as a consequence of the Company's actions prior to the Effective Time, will be obligated to make a payment to an individual that would be a "parachute payment" as such term is defined in Section 280G of the Code without regard to whether such payment is to be performed in the future. (AA) ACCURACY OF INFORMATION. The statements with respect to the Company and the Company Subsidiaries contained in this Plan, the Schedules and any other written documents executed and delivered by or on behalf of it pursuant to the terms of this Plan are true and correct in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. (BB) DERIVATIVES. All exchange-traded or over-the-counter swap, forward, future, option, cap, floor or collar financial contract or any other similar arrangement, whether entered into for the Company's account, or for the account of one or more of the Company Subsidiaries or their customers, were entered into (1) in accordance with prudent business practices and all applicable laws, rules, regulations and regulatory policies and (2) with counterparties believed to be financially responsible at the time; and each of them constitutes the valid and legally binding obligation of the Company or Company Subsidiary, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors' rights or by general equity principles), and are in full force and effect. Neither the Company nor a Company Subsidiary, nor to the Company's knowledge any other party thereto, is in breach of any of its obligations under any such agreement or arrangement. The Company's Audited Reports disclose the value of such agreements and arrangements on a mark-to-market basis in accordance with generally accepted accounting principles and, since March 31, 1997, there has not been a change in such value that, individually or in the aggregate, has resulted in a Material Adverse Effect on the Company. (CC) ACCOUNTING CONTROLS. Each of the Company and the Company Subsidiaries has devised and maintained systems of internal accounting controls sufficient to provide reasonable assurances, in the judgment of the Board of Directors of the Company, that (1) all material transactions are executed in accordance with management's general or specific authorization; (2) all material transactions are recorded as necessary to permit the preparation of financial statements in conformity with generally accepted accounting principles consistently applied with respect to broker-dealers or any other criteria applicable to such statements, (3) access to the material property and assets of the Company and the Company Subsidiaries is permitted only in accordance with management's general or specific authorization; and (4) the recorded accountability for items is compared with the actual levels at reasonable intervals and appropriate action is taken with respect to any differences. (DD) PROPRIETARY RIGHTS. The Company and the Company Subsidiaries have the right to use the names, service-marks, trademarks and other intellectual property material to the conduct of their business, which have been Previously Disclosed; A-12 and in the case of such names, service-marks and trademarks, in each state of the United States, such right of use is free and clear of any Liens, and no other person has the right to use such names, service-marks or trademarks in any such state. (EE) POOLING; REORGANIZATION. As of the date hereof, it is aware of no reason why the Merger will fail to qualify (1) for pooling-of-interests accounting treatment or (2) as a reorganization under Section 368(a) of the Code. (FF) INVESTMENT ADVISORY ACTIVITIES. (1) Certain of the Company Subsidiaries provide investment management, investment advisory, sub-advisory, administration, distribution or certain other services to the Investment Companies, each of which has been Previously Disclosed. Each of the Investment Companies (or the trust of which it is a series) is duly organized and existing in good standing under the laws of the jurisdiction under which it is organized as Previously Disclosed. Each of the Investment Companies is governed by a board of trustees or directors (each a "Fund Board" and, collectively, the "Fund Boards") consisting of at least 50% of trustees or directors who are not "interested persons" (as defined in the Investment Company Act) of the Investment Companies or the Company. The Fund Boards operate in all material respects in conformity with the requirements and restrictions of Sections 10 and 16 of the Investment Company Act. The term "Investment Company" shall have the meaning provided in the Investment Company Act. (2) Each of the Investment Companies is in compliance in all material respect with all applicable laws, rules and regulations of the SEC, the NASD, the Internal Revenue Service, and any other Self-Regulatory Body having jurisdiction over such Investment Company and of any state in which such Investment Company is registered, qualified or sold. The Company has provided to First Union true and complete copies of all the constituent documents and related advisory agreements of all of the Investment Companies managed by the Company or any Company Subsidiary. (3) Except as Previously Disclosed, none of the Company or any Company Subsidiary is or has been during the past five years an "investment adviser" within the meaning of the Investment Advisers Act, required to be registered, licensed or qualified as an investment advisor under the Investment Advisers Act or subject to any material liability or disability by reason of any failure to be so registered, licensed or qualified, except for any such failure to be so registered, licensed or qualified that could not, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect on the Company. (4) Each Investment Company has been operated in compliance with its respective objectives, policies and restrictions, including without limitation, those set forth in the applicable prospectus and registration statement for that Investment Company or governing instruments for a Client, except where lack of compliance would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on the Company. The Company and the Company Subsidiaries have in all material respects operated each of its investment accounts in accordance with the investment objectives and guidelines in effect for each such investment account, except when lack of compliance would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on the Company. (5) Each Investment Company has duly adopted procedures pursuant to Rules 17a-7, 17e-1 and 10f-3 under the Investment Company Act, to the extent applicable. (6) Neither the Company, any Company Subsidiary nor any Affiliate thereof has been found to have engaged in any conduct of the types described in Section 9(a) of the Investment Company Act as a result of which a national bank would be disqualified from acting as investment advisor to a registered investment company. 4.02. FIRST UNION REPRESENTATIONS AND WARRANTIES. First Union hereby represents and warrants to the Company, as follows: (A) RECITALS. The facts set forth in the Recitals of this Plan with respect to First Union and the FUNC Subsidiary are true and correct. (B) CORPORATE AUTHORITY. Subject to the required regulatory approvals referred to in SECTION 6.02, this Plan has been authorized by all necessary corporate action of First Union and the FUNC Subsidiary and is a valid and binding agreement of it enforceable against First Union and the FUNC Subsidiary in accordance with its terms, subject as to enforcement to bankruptcy, insolvency and other similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (C) NO DEFAULTS. Subject to the required approval of the Federal Reserve Board, and any required filings under federal and state securities' and insurance laws, and the approvals of the NYSE and the other securities exchanges referred to in SECTION 4.01(G), of the Merger and and the other transactions contemplated hereby, the execution, delivery and performance A-13 of this Plan, and the consummation of the transactions contemplated hereby by it, does not and will not (1) constitute a breach or violation of, or a default under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of it or of any of its subsidiaries or to which it or any of its subsidiaries or properties is subject or bound, which breach, violation or default is reasonably likely to have a Material Adverse Effect on First Union, (2) constitute a breach or violation of, or a default under, its Articles of Incorporation, Charter or Bylaws, or (3) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license, or the consent or approval of any other party to any such agreement, indenture or instrument other than such consent or approval, which if not obtained, would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect. (D) FINANCIAL REPORTS. Its Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all other documents filed or to be filed subsequent to December 31, 1996, under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form filed with the SEC (in each such case, the "First Union Financial Reports"), did not and will not as of their respective dates contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading; and each of the balance sheets in or incorporated by reference into the First Union Financial Reports (including the related notes and schedules thereto) fairly presents and will fairly present the financial position of the entity or entities to which it relates as of its date and each of the statements of income and changes in stockholders' equity and cash flows or equivalent statements in the First Union Financial Reports (including any related notes and schedules thereto) fairly presents and will fairly present the results of operations, changes in stockholders' equity and changes in cash flows, as the case may be, of the entity or entities to which it relates for the periods set forth therein, in each case in accordance with generally accepted accounting principles consistently applied to banks and bank holding companies during the periods involved, except as may be noted therein, subject to normal and recurring year-end audit adjustments in the case of unaudited statements. (E) NO EVENTS. No events have occurred, or circumstances have arisen, since June 30, 1997, which, individually or in the aggregate, have had or are reasonably likely to have a Material Adverse Effect on First Union. (F) NO BROKERS. All negotiations relative to this Plan and the transactions contemplated hereby have been carried on by it directly with the other parties hereto and no action has been taken by it that would give rise to any valid claim against any party hereto for a brokerage commission, finder's fee or other like payment. (G) NO KNOWLEDGE. It knows of no reason why (1) the regulatory approvals referred to in SECTION 6.01(B) should not be obtained without the imposition of any condition of the type referred to in the proviso following such SECTION 6.01(B) and (2) the Merger would fail to qualify as a pooling of interests for accounting purposes or as a reorganization under Section 368(a) of the Code. (H) SHARES AUTHORIZED. The shares of First Union Common Stock to be issued in exchange for shares of Company Common Stock and Company Preferred Stock upon consummation of the Merger in accordance with ARTICLE II of this Plan, have been duly authorized and, when issued in accordance with the terms of this Plan and in the case of shares issued upon the exercise of such Options, the related stock option plan, will be validly issued, fully paid and nonassessable and subject to no preemptive rights. (I) ORGANIZATION, STANDING AND AUTHORITY. First Union and the FUNC Subsidiary each is duly qualified to do business and is in good standing in the States of the United States and foreign jurisdictions where the failure to be duly qualified, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on First Union. Each of First Union and its subsidiaries has in effect all federal, state, local and foreign governmental authorizations necessary for it to own or lease its properties and assets and to carry on its business as it is now conducted, the absence of which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on First Union. (J) CORPORATE POWER. First Union has the corporate power and authority to carry on its business as it is now being conducted and to own or lease all its material properties and assets. (K) ACCURACY OF INFORMATION. The statements with respect to First Union contained in this Plan, the Schedules and any other written documents executed and delivered by or on behalf of First Union pursuant to the terms of this Plan are true and correct in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. (L) LITIGATION; REGULATORY ACTION. Neither First Union nor any of its subsidiaries is a party to any Litigation before any court, arbitrator, mediator or Regulatory Authority which, individually or in the aggregate, is reasonably likely to have a A-14 Material Adverse Effect on First Union and, to the best of its knowledge, no such Litigation has been threatened; and neither it nor any of its subsidiaries or any of its or their material properties or their officers, directors or controlling persons is a party to or is the subject of any order, decree, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, any Regulatory Authorities, which is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on First Union and neither it nor any of its subsidiaries has been advised by any Regulatory Authorities that any such authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, decree, agreement, memorandum or understanding, commitment letter or similar submission. V. COVENANTS. The Company hereby covenants to First Union, and First Union hereby covenants to the Company, as applicable, that: 5.01. EFFORTS. Subject to the terms and conditions of this Plan, it shall use its reasonable best efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable laws, so as to permit consummation of the Merger on the Effective Date and to otherwise enable consummation of the transactions contemplated hereby and shall cooperate fully with the other parties hereto to that end (it being understood that any amendments to the Registration Statement (as hereinafter defined) or a resolicitation of proxies as a consequence of an acquisition agreement by First Union or any of its subsidiaries shall not violate this covenant). 5.02. COMPANY PROXY/REGISTRATION STATEMENT. The Company and First Union shall prepare a proxy statement/prospectus (the "Proxy Statement") to be mailed to the holders of Company Common Stock and Company Preferred Stock in connection with the transactions contemplated hereby and to be filed by First Union in a registration statement (the "Registration Statement") with the SEC (it being understood that First Union shall use its reasonable best efforts to file the Registration Statement or the preliminary Proxy Statement with the SEC within 30 days of the date hereof). The Company shall call a special meeting (the "Meeting") of the holders of Company Common Stock and Company Preferred Stock to be held as soon as practicable for purposes of voting upon the approval of this Plan and the Company shall use its reasonable best efforts to solicit and obtain votes of the holders of Company Common Stock and Company Preferred Stock in favor of the approval of this Plan, and the Board of Directors of the Company shall recommend approval of this Plan by such holders. 5.03. REGISTRATION STATEMENT; COMPLIANCE WITH SECURITIES LAWS. When the Registration Statement or any post-effective amendment or supplement thereto shall become effective, and at all times subsequent to such effectiveness, up to and including the date of the Meeting, such Registration Statement and all amendments or supplements thereto, with respect to all information set forth therein furnished or to be furnished by or on behalf of the Company relating to the Company or the Company Subsidiaries and by or on behalf of First Union relating to First Union or its subsidiaries, (A) will comply in all material respects with the provisions of the Securities Act and the Exchange Act and any other applicable statutory or regulatory requirements, and (B) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading; PROVIDED, HOWEVER, in no event shall any party hereto be liable for any untrue statement of a material fact or omission to state a material fact in the Registration Statement made in reliance upon, and in conformity with, written information concerning another party furnished by or on behalf of such other party specifically for use in the Registration Statement. 5.04. REGISTRATION STATEMENT EFFECTIVENESS. First Union will advise the Company, promptly after First Union receives notice thereof, of the time when the Registration Statement has become effective or any supplement or amendment has been filed (after providing drafts in advance to the Company and its counsel for review and comment), of the issuance of any stop order or the suspension of the qualification of the First Union Common Stock for offering or sale in any jurisdiction, of the initiation or threat of any proceeding for any such purpose, or of any request by the SEC for the amendment or supplement of the Registration Statement or for additional information. 5.05. PRESS RELEASES. The Company will not, without the prior approval of First Union (which approval shall not be unreasonably withheld or delayed), and First Union will not, without the prior approval of the Company (which approval shall not be unreasonably withheld or delayed), issue any press release or written statement for general circulation relating to the transactions contemplated hereby, except as otherwise required by law. 5.06. ACCESS; INFORMATION. (A) Upon reasonable notice, the Company shall afford First Union and its officers, employees, counsel, accountants and other authorized representatives, access, during normal business hours throughout the period prior to the Effective Date, to all of its properties, books, contracts, data processing system files, commitments and records and, during such period, the Company shall furnish promptly to First Union (1) a copy of each material report, schedule and A-15 other document filed by the Company and the Company Subsidiaries with any Regulatory Authority, and (2) all other information concerning the business, properties and personnel of the Company and the Company Subsidiaries as First Union may reasonably request, PROVIDED that no investigation pursuant to this SECTION 5.06 shall affect or be deemed to modify or waive any representation or warranty made by the Company or the conditions to the obligations of the Company to consummate the transactions contemplated by this Plan; and (B) First Union will not use any information obtained pursuant to this SECTION 5.06 for any purpose unrelated to the consummation of the transactions contemplated by this Plan and, if this Plan is terminated, will hold all information and documents obtained pursuant to this paragraph in confidence (as provided in SECTION 8.06) unless and until such time as such information or documents become publicly available other than by reason of any action or failure to act by First Union or as it is advised by counsel in writing that any such information or document is required by law or applicable published stock exchange rule to be disclosed, and in the event of the termination of this Plan, First Union will, upon request by the Company, deliver to the Company all documents so obtained by First Union or destroy such documents and, in the case of destruction, will certify such fact to the Company. 5.07. ACQUISITION PROPOSALS. In the case of the Company, it shall not, and it shall cause the Company Subsidiaries not to, solicit or encourage inquiries or proposals with respect to, or furnish any nonpublic 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, the Company or any of the Company Subsidiaries or any merger or other business combination with the Company or any of the Company Subsidiaries other than as contemplated by this Plan; it shall instruct its and the Company Subsidiaries' officers, directors, agents, advisors and affiliates to refrain from taking any action that would violate or conflict with any of the foregoing; and it shall notify First Union immediately if any such inquiries or proposals are received by, or any such negotiations or discussions are sought to be initiated with, the Company or any of the Company Subsidiaries. 5.08. BLUE-SKY FILINGS. In the case of First Union, it shall use its reasonable best efforts to obtain all necessary state securities laws or "blue sky" permits and approvals, PROVIDED that First Union shall not be required by virtue thereof to submit to general jurisdiction in any state. 5.09. STATE TAKEOVER LAWS; ARTICLES OF INCORPORATION. In the case of the Company, it shall not take any action that would cause the transactions contemplated by this Plan to be subject to any applicable state takeover statute and the Company shall take all necessary steps to exempt (or ensure the continued exemption of) the transactions contemplated by this Plan from (A) any applicable state takeover law, as now or hereafter in effect, including, without limitation, Sections 13.1-725 through 13.1-728 of the VSCA, (B) any applicable takeover provisions in the Company's Articles of Incorporation or By-laws, and (C) any takeover provisions set forth in any agreement to which the Company is a party or may be bound. 5.10. AFFILIATE AGREEMENTS. In the case of the Company, it will cause each person who may be deemed to be an Affiliate of the Company to execute and deliver to First Union on or before the mailing of the Proxy Statement for the Meeting an agreement in the form attached hereto as EXHIBIT B restricting the disposition of the shares of First Union Common Stock to be received by such Affiliate in exchange for such Affiliate's shares of Company Common Stock and/or Company Preferred Stock. 5.11. REDEMPTION AGREEMENTS. The Company will enforce its rights under each Stock Redemption Agreement entered into by the Company with the stockholders of the Company and, to the extent consistent with pooling of interests accounting, shall exercise its rights to redeem any and all shares of stock to the extent it is entitled thereunder. 5.12. SHARES LISTED. In the case of First Union, it shall use its reasonable best efforts to list, prior to the Effective Date, on the NYSE, upon official notice of issuance, the shares of First Union Common Stock to be issued to the holders of Company Common Stock and Company Preferred Stock, pursuant to this Plan. 5.13. REGULATORY APPLICATIONS. In the case of First Union, subject to the cooperation of the Company, (A) it shall use its reasonable best efforts to prepare and submit applications to the appropriate Regulatory Authorities for approval of the Merger within 30 days of the date hereof, and (B) promptly make all other appropriate filings to secure all other approvals, consents and rulings which are necessary for the consummation of the Merger by First Union. First Union will provide copies of such applications and responses to the Company and its counsel prior to submitting such applications and responses to the applicable Regulatory Authorities. In the case of the Company, it agrees, upon request, to furnish First Union with information concerning itself, the Company Subsidiaries, its and their directors, officers and stockholders and such other matters as may be necessary or advisable in connection with any filing, notice or application made by or on behalf of First Union or any of its subsidiaries in connection with the Merger and the other transactions contemplated in this Plan. A-16 5.14. CURRENT INFORMATION. (A) During the period from the date of this Plan to the Effective Date, each of the Company and First Union shall, and shall cause its representatives to, confer on a regular and frequent basis with representatives of the other. (B) The Company shall promptly notify First Union of (1) any material change in the business or operations of the Company or any Company Subsidiary, (2) any material complaints, investigations or hearings (or communications indicating that the same may be contemplated) of any Regulatory Authority relating to the Company or any Company Subsidiary, (3) the institution or the threat of material Litigation involving or relating to the Company or any Company Subsidiary, or (4) any event or condition that might be reasonably expected to cause any of the Company's representations or warranties set forth herein not to be true and correct as of the Effective Time or prevent the Company from fulfilling its obligations hereunder; and in each case shall keep First Union informed with respect thereto. (C) First Union shall (1) promptly notify the Company of any event or condition that might reasonably be expected to cause any of First Union's representations or warranties set forth herein not to be true and correct as of the Effective Date or prevent First Union from fulfilling its obligations hereunder and (2) notify the Company immediately of any denial of any application filed by First Union with any Regulatory Authority with respect to this Plan, and in each case shall keep the Company informed with respect thereto. 5.15. INVESTMENT COMPANIES. (A) The parties each agree for a period of three years following the Effective Time to use their respective reasonable best efforts to assure compliance with the conditions of Section 15(f) of the Investment Company Act as it applies to the transactions contemplated by this Plan. (B) The Company will use its reasonable best efforts to obtain, as promptly as practicable, the approval of the Fund Boards and shareholders of each Investment Company, pursuant to the provisions of Section 15 of the Investment Company Act applicable thereto, of a new Investment Company advisory Contracts with the applicable Investment Company having terms in the aggregate that are at least as favorable to First Union as the existing Investment Company advisory Contracts. 5.16. RETENTION PROGRAM. (A) RETENTION POOL. At the Effective Time, First Union will establish a retention pool (the "Retention Pool") consisting of 1,701,362 restricted shares of First Union Common Stock, to be used to retain key employees of the Company. The individuals eligible for inclusion in the Retention Pool and the respective allocations will be determined by the Chief Executive Officer of the Company, in consultation with and subject to the approval of First Union, prior to the Effective Time. (B) VOTING. The shares of restricted First Union Common Stock in the Retention Pool shall vest, and shall be issued to the participants in the Retention Pool then eligible to receive such shares, in the installments as set forth in ANNEX C hereto. (C) ELIGIBILITY. Eligibility to participate in the Retention Pool shall require an individual to be employed by First Union as of the dates and subject to the terms and conditions set forth in such ANNEX C. (D) ADJUSTMENT. If an employee of the Company who has been selected to participate in the Retention Pool shall forfeit the right to receive the shares of restricted First Union Common Stock thereunder, as set forth in ANNEX C, the shares of restricted First Union Common Stock allocated to that individual shall be cancelled and the number of shares of First Union Common Stock in the Retention Pool shall be adjusted accordingly. 5.17. INDEMNIFICATION/LIABILITY COVERAGE. (A) For six years after the Effective Date, First Union shall cause the Continuing Corporation to, indemnify, defend and hold harmless the present and former directors, officers and employees of the Company and the Company Subsidiaries (each, an "Indemnified Party") against all liabilities arising out of actions or omissions occurring at or prior to the Effective Date (including, without limitation, the transactions contemplated by this Plan) to the extent such persons are indemnified under the VSCA and the Company's Articles of Incorporation and Bylaws as in effect on the date hereof, including provisions relating to advances of expenses incurred in the defense of any litigation. (B) First Union shall use its reasonable best efforts to maintain the Company's existing directors' and officers' liability insurance policy (or a policy, including First Union's existing policy, providing comparable coverage amount on terms no less favorable) covering persons who are currently covered by such insurance for a period of three years after the Effective Date; PROVIDED, that First Union shall not be obligated to make an annual premium payment in respect of such policy (or replacement policy) which exceeds, for the portion related to the Company's directors and officers, 150% of the annual A-17 premium payment on the Company's current policy in effect as of the date of this Plan; PROVIDED, FURTHER, that if such coverage can only be obtained upon the payment of an annual premium in excess of 150% of the annual premium payment of the Company's current policy, First Union shall obtain such coverage as can reasonably be obtained by paying a premium of 150% of the annual premium payment of the Company's current policy in effect as of the date of this Plan. (C) Any Indemnified Party wishing to claim indemnification under SECTION 5.17(A), upon learning of such claim, action, suit, proceeding or investigation, shall promptly notify First Union thereof; PROVIDED, that the failure so to notify shall not affect the obligations of First Union and the Continuing Corporation under SECTION 5.17(A) (unless such failure materially increases First Union's liability under such Section). In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Date), (1) First Union or the Continuing Corporation shall have the right to assume the defense thereof, if it so elects, and First Union or the Continuing Corporation shall pay all reasonable fees and expenses of counsel for the Indemnified Parties promptly as statements therefor are received; PROVIDED, HOWEVER, that First Union shall be obligated pursuant to this subsection (C) to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction for any single action, suit or proceeding or any group of actions, suits or proceedings arising out of or related to a common body of facts, (2) the Indemnified Parties will cooperate in the defense of any such matter, and (3) First Union shall not be liable for any settlement effected without its prior written consent. The rights of each Indemnified Party hereunder shall be in addition to any other rights such Indemnified Party may have under the Articles of Incorporation or Bylaws of the Company, under the VSCA or otherwise. 5.18. WAIVER OF NONLAPSE RESTRICTIONS. First Union and the Company agree that the termination of the restrictions set forth in the Company's Stock Redemption Agreements with respect to shares of the Company Common Stock and Company Preferred Stock upon consummation of the Merger constitutes a noncompensatory waiver of a nonlapse restriction within the meaning of Section 83 of the Code and the regulations promulgated thereunder and that First Union shall not take an income tax deduction with respect thereto. First Union and the Company agree to furnish each former stockholder of the Company with the statement required by Treasury Regulation Section 1.83-5(b)(2), if so requested. VI. CONDITIONS TO CONSUMMATION OF THE MERGER. 6.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS. The respective obligation of each of First Union and the FUNC Subsidiary, on the one hand, and the Company, on the other hand, to consummate the Merger is subject to the fulfillment or written waiver by First Union and the Company prior to the Effective Time of each of the following conditions: (A) STOCKHOLDER APPROVALS. This Plan and the Merger shall have been duly adopted by the requisite vote of the stockholders of the Company. (B) REGULATORY APPROVALS. All regulatory approvals required to consummate the transactions contemplated hereby, shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired and no such approvals shall contain any conditions, restrictions or requirements which First Union reasonably determines would (1) following the Effective Time, have a Material Adverse Effect on the Continuing Corporation or (2) reduce the benefits of the transactions contemplated hereby to such a degree that First Union would not have entered into this Plan had such conditions, restrictions or requirements been known at the date hereof. (C) NO INJUNCTION. No Regulatory Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits consummation of the transactions contemplated by this Plan. (D) REGISTRATION STATEMENT. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. (E) BLUE SKY APPROVALS. All permits and other authorizations under state securities laws necessary to consummate the transactions contemplated hereby and to issue the shares of First Union Common Stock to be issued in the Merger shall have been received and be in full force and effect. (F) LISTING. The shares of First Union Common Stock to be issued in the Merger shall have been approved for listing on the NYSE, subject to official notice of issuance. 6.02. CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the Company to consummate the Merger is also subject to the fulfillment or written waiver by the Company prior to the Effective Time of each of the following conditions: A-18 (A) REPRESENTATIONS AND WARRANTIES. The representations and warranties of First Union set forth in this Plan shall be true and correct as of the date of this Plan and as of the Effective Date as though made on and as of the Effective Date (except that representations and warranties that by their terms speak as of the date of this Plan or some other date shall be true and correct as of such date), (PROVIDED, HOWEVER, that for purposes of determining the satisfaction of the condition contained in this SECTION 6.02(A), such representations and warranties shall be deemed to be true and correct if the failure or failures of such representations and warranties to be so true and correct (excluding the effect of any qualification set forth therein relating to "materiality" or "Material Adverse Effect") are not reasonably likely to constitute or give rise to, individually or in the aggregate, a Material Adverse Effect on First Union), and the Company shall have received a certificate, dated the Effective Date, signed on behalf of First Union by an executive officer of First Union to such effect. (B) PERFORMANCE OF OBLIGATIONS OF FIRST UNION. First Union shall have performed in all material respects all obligations required to be performed by it under this Plan at or prior to the Effective Time, and the Company shall have received a certificate, dated the Effective Date, signed on behalf of First Union by an executive officer of First Union to such effect. (C) OPINION OF THE COMPANY'S COUNSEL. The Company shall have received an opinion of Wachtell, Lipton, Rosen & Katz, special counsel to the Company, dated the Effective Date, to the effect that, on the basis of facts, representations and assumptions set forth in such opinion, (i) the Merger constitutes a "reorganization" within the meaning of Section 368(a) of the Code and (ii) no gain or loss will be recognized by stockholders of the Company who receive shares of First Union Common Stock in exchange for shares of Company Common Stock and Company Preferred Stock, except with respect to cash received in lieu of fractional share interests. In rendering its opinion, Wachtell, Lipton, Rosen & Katz, may require and rely upon representations contained in letters from the Company, First Union and stockholders of the Company. 6.03. CONDITIONS TO OBLIGATION OF FIRST UNION. The obligation of First Union to consummate the Merger is also subject to the fulfillment or written waiver by First Union prior to the Effective Time of each of the following conditions: (A) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company set forth in this Plan shall be true and correct as of the date of this Plan and as of the Effective Date as though made on and as of the Effective Date (except that representations and warranties that by their terms speak as of the date of this Plan or some other date shall be true and correct as of such date); (PROVIDED, HOWEVER, that for purposes of determining the satisfaction of the condition contained in this SECTION 6.03(A), such representations and warranties shall be deemed to be true and correct if the failure or failures of such representations and warranties to be so true and correct (excluding the effect of any qualification set forth therein relating to "materiality" or "Material Adverse Effect") are not reasonably likely to constitute or give rise to, individually or in the aggregate, a Material Adverse Effect on the Company), and First Union shall have received a certificate, dated the Effective Date, signed on behalf of the Company by the Chief Executive Officer and the Chief Financial Officer of the Company to such effect. (B) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have performed in all material respects all obligations required to be performed by it under this Plan at or prior to the Effective Time, and First Union shall have received a certificate, dated the Effective Date, signed on behalf of the Company by the Chief Executive Officer and the Chief Financial Officer of the Company to such effect. (C) OPINION OF FIRST UNION'S COUNSEL. First Union shall have received an opinion of Sullivan & Cromwell, counsel to First Union, dated the Effective Date, to the effect that, on the basis of facts, representations and assumptions set forth in such opinion, the Merger constitutes a reorganization under Section 368(a) of the Code. In rendering its opinion, Sullivan & Cromwell may require and rely upon representations contained in letters from the Company, First Union and stockholders of the Company. (D) ACCOUNTANTS' LETTERS. KPMG Peat Marwick LLP, independent auditors for the Company, shall have delivered to First Union letters, dated the date of or shortly prior to (A) the mailing of the Proxy Statement, and (B) the Effective Date, in form and substance reasonably satisfactory to First Union, (1) with respect to the Company's consolidated financial position and results of operations, which letters shall be based upon "agreed upon procedures" undertaken by such firm in accordance with the Statements on Auditing Standards No. 72 and (2) to the effect that such accountants are not aware of any facts or circumstances which might cause the Merger not to qualify for pooling of interests accounting treatment. (E) ACCOUNTING TREATMENT. First Union shall have received from KPMG Peat Marwick LLP a letter, dated on or shortly prior to the Effective Date, to the effect that the Merger will qualify for pooling-of-interests accounting treatment under Accounting Principles Board Opinion No. 16 if closed and consummated in accordance with this Plan and the related agreements executed in connection with or contemplated hereby. A-19 (F) CONSENTS. The Company shall have obtained the consents or approvals of the Investment Company shareholders necessary to consummate the transactions contemplated by this Plan. (G) EMPLOYMENT AGREEMENTS. The employment agreements referred to in RECITAL (F) of this Plan shall have been entered into and shall be in effect (other than as a consequence of death or disability). (H) NO MATERIAL ADVERSE EFFECT. Since March 31, 1997, no events have occurred or circumstances have risen that, individually or in the aggregate, have had or are reasonably likely to have a Material Adverse Effect on the Company. VII. TERMINATION. This Plan may be terminated prior to the Effective Date, either before or after receipt of required stockholder approvals: 7.01. MUTUAL CONSENT. By the mutual consent of First Union and the Company. 7.02. BREACH. By First Union or the Company, in the event of (A) a breach by the other party of any representation or warranty contained herein, which breach cannot be or has not been cured within thirty (30) days after the giving of written notice to the breaching party of such breach (provided that a party may terminate this Plan pursuant to this SECTION 7.02(A) only with respect to a breach or breaches that would permit such party not to consummate the Merger under the standards set forth in SECTION 6.02(A) or SECTION 6.03(A), as the case may be), or (B) a breach by the other party of any of the covenants or agreements contained herein, which breach cannot be or has not been cured within thirty (30) days after the giving of written notice to the breaching party of such breach. 7.03. DELAY. By First Union or the Company, in the event that the Merger is not consummated by June 30, 1998. 7.04. NO STOCKHOLDER OR REGULATORY APPROVAL. By the Company or First Union, (A) in the event that any stockholder approval contemplated by SECTION 6.01(A) is not obtained at the Meeting, including any adjournment or adjournments thereof, or (B) in the event that written notice is received which states that any required regulatory approval contemplated by SECTION 6.01(B) will not be approved or has been denied. 7.05. FAILURE TO RECOMMEND, ETC. At any time prior to the Meeting, by First Union if the board of directors of the Company shall have failed to make its recommendation referred to in SECTION 5.02, withdrawn such recommendation or modified or changed such recommendation in a manner adverse in any respect to the interests of First Union. 7.06. TERMINATION FEE. (A) The Company hereby agrees to pay First Union and First Union shall be entitled to payment of, a nonperformance fee (the "Termination Fee") of $20 million following the occurrence of a Payment Event (as defined below). Such payment shall be made in immediately available funds within five business days after delivery of a notice from First Union requesting such payment. The right to receive the Termination Fee shall terminate if any of the following (a "Fee Termination Event") occurs prior to a Payment Event: (i) the Effective Date, (ii) termination of this Plan in accordance with the provisions hereof if such termination occurs prior to the occurrence of a Preliminary Payment Event (as defined below), except a termination by First Union pursuant to SECTION 7.02, (iii) termination of this Plan following the occurrence of a Preliminary Payment Event and the passage of eighteen (18) months after such termination, or (iv) termination of this Plan by First Union pursuant to SECTION 7.02 (under circumstances that would permit First Union not to consummate the Merger under the standards set forth in SECTION 6.03(A)) and the passage of eighteen (18) months after such termination. (B) The term "Preliminary Payment Event" shall mean any of the following events or transactions occurring after the date hereof: (1) The Company without having received First Union's prior written consent, shall have entered into an agreement to engage in any Acquisition Transaction (as defined below) with any person (the term "person" for purposes of this SECTION 7.06 having the meaning assigned thereto in Section 3(a)(9) and 13(d)(3) of the Exchange Act) other than First Union or any of its subsidiaries or affiliates, or the Board of Directors of the Company shall have recommended that the shareholders of the Company approve or accept any Acquisition Transaction with any person other than First Union or any of its subsidiaries or affiliates. For purposes of this Plan, "Acquisition Transaction" shall mean (a) a merger or consolidation, or any similar transaction, involving the Company, (b) a purchase, lease or other acquisition of all or substantially all of the assets of the Company, (c) a purchase or other acquisition (including by way of merger, consolidation, share exchange or otherwise) of securities representing 20% or more of the voting power of the Company; PROVIDED that the term "Acquisition Transaction" does not include any internal merger or consolidation involving only the Company and/or any of the Company Subsidiaries; A-20 (2) (a) any person, other than First Union or any of its subsidiaries or affiliates or the Company's Associate Stock Ownership Plan (the "ASOP") shall have acquired beneficial ownership or the right to acquire beneficial ownership of 20% or more of the outstanding shares of voting stock ("Company Voting Stock") of the Company (the term "beneficial ownership" for purposes of this Agreement having the meaning assigned thereto in Section 13(d) of the Exchange Act, or (b) any group (as such term "group" is defined in Section 13(d)(3) of the Exchange Act), other than a group of which any of First Union or any of its subsidiaries or affiliates is a member, shall have been formed that beneficially owns 20% or more of the Company Common Stock then outstanding; (3) any person, other than First Union or any of its subsidiaries or affiliates, or any group, other than a group of which First Union or any of its Subsidiaries is a member, shall have made a proposal to the Company or its shareholders, by public announcement or public or nonpublic written communication to engage in an Acquisition Transaction or to acquire beneficial ownership of 20% or more of the outstanding shares of Company Voting Stock; (4) after a proposal is made by a third party to the Company or its shareholders to engage in an Acquisition Transaction, or such third party states its intention to the Company to make such a proposal, the Company shall have breached any representation, covenant or obligation contained in this Plan and such breach would entitle First Union to terminate this Plan under SECTION 7.02 (without regard to the cure period provided for therein unless such cure is promptly effected without jeopardizing consummation of the Merger); or (5) the holders of shares of Company Common Stock and Company Preferred Stock shall not have approved this Plan at the Meeting or the Meeting shall not have been held or shall have been canceled prior to termination of this Plan, in each case after any person other than First Union or any of its subsidiaries or affiliates or the ASOP shall have (a) made, or disclosed an intention to make, a proposal to engage in an Acquisition Transaction or (b) to acquire beneficial ownership of 25% or more of the Company's Voting Stock. (C) The term "Payment Event" shall mean either of the following events or transactions occurring after the date hereof: (1) the acquisition by any person other than First Union or any of its subsidiaries or affiliates, or the ASOP alone or together with such person's affiliates and associates, or any group (as defined in Section 13(d)(3) of the Exchange Act), of beneficial ownership of 25% or more of the outstanding shares of Company Voting Stock; or (2) the occurrence of a Preliminary Payment Event described in clause (B)(1) above, except that the percentage referred to in clause (c) thereof shall be 25%. (D) The Company shall notify First Union promptly in writing of its knowledge of the occurrence of any Preliminary Payment Event or Payment Event; PROVIDED, HOWEVER, that the giving of such notice by the Company shall not be a condition to the right of First Union to the Termination Fee. VIII. OTHER MATTERS. 8.01. SURVIVAL. If the Effective Date occurs, all representations, warranties, agreements and covenants contained in this Plan, except for SECTIONS 5.16, 5.17, 8.04 and 8.09, shall not survive the Effective Date. If this Plan is terminated prior to the Effective Date, the agreements and representations of the parties in SECTIONS 4.01(Q) and 4.02(F), SECTIONS 5.03, 5.06(B), SECTION 7.06, and SECTIONS 8.01, 8.03, 8.04, 8.05, 8.06, 8.07, 8.09, 8.11 and 8.12 shall survive such termination. 8.02. WAIVER; AMENDMENT. Prior to the Effective Date, any provision of this Plan may be (A) waived in writing by the party benefitting by the provision, or (B) amended or modified at any time (including the structure of the transactions contemplated hereby) by an agreement in writing among the parties hereto approved by their respective Boards of Directors and executed in the same manner as this Plan, except that, after the vote by the stockholders of the Company, the consideration to be received by the stockholders of the Company shall not thereby be decreased. 8.03. COUNTERPARTS. This Plan may be executed in one or more counterparts, each of which shall be deemed to constitute an original. This Plan shall become effective when one counterpart has been signed by each party hereto. 8.04. GOVERNING LAW. This Plan shall be governed by, and interpreted in accordance with, the laws of the State of North Carolina. 8.05. EXPENSES. Each party hereto will bear all expenses incurred by it in connection with this Plan and the transactions contemplated hereby, except Proxy Statement printing expenses which shall be shared equally between the Company and First Union. A-21 8.06. CONFIDENTIALITY. Except as otherwise provided in SECTION 5.06(B), each of the parties hereto and their respective agents, attorneys and accountants will maintain the confidentiality of all information provided in connection herewith which has not been publicly disclosed. 8.07. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (with confirmation) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to First Union, First Union Corporation to: One First Union Center Charlotte, North Carolina 28288-0013 Telecopy Number: (704) 374-3425 Attention: Edward E. Crutchfield Chairman and Chief Executive Officer Copy to: First Union Corporation One First Union Center Charlotte, North Carolina 28288-0013 Telecopy Number: (704) 374-3425 Attention: Marion A. Cowell, Jr. General Counsel If to the Company, Wheat First Butcher Singer, Inc. to: Riverfront Plaza 901 East Byrd Street Richmond, Virginia 23219 Telecopy Number: (804) 782-3739 Attention: Marshall B. Wishnack Chairman and Chief Executive Officer Copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Telecopy Number: (212) 403-2000 Attention: Edward D. Herlihy, Esq.
8.08. DEFINITIONS. Any term defined anywhere in this Plan shall have the meaning ascribed to it for all purposes of this Plan (unless expressly noted to the contrary). In addition: (A) the term "Material Adverse Effect", when applied to a party, shall mean an event, occurrence or circumstance (including without limitation, any breach of a representation or warranty contained herein by such party) which (1) has a material adverse effect on the financial condition, results of operations, or business of such party and its subsidiaries, taken as a whole, or (2) would materially impair any party's ability to timely perform its obligations under this Plan or the consummation of any of the transactions contemplated hereby; PROVIDED, that a Material Adverse Effect with respect to a party shall not include events or conditions generally affecting the securities industry or effects resulting from general economic conditions (including changes in interest rates), changes in accounting practices or changes to statutes, regulations or regulatory policies, that do not have a materially more adverse effect on such party than that experienced by similarly situated financial services companies; (B) the term "individually or in the aggregate" as used in ARTICLE IV of this Plan includes all events, occurrences and circumstances described in any paragraph of ARTICLE IV, and is not linked to any specific paragraph; (C) the term "Previously Disclosed" by a party shall mean information set forth in a Schedule, correspondingly enumerated to the representation, warranty or covenant to which it relates, that is delivered by such party to the other party contemporaneously with the execution of this Plan and specifically designated as information "Previously Disclosed" pursuant to this Plan (it being understood that notwithstanding any other provision herein such information shall A-22 be disclosed in light of the particular standard of "materiality" set forth in the representation, warranty or covenant to which such information relates); and (D) the term "Rights" means securities or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire, or any options, calls or commitments relating to, shares of capital stock (and shall include stock appreciation rights). 8.09. ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Plan and all schedules hereto represents the entire understanding of the parties hereto with reference to the transactions contemplated hereby and supersede any and all other oral or written agreements heretofore made. Nothing in this Plan, expressed or implied, is intended to confer upon any person, other than the parties hereto or their respective successors, any rights, remedies, obligations or liabilities under or by reason of this Plan, except that SECTION 5.17 is intended to confer on the persons named therein those rights expressly stated in such Section. 8.10. BENEFIT PLANS. (A) As soon as administratively practicable after the Effective Time, employees of the Company and the Company Subsidiaries shall be generally entitled to participate in the pension, benefit, welfare, incentive compensation, sick pay, vacation, fringe benefit and similar plans of First Union on substantially the same terms and conditions applied to employees of First Union and its subsidiaries (other than the severance plan of First Union during such period that the Company severance plan remains in effect pursuant to SECTION 8.10(C)) and until such time the plans of the Company shall remain in effect without any adverse amendments. For the purpose of determining eligibility to participate in such plans and the vesting of benefits under such plans (but not for the accrual of benefits under such plans), First Union shall give effect to years of service with the Company or the Company Subsidiaries, as the case may be, as if such service had been with First Union or its subsidiaries. No employee of the Company who elects coverage under a First Union medical insurance plan shall be excluded from coverage under such plan (for such employee or any other covered person) on the basis of a pre-existing condition that was not also excluded under the Company's medical insurance plans. (B) First Union shall honor in accordance with their terms all individual compensation contracts Previously Disclosed, the Employment Agreements entered into by First Union with Messrs. Wishnack, Gambill, Everett, Ludeman and Souders and all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under any of the Compensation and Benefit Plans. The provisions of this SECTION 8.10(B) relating to Previously Disclosed individual compensation contracts are intended to be for the benefit of, and shall be enforceable by the employees who executed such employment contracts. (C) The Company's severance plan as in effect on the date hereof (subject to any non-adverse modifications permitted under SECTION 3.01(D) hereof) shall remain in place until the end of the 12th month following the month in which the Effective Time occurs. 8.11. HEADINGS. The headings contained in this Plan are for reference purposes only and are not part of this Plan. 8.12. INTERPRETATION; EFFECT. When a reference is made in this Plan to Sections, Exhibits or Schedules, such reference shall be to a Section of, or Exhibit or Schedule to, this Plan unless otherwise indicated. Whenever the words "include," "includes" or "including" are used in this Plan, they shall be deemed to be followed by the words "without limitation". No provision of this Plan shall be construed to require the Company, First Union or any of their respective Subsidiaries, affiliates or directors to take any action which would violate applicable law (whether statutory or common law), rule or regulation. A-23 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed in counterparts by their duly authorized officers, all as of the day and year first above written. FIRST UNION CORPORATION By: /s/ G. KENNEDY THOMPSON____________ Name: G. Kennedy Thompson Title: Executive Vice President FIRST UNION VIRGINIA, INC. By: /s/ MARION A. COWELL, JR.__________ Name: Marion A. Cowell, Jr. Title: President WHEAT FIRST BUTCHER SINGER, INC. By: /s/ MARSHALL B. WISHNACK___________ Name: Marshall B. Wishnack Title: Chairman and Chief Executive Officer A-24 EXHIBIT A AGREEMENT, dated as of August 20, 1997, by and between the individual stockholder of Wheat First Butcher Singer, Inc. (the "Stockholder") and First Union Corporation ("First Union"). WHEREAS, the Stockholder is the beneficial owner of and has the right to vote shares of Common Stock, each of $2.00 par value, and shares of Preferred Stock, each of no par value, of Wheat First Butcher Singer, Inc. (the "Company") (collectively, the "Shares"); WHEREAS, First Union and the Company have entered into an Agreement and Plan of Merger (the "Plan"), pursuant to which First Union will acquire the Company (the "Acquisition"), subject to the terms and conditions of the Plan; WHEREAS, the Stockholder believes it is in the best interests of the Company and all of the Company's stockholders for the Acquisition to be consummated on the terms set forth in the Plan, and as a condition and inducement to First Union's willingness to enter into the Plan, the Stockholder has agreed to enter into this Agreement; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereto agree as follows: 1. The Stockholder agrees to vote (including by proxy or written consent) all the Shares, any additional Shares acquired by the Stockholder after the date hereof and any other shares of stock of the Company owned or controlled by him or her entitled to be voted, in favor of the Plan and the transactions contemplated thereby at the meeting of stockholders of the Company called for that purpose. The Stockholder also agrees that, to the extent he has authority or power to vote or direct the voting of any additional Shares, he shall vote or direct the voting of such Shares in favor of approval of the Plan, subject to any determination that to so vote the Shares would violate fiduciary duties under applicable law. 2. The Stockholder agrees that he/she will not sell or transfer any Shares owned by him to any other party unless such party enters into an agreement, satisfactory to First Union, to abide by all the terms of this Agreement. 3. The Stockholder agrees to use all reasonable efforts to cooperate with First Union in connection with the Acquisition, promptly take such actions as are necessary or appropriate to consummate the Acquisition, and provide any information reasonably requested by First Union for any regulatory application or filing made or approval sought for the transactions contemplated by the Plan. 4. The parties hereto agree that this Agreement shall terminate and be of no further force and effect if the Plan is terminated in accordance with its terms. 5. This Agreement shall not affect the Stockholder's obligations, to the extent the Stockholder serves in such capacity, as a director of the Company. 6. The Stockholder represents and warrants to First Union as follows: (i) the Stockholder has good title to the Shares and owns the Shares free and clear of any rights, claims, encumbrances, liens, interests or restrictions of any nature whatsoever (other than under the Stock Redemption Agreement), including, without limitation, any restrictions on the voting of the Shares or any rights of others to vote, or to participate (including by consultation) in the voting of, the Shares; (ii) this Agreement is a valid and legally binding agreement enforceable against the Stockholder in accordance with its terms, subject to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; and (iii) the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby by the Stockholder, do not and will not constitute a breach or violation of, or a default under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of the Stockholder or to which the Stockholder is subject or bound, or require any consent or approval under such law, rule, regulation, judgment, decree, order, governmental permit or license or the consent or approval of any other party to any such agreement, indenture or instrument. 7. The Stockholder hereby agrees that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by the Stockholder in accordance with its specific terms or were otherwise breached. Accordingly, the Stockholder agrees that First Union shall be entitled to an injunction or injunctions to prevent breaches of this A-25 Agreement by the Stockholder and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which First Union may be entitled at law or in equity. 8. This Agreement shall bind and benefit the successors, assigns, executors, trustees and heirs of the parties hereto. This Agreement shall be governed and construed in accordance with the laws of the State of North Carolina without regard to any applicable conflicts of law rules. Any term hereof which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without affecting the remaining terms or their validity or enforceability in any other jurisdiction. 9. This Agreement may be executed in one or more counterparts, each of which shall be deemed to constitute an original. This Agreement shall become effective when one counterpart has been signed by each party hereto. IN WITNESS WHEREOF, the parties have caused this instrument to be executed as of the day and year first above written. FIRST UNION CORPORATION By: ___________________________________ Name: Title: _______________________________________ (the Stockholder) A-26 ANNEX B OPINION OF WHEAT, FIRST SECURITIES, INC. August 19, 1997 Board of Directors Wheat First Butcher Singer, Inc. Riverfront Plaza 901 East Byrd Street Richmond, Virginia 23219 Members of the Board: Wheat First Butcher Singer, Inc. ("Wheat") and First Union Corporation ("FUNC") have entered into an Agreement and a Plan of Merger, dated as of August 20, 1997 (the "Agreement"), pursuant to which Wheat will combine with FUNC by means of the merger (the "Merger") of Wheat with and into FUNC. Upon consummation of the Merger, all of the then outstanding shares of the $2.00 par value common stock ("Wheat Common Stock") and the preferred stock of Wheat represented by shares of beneficial interest ("Trust Shares") in the Wheat First Butcher Singer Grantor Trust ("Wheat Preferred Stock") (other than shares held by dissenting shareholders) will be converted into 10,267,029 shares of the $3.33 1/3 par value common stock of FUNC ("FUNC Stock"), as adjusted in accordance with the terms of the Agreement (the "Exchange Ratio"). Wheat, First Securities, Inc. ("WFSI") as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. In the ordinary course of our business as a broker-dealer, we may, from time to time, have a long or short position in, and buy or sell, debt or equity securities of FUNC for our own account or for the accounts of our customers. WFSI is a wholly-owned subsidiary of Wheat, and certain members of management of WFSI are also members of management of Wheat and may have interests that are in addition to, and may be different from, the interests of Wheat shareholders. The Wheat Board relied on WFSI's experience in providing advice in connection with mergers and acquisitions and related transactions. Wheat was advised by its outside counsel, Wachtell, Lipton, Rosen & Katz, that the Board's fiduciary duties did not require it to retain a third party financial advisor. You have asked us whether, in our opinion, the Exchange Ratio is fair, from a financial point of view, to the holders of Wheat Common Stock and Wheat Preferred Stock. In arriving at the opinion set forth below, we have conducted discussions with members of senior management of Wheat and FUNC concerning their businesses and prospects and have reviewed certain publicly available business and financial information and certain other information prepared or provided to us in connection with the Merger, including, among other things, the following: (1) Certain internal financial reports provided by the management of Wheat; (2) FUNC's Annual Reports to Stockholders, Annual Reports on Form 10-K and related financial information for the three fiscal years ended December 31, 1996; (3) First Union's Quarterly Reports on Form 10-Q and related financial information for the periods ended March 31, 1997 and June 30, 1997; (4) Certain publicly available information with respect to historical market prices and trading activities for FUNC Stock and for certain publicly traded financial institutions which WFSI deemed relevant; (5) Certain publicly available information with respect to banking companies and the financial terms of certain other mergers and acquisitions which WFSI deemed relevant; (6) The Agreement; (7) Certain estimates of the earnings and cost savings projected by Wheat and FUNC for the combined company; B-1 (8) Other financial information concerning the businesses and operations of Wheat and FUNC, including certain audited financial information and certain financial analyses and forecasts for FTU prepared by senior management in connection with its previously announced acquisitions; and (9) Such financial studies, analyses, inquiries and other matters as WFSI deemed necessary In preparing our opinion, we have relied on and assumed the accuracy and completeness of all information provided to us or publicly available, including the representations and warranties of Wheat and FUNC included in the Agreement, and we have not assumed any responsibility for independent verification of such information. We have relied upon the managements of Wheat and FUNC as to the reasonableness and achievability of their financial and operational forecasts and projections, including the estimates of cost savings and revenue enhancements expected to result from the Merger, and the assumptions and bases therefor, provided to us, and, with your consent, we have assumed that such forecasts and projections reflect the best currently available estimates and judgments of such managements, and that such forecasts and projections will be realized in the amounts and in the time periods currently estimated by such managements. We also assumed, without independent verification, that the aggregate allowances for loan losses and other contingencies for Wheat and FUNC are adequate to cover such losses. WFSI did not review any individual credit files of FUNC, nor did it make an independent evaluation or appraisal of the assets or liabilities of Wheat or FUNC. We also assumed that, in the course of obtaining the necessary regulatory approvals for the Merger, no conditions will be imposed that will have a material adverse effect on the contemplated benefits of the Merger, on a pro forma basis, to FUNC. Our opinion is necessarily based upon market, economic and other conditions as they exist and can be evaluated on the date hereof and the information made available to us through the date hereof. Events occurring after that date could materially affect the assumptions and conclusions contained in our opinion. We have not undertaken to reaffirm or revise this opinion or otherwise comment on any events occurring after the date hereof. WFSI's opinion is directed to the Board of Directors of Wheat and relates only to the fairness, from a financial point of view, of the Exchange Ratio to the holders of Wheat Common Stock and Wheat Preferred Stock and does not address any other aspect of the Merger or constitute a recommendation to any shareholder of Wheat as to how such shareholder should vote with respect to the Merger. WFSI's opinion does not address the relative merits of the Merger as compared to any alternative business strategies that might exist for Wheat, nor does it address the effect of any other business combination in which Wheat might engage. It is understood that this opinion may be included in its entirety in the Prospectus/Proxy Statement. This opinion may not, however, be summarized, excerpted from or otherwise publicly referred to without our prior written consent. On the basis of and subject to the foregoing, we are of the opinion that as of the date hereof the Exchange Ratio is fair, from a financial point of view, to the holders of Wheat Common Stock and Wheat Preferred Stock (including the holders of Trust Shares). Very truly yours, WHEAT, FIRST SECURITIES, INC. B-2 ANNEX C ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION ACT RELATING TO DISSENTERS' RIGHTS 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 (section mark)13.1-730 and who exercises that right when and in the manner required by (section mark)(section mark)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. 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 (section mark)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 (section mark)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; 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; C-1 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 2a and 2b 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 (section mark)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. 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. 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. 13.1-732 NOTICE OF DISSENTERS' RIGHTS. -- A. If proposed corporate action creating dissenters' rights under (section mark)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 (section mark)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 (section mark)13.1-734. 13.1-733 NOTICE OF INTENT TO DEMAND PAYMENT. -- A. If proposed corporate action creating dissenters' rights under (section mark)13.1-730 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenter's 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. 13.1-734 DISSENTERS' NOTICE. -- A. If proposed corporate action creating dissenters' rights under (section mark)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 (section mark)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 5. Be accompanied by a copy of this article. C-2 13.1-735 DUTY TO DEMAND PAYMENT. -- A. A shareholder sent a dissenters' notice described in (section mark)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 paragraph 3 of subsection B of (section mark)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 cancelled 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 forth in the dissenters' notice, is not entitled to payment for his shares under this article. 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 cancelled or modified by the taking of the proposed corporate action. 13.1-737 PAYMENT. -- A. Except as provided in (section mark)13.1-738, within thirty days after receipt of a payment demand made pursuant to (section mark)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' rights to demand payment under (section mark)13.1-739; and 4. A copy of this article. 13.1-738 AFTER-ACQUIRED SHARES. -- A. A corporation may elect to withhold payment required by (section mark)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 (section mark)13.1-739. 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 (section mark)13.1-737), or reject the corporation's offer under (section mark)13.1-738 and demand payment of the fair value of his shares and interest due, if the dissenter believes the amount paid under (section mark)13.1-737 or offered under (section mark)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. 13.1-740 COURT ACTION. -- A. If a demand for payment under (section mark)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 C-3 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. 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 (section mark)13.1-738. 13.1-741 COURT COSTS AND COUNSEL FEES. -- A. The court in an appraisal proceeding commenced under (section mark)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 (section mark)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 and all dissenters if the court finds the corporation did not substantially comply with the requirements of (section mark)(section mark)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 (section mark)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. C-4 ANNEX D CERTAIN INFORMATION RELATING TO WHEAT
PAGE ---- Certain Financial Information for the Six Months Ended September 30, 1997 and 1996 Management's Discussion and Analysis................................................................................ D-2 Consolidated Statements of Financial Condition...................................................................... D-3 Consolidated Statements of Income................................................................................... D-4 Consolidated Statements of Changes in Stockholders' Equity.......................................................... D-5 Consolidated Statements of Cash Flows............................................................................... D-6 Management's Discussion and Analysis Fiscal Year Ended March 31, 1997 compared to Fiscal Year Ended March 31, 1996....................................... D-7 Fiscal Year Ended March 31, 1996 compared to Fiscal Year Ended March 31, 1995....................................... D-8 Independent Auditors' Reports (including the related financial statements) Years Ended March 31, 1997 and 1996................................................................................. D-9 Years Ended March 31, 1996 and 1995................................................................................. D-23 Ownership of Wheat Capital Stock by Certain Beneficial Owners and Management.......................................... D-36
D-1 WHEAT FIRST BUTCHER SINGER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 1996 GENERAL The Company derives most of its income from securities brokerage, fully-disclosed clearing, capital markets, and investment management activities. RESULTS OF OPERATIONS Revenues were $293.2 million, an increase of $56.3 million, or 24%, from $236.9 million in 1996. The revenue increase reflected continued improvement in industry revenues. Commission revenues rose $25.6 million, from $83.6 million to $109.2 million. Principal transaction revenues rose $2.0 million, from $44.1 million to $46.1 million. Investment banking fees increased $6.2 million, from $36.5 million to $42.7 million. Asset management revenues rose $14.5 million, from $35.8 million to $50.3 million. Interest and dividend revenues increased $4.5 million, from $23.5 million to $28.0 million, due to rising customer margin loan balances. Execution and clearing fees increased $2.1 million, from $6.6 million to $8.7 million. Other revenues rose $1.3 million, from $6.8 million to $8.1 million. Expenses were $252.9 million, an increase of $39.8 million, or 19%, from $213.1 million in 1996. The increase was attributable to higher compensation expenses resulting from increased revenues. Compensation and benefits rose $28.4 million, from $146.2 million to $174.6 million, including a $14.5 million increase in sales compensation attributable to the compensable revenue increase. Communications expenses increased $4.6 million, from $22.3 million to $26.9 million. Advertising and sales promotion increased $1.0 million, from $10.4 million to $11.4 million. Interest expense rose $2.2 million, from $10.4 million to $12.6 million, as a result of the growth in customer margin loans. Occupancy and equipment expenses rose $1.8 million, from $8.0 million to $9.8 million. Brokerage, clearing, and exchange fees rose $0.6 million, from $4.2 million to $4.8 million. Other operating expenses increased $1.1 million, from $11.7 million to $12.8 million. Net income for the six months ended September 30, 1997 was $24.2 million, an increase of $9.9 million, or 69%, from net income of $14.3 million in 1996. CAPITAL RESOURCES AND LIQUIDITY The Company's assets consist primarily of cash and assets readily convertible to cash. Securities inventories are stated at market value and are generally readily marketable. Customers' margin loans are collateralized by securities and have floating interest rates. The Company's assets are financed by bank loans, proceeds from securities lending, long-term and subordinated borrowings, equity capital, and customer and other payables. The Company's receivables from customers increased significantly during the six months ended September 30, 1997. At that date, receivables from customers were $604 million, versus $518 million in March of 1997. Receivables from customers consist primarily of margin loans collateralized by marketable securities. The Company maintains approximately $500 million in uncommitted lines of credit for the purpose of financing firm inventories and customer margin loans. The lines bear interest at rates based on the federal funds rate. In June of 1997, the Company established a $75 million committed, unsecured, revolving line of credit with a syndicate of lenders. This line replaced the $19 million line originally established in October of 1995. Borrowings bear interest at a rate based on the federal funds rate. At September 30, 1997, there was a $35 million borrowing outstanding under this line. The Company maintains a $16 million committed revolving line of credit, secured by certain property and buildings. Borrowings bear interest at a rate based on the federal funds rate. At September 30, 1997, there was a $16 million borrowing outstanding under this line. The Company's securities broker/dealer, Wheat, First Securities, Inc., is required by Securities and Exchange Commission regulations to meet certain liquidity and capital standards. At September 30, 1997, Wheat, First Securities, Inc. had net capital, as defined in the regulations, of $114.9 million, which exceeded the minimum net capital requirements by $101.4 million. D-2 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1997 1996 -------------- ------------ ASSETS Cash and cash equivalents.................................................................. $ 34,023,172 18,754,301 Receivable from brokers, dealers, and clearing organizations............................... 104,865,620 53,341,615 Receivable from customers.................................................................. 603,505,596 530,095,445 Securities purchased under agreements to resell............................................ 77,148,456 68,807,750 Trading and investment securities.......................................................... 186,465,710 153,629,771 Property and equipment, at cost (less accumulated depreciation and amortization of $53,823,518 in 1997 and $43,564,504 in 1996)............................................. 65,599,731 52,421,999 Deferred income taxes...................................................................... 7,846,925 5,973,709 Other assets............................................................................... 93,743,456 74,728,454 -------------- ------------ $1,173,198,666 957,753,044 -------------- ------------ -------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings...................................................................... $ 159,979,650 117,890,042 Payable to brokers, dealers, and clearing organizations.................................... 272,595,978 279,683,603 Payable to customers....................................................................... 256,204,719 165,978,781 Securities sold under agreements to repurchase............................................. 39,995,936 61,319,679 Securities sold, but not yet purchased..................................................... 71,259,530 43,614,602 Accrued compensation and benefits.......................................................... 62,366,334 53,122,444 Accounts payable and other liabilities..................................................... 59,659,611 60,761,168 Long-term borrowings and capital lease obligation.......................................... 52,178,281 5,743,930 -------------- ------------ 974,240,039 788,114,249 Liabilities subordinated to claims of general creditors.................................... 33,581,074 35,328,345 Stockholders' equity....................................................................... 165,377,553 134,310,450 -------------- ------------ $1,173,198,666 957,753,044 -------------- ------------ -------------- ------------
Note: The interim unaudited consolidated statements of financial condition and the related consolidated statements of income, changes in stockholders' equity and cash flows included herein on page D-3 through D-6 reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to a fair presentation of such financial statements. D-3 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1997 1996 ------------ ------------ Revenues: Commissions................................................................................ $109,235,155 83,594,189 Principal transactions..................................................................... 46,069,245 44,132,997 Investment banking......................................................................... 42,698,181 36,472,749 Asset management and related fees.......................................................... 50,321,989 35,831,724 Interest and dividends..................................................................... 28,024,053 23,474,689 Execution and clearing fees................................................................ 8,733,124 6,607,500 Other...................................................................................... 8,114,156 6,828,897 ------------ ------------ 293,195,903 236,942,745 ------------ ------------ Expenses: Compensation and benefits.................................................................. 174,643,658 146,155,003 Communications and information systems..................................................... 26,902,907 22,257,555 Advertising and sales promotion............................................................ 11,432,719 10,383,491 Interest................................................................................... 12,570,967 10,443,992 Occupancy and equipment.................................................................... 9,772,900 8,038,910 Brokerage, clearing, and exchange fees..................................................... 4,804,325 4,156,251 Other...................................................................................... 12,774,710 11,688,251 ------------ ------------ 252,902,186 213,123,453 ------------ ------------ Income before income taxes................................................................... 40,293,717 23,819,292 Income taxes................................................................................. 16,117,487 9,527,717 ------------ ------------ Net income................................................................................... $ 24,176,230 14,291,575 ------------ ------------ ------------ ------------ Earnings per share based on weighted average shares outstanding of 8,891,235 in 1997 and 8,855,429 in 1996...................................................................... $ 2.72 1.61 ------------ ------------ ------------ ------------
Note: The interim unaudited consolidated statements of financial condition and the related consolidated statements of income, changes in stockholders' equity and cash flows included herein on page D-3 through D-6 reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to a fair presentation of such financial statements. D-4 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
NONVOTING VOTING ADDITIONAL PREFERRED COMMON PAID-IN RETAINED STOCK STOCK CAPITAL EARNINGS TOTAL ---------- ---------- ---------- ----------- ----------- Balance, March 31, 1996.............................. $1,010,105 17,587,466 16,777,000 86,247,979 121,622,550 Purchase and retirement of 378,034 shares of voting common stock....................................... -- (756,068) (530,320) (7,244,139) (8,530,527) Issuance of 515,450 shares of voting common stock.... -- 1,030,900 6,309,108 -- 7,340,008 Purchase and retirement of 7,800 shares of nonvoting preferred stock.................................... (108,642) -- -- -- (108,642) Issuance of 105,600 shares of nonvoting preferred stock.............................................. 1,503,744 -- -- -- 1,503,744 Cash dividends: Preferred ($.20 per share)......................... -- -- -- (27,240) (27,240) Common ($.20 per share)............................ -- -- -- (1,781,018) (1,781,018) Net income........................................... -- -- -- 14,291,575 14,291,575 ---------- ---------- ---------- ----------- ----------- Balance, September 30, 1996.......................... $2,405,207 17,862,298 22,555,788 91,487,157 134,310,450 ---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- Balance, March 31, 1997.............................. $2,487,348 17,529,672 21,828,879 104,715,155 146,561,054 Purchase and retirement of 165,438 shares of voting common stock....................................... -- (330,876) (371,963) (3,215,076) (3,917,915) Purchase and retirement of 7,750 shares of nonvoting preferred stock.................................... (135,196) -- -- -- (135,196) Issuance of 27,250 shares of nonvoting preferred stock.............................................. 470,063 -- -- -- 470,063 Cash dividends: Preferred ($.20 per share)......................... -- -- -- (39,810) (39,810) Common ($.20 per share)............................ -- -- -- (1,736,873) (1,736,873) Net income........................................... -- -- -- 24,176,230 24,176,320 ---------- ---------- ---------- ----------- ----------- Balance, September 30, 1997.......................... $2,822,215 17,198,796 21,456,916 123,899,626 165,377,553 ---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Note: The interim unaudited consolidated statements of financial condition and the related consolidated statements of income, changes in stockholders' equity and cash flows included herein on page D-3 through D-6 reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to a fair presentation of such financial statements. D-5 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1997 1996 ------------- ------------ Cash flows from operating activities: Net income................................................................................. $ 24,176,230 14,291,575 Adjustments to reconcile net income to net cash and cash equivalents used for operating activities: Non-cash charges (credits) included in net income: Depreciation and amortization......................................................... 9,012,618 5,393,444 Deferred income tax benefit........................................................... (551,925) (1,069,709) Other, net............................................................................ (296,457) (71,008) (Increase) decrease in assets: Receivable from brokers, dealers, and clearing organizations.......................... (15,163,427) 6,579,713 Receivable from customers............................................................. (85,258,436) (75,310,659) Securities purchased under agreements to resell....................................... (51,586,773) (42,913,787) Trading securities.................................................................... (99,456,598) (61,099,376) Other assets.......................................................................... 40,942,185 (13,162,012) Increase (decrease) in liabilities: Payable to brokers, dealers, and clearing organizations............................... 41,484,420 15,163,628 Payable to customers.................................................................. (896,424) 39,164,316 Securities sold under agreements to repurchase........................................ (15,754,852) 26,427,712 Securities sold, but not yet purchased................................................ 39,237,205 11,578,780 Other liabilities..................................................................... (11,129,075) (2,357,546) ------------- ------------ Total adjustments............................................................................ (149,417,539) (91,676,504) ------------- ------------ Net cash and cash equivalents used for operating activities.................................. (125,241,309) (77,384,929) ------------- ------------ Cash flows from investing activities: Purchase of investment securities.......................................................... -- (10,050) Proceeds from sale of investment securities................................................ -- 1,107,612 Purchase of property and equipment......................................................... (5,998,154) (20,792,719) Proceeds from sale of property and equipment............................................... 110,962 103,199 ------------- ------------ Net cash and cash equivalents used for investing activities.................................. (5,887,192) (19,591,958) ------------- ------------ Cash flows from financing activities: Proceeds from (payments for): Short-term borrowings, net.............................................................. $ 91,327,196 18,167,018 Securities loaned, net of securities borrowed........................................... (32,623,667) 52,001,968 Securities sold under agreements to repurchase.......................................... 45,835,032 23,825,711 Long-term borrowings.................................................................... 24,000,000 5,000,000 Capital lease obligation................................................................ (492,260) 743,930 Subordinated notes...................................................................... (3,757,308) (3,098,150) Sale of common and preferred stock...................................................... 3,878,537 7,169,340 Repurchase of common and preferred stock................................................ (1,982,798) (4,226,432) Dividends paid.......................................................................... (1,776,683) (1,808,258) ------------- ------------ Net cash and cash equivalents provided by financing activities............................... 124,408,049 97,775,127 ------------- ------------ Net increase (decrease) in cash and cash equivalents......................................... (6,720,452) 798,240 Cash and cash equivalents at beginning of year............................................... 40,743,624 17,956,061 ------------- ------------ Cash and cash equivalents at end of year..................................................... $ 34,023,172 18,754,301 ------------- ------------ ------------- ------------ Supplemental disclosures of cash flow information: Income tax payments........................................................................ $ 24,613,195 14,082,990 Interest payments.......................................................................... 11,599,992 9,844,131 ------------- ------------ ------------- ------------ Supplemental disclosures of non-cash investing and financing activities: Subordinated debt issued in connection with the repurchase of common and preferred stock... $ 1,963,195 4,079,900 Notes received from the sale of common and preferred stock................................. 376,050 4,904,048 Property and equipment acquired under capital lease obligation............................. -- 743,940 ------------- ------------ ------------- ------------
Note: The interim unaudited consolidated statements of financial condition and the related consolidated statements of income, changes in stockholders' equity and cash flows included herein on page D-3 through D-6 reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to a fair presentation of such financial statements. D-6 WHEAT FIRST BUTCHER SINGER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996 GENERAL The Company derives most of its income from securities brokerage, fully-disclosed clearing, capital markets, and investment management activities. RESULTS OF OPERATIONS Revenues in 1997 were $493.8 million, an increase of $80.0 million, or 19% from $413.8 million in 1996. The revenue increase reflected continued improvement in industry revenues and expanded product offerings. Commission revenues rose $22.8 million, from $157.1 million to $179.9 million. Principal transaction revenues rose $7.7 million, from $80.3 million to $88.0 million. Asset management fees increased $21.6 million, from $57.5 million to $79.1 million, on growth in assets under management. The growth in assets managed included approximately $3.0 billion associated with the purchase by Everen Securities Holdings, Inc. of an ownership interest in the Company's asset management subsidiary. Investment banking revenues rose $15.4 million, from $51.1 million to $66.5 million, primarily because of increased underwriting activity. Interest and dividend revenues increased $8.5 million, from $40.6 million to $49.1 million, due to rising customer margin loan balances. Execution and clearing fees increased $0.1 million, from $13.9 million to $14.0 million. Other revenues rose $3.9 million, from $13.3 million to $17.2 million. Expenses in 1997 were $441.3 million, an increase of $74.8 million, or 20%, from $366.5 million in 1996. The increase was attributable to higher compensation expenses resulting from increased revenues, as well as the costs associated with significant technology investments. Compensation and benefits rose $44.3 million, from $252.1 million to $296.4 million, including a $25.1 million increase in sales compensation attributable to the compensable revenue increase. Communications and information systems expenses increased $15.2 million, from $34.7 million to $49.9 million, including a $12.2 million increase in equipment and software related expenses. Advertising and sales promotion increased $6.3 million, from $16.4 million to $22.7 million, including a $4.8 million increase in travel and entertainment expenses. Interest expense rose $2.5 million, from $19.1 million to $21.6 million, as a result of the growth in customer margin loans. Occupancy and equipment expenses rose $0.8 million, from $16.0 million to $16.8 million. Brokerage, clearing and exchange fees rose $0.7 million, from $7.8 million to $8.5 million. Other operating expenses increased $4.7 million, from $20.5 million to $25.2 million. Net income in 1997 was $31.5 million, an increase of $3.1 million, or 11%, from net income of $28.4 million in 1996. CAPITAL RESOURCES AND LIQUIDITY The Company's assets consist primarily of cash and assets readily convertible to cash. Securities inventories are stated at market value and are generally readily marketable. Customers' margin loans are collateralized by securities and have floating interest rates. The Company's assets are financed by bank loans, proceeds from securities lending, long-term and subordinated borrowings, equity capital, and customer and other payables. The Company's receivables from customers have increased significantly since 1996. At March 31, 1997, receivable from customers were $518 million, versus $455 million in March of 1996. Receivables from customers consist primarily of margin loans collateralized by securities. The Company maintained a $19 million committed, unsecured, revolving line of credit. The line was established as a $15 million line in October of 1995, and increased to $19 million in March of 1997. Borrowings bear interest at a rate based on the federal funds rate. At March 31, 1997, there was a $19 million borrowing outstanding under this line. The Company maintained a $16 million committed revolving line of credit, secured by certain property and buildings. Borrowings bear interest at a rate based on the federal funds rate. At March 31, 1997, there was an $8 million borrowing outstanding under this line. The Company's securities broker/dealer, Wheat, First Securities, Inc., is required by Securities and Exchange Commission regulations to meet certain liquidity and capital standards. At March 31, 1997, Wheat, First Securities, Inc. had net capital, as defined in the regulations, of $81.6 million, which exceeded the minimum net capital requirements by $70.8 million. D-7 FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995 GENERAL The Company derives most of its income from securities brokerage, fully-disclosed clearing, capital markets, and investment management activities. RESULTS OF OPERATIONS Revenues in 1996 were $413.8 million, an increase of $94.9 million, or 30%, from $318.9 million in 1995. The revenue increase reflected a general improvement in industry revenues and the Company's growth in the number of branches, financial consultants, and fully disclosed clearing clients. Commission revenues rose $51.7 million, from $105.4 million to $157.1 million. Principal transaction revenues rose $10.8 million, from $69.5 million to $80.3 million, mainly because of a $9.3 million increase in over-the-counter trading revenues. Asset management fees increased $12.5 million, from $45.0 million to $57.5 million, as assets under management increased. Investment banking revenues rose $6.8 million, from $44.3 million to $51.1 million. Interest and dividend revenues increased $6.1 million, from $34.5 million to $40.6 million, due to rising customer margin loan balances and higher interest rates. Execution and clearing fees increased $3.1 million, from $10.8 million to $13.9 million, as trading volume, coupled with the addition of new fully-disclosed firms, continued to rise. Other revenues rose $3.9 million, from $9.4 million to $13.3 million. Expenses in 1996 were $366.5 million, an increase of $82.0 million, or 29% from $284.5 million in 1995. The increase was attributable primarily to higher compensation expenses resulting from increased revenues. Compensation and benefits rose $59.8 million, from $192.3 million to $252.1 million, including a $33.6 million increase in sales compensation attributable to the revenue increase. Communications and information systems expenses increased $15.5 million, from $19.2 million to $34.7 million, partly because of a reclassification from occupancy and equipment expenses. Advertising and sales promotion increased $5.2 million, from $11.2 million to $16.4 million, including a $3.9 million increase in travel and entertainment expenses. Interest expense rose $3.1 million, from $16.0 million to $19.1 million, as a result of the growth in customer margin loans and firm inventories. Occupancy and equipment expenses declined $7.3 million, from $23.3 million to $16.0 million. The decline was attributable to the reclassification of certain expenses to the communications and information systems category in 1996. Brokerage, clearing, and exchange fees rose $1.2 million, from $6.6 million to $7.8 million, primarily because of the increase in transaction volume. Other operating expenses increased $4.6 million, from $15.9 million to $20.5 million. Net income in 1996 was $28.4 million, an increase of $7.6 million, or 37%, from net income of $20.8 million in 1995. CAPITAL RESOURCES AND LIQUIDITY The Company's assets consist primarily of cash and assets readily convertible to cash. Securities inventories are stated at market value and are generally readily marketable. Customers' margin loans are collateralized by securities and have floating interest rates. The Company's assets are financed by bank loans, proceeds from securities lending, long-term and subordinated borrowings, equity capital, and customer and other payables. The Company's receivables from customers have increased significantly since 1995. At March 31, 1996, receivables from customers were $455 million, versus $353 million at March 31, 1995. Receivables from customers consist primarily of margin loans collateralized by securities. In October of 1995, the Company established a $15 million committed, unsecured, revolving line of credit. Borrowings bear interest at a rate based on the federal funds rate. At March 31, 1996, there were no borrowings outstanding under this line. In February of 1996, the Company established a $16 million committed revolving line of credit, secured by certain property and buildings. Borrowings bear interest at a rate based on the federal funds rate. At March 31, 1996, there were no borrowings outstanding under this line. The Company's securities broker/dealer, Wheat, First Securities, Inc., is required by Securities and Exchange Commission regulations to meet certain liquidity and capital standards. At March 31, 1996, Wheat, First Securities, Inc. had net capital, as defined in the regulations, of $81.2 million, which exceeded the minimum net capital requirements by $71.5 million. D-8 (KPMG Peat Marwick LLP logo) SUITE 1900 1021 EAST CARY STREET RICHMOND, VA 23219-4023 INDEPENDENT AUDITORS' REPORT The Board of Directors Wheat First Butcher Singer, Inc.: We have audited the accompanying consolidated statements of financial condition of Wheat First Butcher Singer, Inc. and subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wheat First Butcher Singer, Inc. and subsidiaries as of March 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP May 14, 1997 (logo--Member Firm of Klynveld Peat Marwick Goerdeier) D-9 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION MARCH 31, 1997 AND 1996
1997 1996 ------------ ------------ ASSETS Cash and cash equivalents.................................................................... $ 40,743,624 17,956,061 Receivable from brokers, dealers, and clearing organizations (note 2)........................ 58,515,386 42,433,353 Receivable from customers (note 3)........................................................... 518,247,160 454,784,786 Securities purchased under agreements to resell.............................................. 25,561,683 25,893,963 Trading and investment securities (notes 4 and 6)............................................ 86,614,403 93,571,079 Property and equipment, net (notes 5, 7, and 8).............................................. 68,340,298 36,956,209 Deferred income taxes (note 12).............................................................. 7,295,000 4,904,000 Other assets................................................................................. 138,659,256 60,350,468 ------------ ------------ $943,976,810 736,849,919 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings (note 6)............................................................... $ 68,652,454 99,723,024 Payable to brokers, dealers, and clearing organizations (note 2)............................. 232,548,418 195,030,032 Payable to customers (note 3)................................................................ 257,101,143 126,814,465 Securities sold under agreements to repurchase............................................... 9,915,756 11,066,256 Securities sold, but not yet purchased (note 4).............................................. 32,022,325 32,035,822 Accrued compensation and benefits............................................................ 73,689,298 69,061,622 Accounts payable and other liabilities....................................................... 59,440,634 47,103,499 Long-term borrowings and capital lease obligation (notes 7 and 8)............................ 28,670,541 -- ------------ ------------ 762,040,569 580,834,720 Liabilities subordinated to claims of general creditors (note 9)............................. 35,375,187 34,392,649 Stockholders' equity (notes 10 and 11)....................................................... 146,561,054 121,622,550 Commitments and contingent liabilities (notes 8, 14, and 15) ------------ ------------ $943,976,810 736,849,919 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. D-10 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996 ------------ ------------ Revenues: Commissions................................................................................ $179,868,984 157,121,938 Principal transactions..................................................................... 88,009,043 80,314,051 Asset management and related fees.......................................................... 79,087,271 57,498,194 Investment banking......................................................................... 66,496,249 51,100,288 Interest and dividends..................................................................... 49,119,848 40,573,137 Execution and clearing fees................................................................ 14,046,430 13,885,505 Other...................................................................................... 17,169,870 13,268,699 ------------ ------------ 493,797,695 413,761,812 ------------ ------------ Expenses: Compensation and benefits.................................................................. 296,443,142 252,079,355 Communications and information systems..................................................... 49,930,544 34,655,967 Advertising and sales promotion............................................................ 22,718,139 16,374,910 Interest................................................................................... 21,619,883 19,135,755 Occupancy and equipment.................................................................... 16,845,192 15,953,439 Brokerage, clearing, and exchange fees..................................................... 8,505,393 7,779,952 Other...................................................................................... 25,242,212 20,526,667 ------------ ------------ 441,304,505 366,506,045 ------------ ------------ Income before income taxes................................................................... 52,493,190 47,255,767 Income taxes (note 12)....................................................................... 20,997,000 18,902,000 ------------ ------------ Net income................................................................................... $ 31,496,190 28,353,767 ------------ ------------ ------------ ------------ Earnings per share based on weighted average shares outstanding of 8,963,447 in 1997 and 8,801,725 in 1996.......................................................................... $ 3.51 3.22 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. D-11 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEAR ENDED MARCH 31, 1997 AND 1996
NONVOTING VOTING ADDITIONAL PREFERRED COMMON PAID-IN RETAINED STOCK STOCK CAPITAL EARNINGS TOTAL ---------- ---------- ---------- ----------- ----------- Balance, March 31, 1995.............................. $ -- 17,346,060 12,360,725 66,083,096 95,789,881 Purchase and retirement of 421,997 shares of voting common stock....................................... -- (843,994) (695,959) (6,409,964) (7,949,917) Issuance of 542,700 shares of voting common stock.... -- 1,085,400 5,112,234 -- 6,197,634 Purchase and retirement of 900 shares of nonvoting preferred stock.................................... (11,120) -- -- -- (11,120) Issuance of 88,050 shares of nonvoting preferred stock.............................................. 1,021,225 -- -- -- 1,021,255 Cash dividends: Preferred ($.15 per share)......................... -- -- -- (11,412) (11,412) Common ($.20 per share)............................ -- -- -- (1,767,508) (1,767,508) Net income........................................... -- -- -- 28,353,767 28,353,767 ---------- ---------- ---------- ----------- ----------- Balance, March 31, 1996.............................. 1,010,105 17,587,466 16,777,000 86,247,979 121,622,550 Purchase and retirement of 544,347 shares of voting common stock....................................... -- (1,088,694) (1,257,229) (9,409,259) (11,755,182) Issuance of 515,450 shares of voting common stock.... -- 1,030,900 6,309,108 -- 7,340,008 Purchase and retirement of 16,450 shares of nonvoting preferred stock.................................... (236,426) -- -- -- (236,426) Issuance of 119,100 shares of nonvoting preferred stock.............................................. 1,713,669 -- -- -- 1,713,669 Cash dividends: Preferred ($.40 per share)......................... -- -- -- (63,880) (63,880) Common ($.40 per share)............................ -- -- -- (3,555,875) (3,555,875) Net income........................................... -- -- -- 31,496,190 31,496,190 ---------- ---------- ---------- ----------- ----------- Balance, March 31, 1997.............................. $2,487,348 17,529,672 21,828,879 104,715,155 146,561,054 ---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
See accompanying notes to consolidated financial statements. D-12 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996 ------------ ------------ Cash flows from operating activities: Net income................................................................................. $ 31,496,190 28,353,767 Adjustments to reconcile net income to net cash and cash equivalents provided by (used for) operating activities: Non-cash charges (credits) included in net income: Depreciation and amortization......................................................... 13,339,888 9,881,362 Deferred income tax benefit........................................................... (2,391,000) (1,970,000) Other, net............................................................................ 1,159,069 (5,203) (Increase) decrease in assets: Receivable from brokers, dealers, and clearing organizations.......................... (13,931,229) 8,895,053 Receivable from customers............................................................. (63,462,374) (101,598,495) Securities purchased under agreements to resell....................................... 332,280 (18,009,963) Trading securities.................................................................... 6,483,161 (12,493,824) Other assets.......................................................................... (79,335,344) (6,971,914) Increase (decrease) in liabilities: Payable to brokers, dealers, and clearing organizations............................... 19,692,440 5,225,418 Payable to customers.................................................................. 130,286,678 22,580,911 Securities sold under agreements to repurchase........................................ 345,157 (4,851,244) Securities sold, but not yet purchased................................................ (13,497) 14,667,675 Other liabilities..................................................................... 16,949,494 36,217,434 ------------ ------------ Total adjustments............................................................................ 29,454,723 (48,432,790) ------------ ------------ Net cash and cash equivalents provided by (used for) operating activities.................... 60,950,913 (20,079,023) ------------ ------------ Cash flows from investing activities: Purchase of investment securities.......................................................... (10,941) (2,331,251) Proceeds from sale of investment securities................................................ 973,249 204,702 Purchase of property and equipment......................................................... (42,196,261) (13,705,501) Proceeds from sale of property and equipment............................................... 158,539 10,619 ------------ ------------ Net cash and cash equivalents used for investing activities.................................. (41,075,414) (15,821,431) ------------ ------------ Cash flows from financing activities: Proceeds from (payments for): Short-term borrowings, net.............................................................. $(31,070,570) 53,193,212 Securities loaned, net of securities borrowed........................................... 15,675,142 1,065,192 Securities sold under agreements to repurchase.......................................... (1,495,657) (7,953,529) Long-term borrowings.................................................................... 27,000,000 (2,087,472) Capital lease obligation................................................................ (583,881) -- Subordinated notes...................................................................... (3,308,632) (2,710,647) Sale of common and preferred stock...................................................... 7,431,618 4,495,809 Repurchase of common and preferred stock................................................ (7,116,201) (4,511,118) Dividends paid.......................................................................... (3,619,755) (1,778,920) ------------ ------------ Net cash and cash equivalents provided by financing activities............................... 2,912,064 39,712,527 ------------ ------------ Net increase in cash and cash equivalents.................................................... 22,787,563 3,812,073 Cash and cash equivalents at beginning of year............................................... 17,956,061 14,143,988 ------------ ------------ Cash and cash equivalents at end of year..................................................... $ 40,743,624 17,956,061 ------------ ------------ ------------ ------------ Supplemental disclosures of cash flow information: Income tax payments........................................................................ $ 23,279,250 17,421,443 Interest payments.......................................................................... 21,442,203 21,990,657 ------------ ------------ ------------ ------------ Supplemental disclosures of non-cash investing and financing activities: Subordinated debt issued in connection with the repurchase of common and preferred stock... $ 4,337,224 3,233,025 Notes received from the sale of common and preferred stock................................. 4,969,846 3,941,957 Property and equipment acquired under capital lease obligation............................. 2,254,422 -- ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. D-13 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 AND 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Wheat First Butcher Singer, Inc. (the "Parent") is a holding company that owns Wheat, First Securities, Inc. ("Wheat"), Mentor Investment Group, L.L.C. ("Mentor") and other diversified financial services subsidiaries. These subsidiaries are wholly-owned except for Mentor. On November 1, 1996, the Parent sold a 20.2% membership interest in Mentor. Wheat is a broker/dealer registered under the Securities Exchange Act of 1934 with offices in nineteen states and the District of Columbia. Mentor is an asset management holding company. A summary of the significant accounting and reporting policies of Wheat First Butcher Singer, Inc. and subsidiaries (the "Company") is presented below. USE OF ESTIMATES Generally accepted accounting principles require management to make estimates and assumptions when preparing its financial statements. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The Company's consolidated financial statements include the accounts of Wheat First Butcher Singer, Inc. and its subsidiaries. All material intercompany balances and transactions are eliminated in consolidation. SECURITIES TRANSACTIONS Customers' securities transactions are recorded on settlement date with related commission revenues and expenses recorded on trade date. Securities transactions of the Company are recorded on trade date. Marketable securities are valued at market value. Not readily marketable securities are valued at estimated fair value as determined by management. Unrealized gains and losses are included in revenues in the accompanying consolidated statements of income. INVESTMENT BANKING Management fees on investment banking transactions and selling concessions are recorded on trade date. Underwriting fees are generally recorded on trade date except for those related to syndicate participations, which are recorded on the date the underwriting syndicate is closed. INCOME TAXES The Parent and its subsidiaries file consolidated income tax returns. Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 AND EQUIPMENT Depreciation and amortization are provided on a straight-line basis using estimated useful lives of twenty-five to thirty-nine years for buildings and three to ten years for equipment. CONSOLIDATED STATEMENTS OF CASH FLOWS For purposes of the consolidated statements of cash flows, the Company considers cash and cash equivalents to include cash on hand, cash in depository accounts with other financial institutions, and money market investments, except for those carried in trading accounts, with original maturities of ninety days or less. Cash equivalents at March 31, 1997 and 1996 were $2,250,000 and $2,092,000, respectively. D-14 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued EARNINGS PER SHARE Earnings per share is computed by dividing net income by the weighted average number of non-voting preferred and common shares outstanding during the year. Because the non-voting preferred stock receives dividends equivalent to the voting common stock, it is treated as a common stock equivalent for earnings per share calculations. REPURCHASE AND RESALE AGREEMENTS Repurchase and resale agreements are accounted for as collateralized financing transactions and are recorded at their contractual amounts, including accrued interest. The Company's policy is to take possession of securities purchased under resale agreements. The Company monitors this collateral daily, and additional collateral is requested where appropriate to protect against credit risk exposure. RECLASSIFICATIONS Certain reclassifications of prior year amounts have been made to conform with 1997 presentations. (2) RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS, AND CLEARING ORGANIZATIONS Receivable from and payable to brokers, dealers, and clearing organizations consist of the following at March 31:
1997 1996 ------------ ------------ Receivable from brokers, dealers, and clearing organizations: Securities failed to deliver............................................. $ 32,381,382 $ 19,458,629 Deposits paid for securities borrowed.................................... 14,058,400 11,907,596 Other.................................................................... 12,075,604 11,067,128 ------------ ------------ $ 58,515,386 $ 42,433,353 ------------ ------------ ------------ ------------ Payable to brokers, dealers, and clearing organizations: Securities failed to receive............................................. 26,548,682 14,371,880 Deposits received for securities loaned.................................. 194,962,875 177,136,929 Other.................................................................... 11,036,861 3,521,223 ------------ ------------ $232,548,418 $195,030,032 ------------ ------------ ------------ ------------
(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. D-15 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (4) TRADING AND INVESTMENT SECURITIES AND SECURITIES SOLD, BUT NOT YET PURCHASED Trading and investment securities and securities sold, but not yet purchased consist of the following at March 31:
1997 1996 ----------- ----------- Trading and investment securities: Marketable securities: Money market instruments................................................ $ 6,744,242 $ 8,469,071 U.S. government and government agency obligations....................... 17,928,190 22,035,199 State and municipal obligations......................................... 40,766,895 39,657,338 Corporate bonds......................................................... 6,076,112 6,801,591 Corporate stocks........................................................ 9,219,788 10,255,189 ----------- ----------- 80,735,227 87,218,388 Not readily marketable securities.......................................... 5,879,176 6,352,691 ----------- ----------- $86,614,403 $93,571,079 ----------- ----------- ----------- ----------- Securities sold, but not yet purchased: Money market instruments................................................... 192,445 -- U.S. government and government agency obligations.......................... 19,105,693 28,575,199 State and municipal obligations............................................ 5,742,025 393,464 Corporate bonds............................................................ 3,964,411 590,158 Corporate stocks........................................................... 3,017,751 2,477,001 ----------- ----------- $32,022,325 $32,035,822 ----------- ----------- ----------- -----------
(5) PROPERTY AND EQUIPMENT Property and equipment consists of the following at March 31:
1997 1996 ------------ ------------ Land.................................................................. $ 2,166,141 $ 2,166,141 Buildings............................................................. 20,298,309 10,487,361 Furniture and equipment............................................... 22,043,745 17,348,827 Communications and computer equipment................................. 63,317,221 39,755,746 Leasehold improvements................................................ 7,863,910 6,306,355 ------------ ------------ 115,689,326 76,064,430 Accumulated depreciation and amortization............................. (47,349,028) (39,108,221) ------------ ------------ Property and equipment, net........................................... $ 68,340,298 $ 36,956,209 ------------ ------------ ------------ ------------
Total depreciation and amortization expense for property and equipment approximated $12,797,000 in 1997 and $9,267,000 in 1996. D-16 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (6) SHORT-TERM BORROWINGS Short-term borrowings consist of the following at March 31:
1997 1996 ------------------------- ------------------------- MARKET MARKET AMOUNT VALUE OF AMOUNT VALUE OF OUTSTANDING COLLATERAL OUTSTANDING COLLATERAL ----------- ---------- ----------- ---------- Non-interest bearing book overdrafts............. $35,752,454 $ -- $30,808,024 $ -- Bank loans collateralized by customers' margin securities..................................... -- -- 36,415,000 91,793,000 Bank loans collateralized by firm securities..... 32,900,000 48,475,000 30,000,000 51,094,000 Unsecured revolving bank loan.................... -- -- 2,500,000 -- ----------- ---------- ----------- ---------- ---------- ---------- $68,652,454 $99,723,024 ----------- ----------- ----------- -----------
Bank loans collateralized by customers' margin securities and firm securities generally bear interest at a rate that varies with the federal funds rate and are payable on demand. The unsecured bank loan under a revolving credit agreement bears interest at a rate that varies with the bank's 30-day LIBOR. The revolving credit agreement expires June 30, 1997, and any outstanding balance is payable on December 31, 1997. The revolving credit agreement contains covenants, among others, that require the Company to maintain minimum levels of stockholders' equity, retain minimum levels of current year earnings, and require Wheat to maintain minimum levels of net capital, as defined. (7) LONG-TERM BORROWINGS Long-term borrowings consist of the following at March 31:
1997 1996 ----------- ---------- Unsecured revolving bank loan.................................................. $19,000,000 $ -- Secured revolving bank loan.................................................... 8,000,000 -- ----------- ---------- $27,000,000 $ -- ----------- ---------- ----------- ----------
The Company has an unsecured revolving loan agreement that provides for borrowings of $19,000,000. Interest on the revolving loan agreement varies with the federal funds rate or the eurodollar rate. The agreement expires on September 8, 1997, but is renewable annually at the discretion of the lender. If not renewed, any outstanding balance is payable in three equal annual installments commencing September 30, 1998. The Company has a secured revolving loan agreement that provides for borrowings of $16,000,000. The loan is secured by certain property and buildings. Because one of the buildings serving as collateral was not complete, the maximum borrowing provided at March 31, 1997 was $8,000,000. Interest on the revolving loan agreement varies with the federal funds rate or LIBOR. The agreement expires on September 30, 1997, but is renewable annually at the discretion of the lender. If not renewed, any outstanding balance is payable in quarterly installments over three years commencing December 31, 1997. The revolving loan agreements contain covenants that require the Company to maintain minimum levels of stockholders' equity, retain minimum levels of current year earnings, and require Wheat to maintain minimum levels of net capital, as defined. D-17 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (7) LONG-TERM BORROWINGS -- Continued If the revolving loan agreements are not renewed by the lenders, the aggregate maturities of long-term borrowings as of March 31, 1997 are as follows:
YEAR ENDING MARCH 31 PRINCIPAL - --------------------------------------------------------------- ----------- 1998........................................................... $ 1,333,334 1999........................................................... 8,999,999 2000........................................................... 8,999,999 2001........................................................... 7,666,668 ----------- $27,000,000 ----------- -----------
(8) LEASES On July 26, 1996, the Company entered into a capital lease obligation to acquire computer equipment totaling $2,254,422. The capital lease bears interest at a fixed rate and is payable in monthly installments that commenced July 31, 1996, and end June 30, 1998. The net book value of the equipment under the capital lease at March 31, 1997 was $1,793,147. The Company leases its office space under operating leases expiring at various dates to 2006. Minimum future rental payments required under such leases, including related sublease income on office space, that have initial or remaining noncancelable lease terms in excess of one year as of March 31, 1997 are as follows:
YEAR ENDING OPERATING SUBLEASE MARCH 31, LEASES INCOME - ------------------------------------------------------------------------------- ----------- ---------- 1998........................................................................... $ 9,741,438 $ 581,253 1999........................................................................... 14,240,211 844,915 2000........................................................................... 13,631,828 772,778 2001........................................................................... 13,281,206 756,138 2002........................................................................... 11,176,637 771,470 After 2002..................................................................... 32,999,806 3,432,992 ----------- ---------- $95,071,126 $7,159,546 ----------- ---------- ----------- ----------
Some of the Company's leases contain escalation clauses and renewal options. Total rental expense under operating leases approximated $11,104,000 in 1997 and $9,973,000 in 1996. Total sublease income approximated $571,000 in 1997 and $429,000 in 1996. (9) LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS Liabilities subordinated to claims of general creditors consist of the following at March 31:
1997 1996 ----------- ----------- Liability pursuant to cash subordination agreement........................... $25,000,000 $25,000,000 Subordinated promissory notes payable........................................ 10,375,187 9,392,649 ----------- ----------- $35,375,187 $34,392,649 ----------- ----------- ----------- -----------
Wheat has a $25,000,000 cash subordination agreement which bears interest at 7.18% and is payable in five equal annual installments beginning January 26, 2000. The cash subordination agreement has been approved by the applicable regulatory authorities and is includable by Wheat for purposes of computing its net capital under the rules of these regulatory authorities. To the extent that such borrowings are required for Wheat's continued compliance with minimum net capital requirements, they may not be repaid. The cash subordination agreement contains covenants, among others, that require Wheat to maintain minimum levels of stockholder's equity and net capital, as defined. D-18 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (9) LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS -- Continued The subordinated promissory notes were issued to stockholders in connection with the retirement of common stock by the Company. These notes are payable in equal annual installments and bear interest at 9%. The aggregate maturities of liabilities subordinated to claims of general creditors as of March 31, 1997 are as follows:
YEAR ENDING MARCH 31, PRINCIPAL - --------------------------------------------------------------- ----------- 1998........................................................... $ 3,934,092 1999........................................................... 3,464,227 2000........................................................... 6,892,562 2001........................................................... 6,084,306 2002........................................................... 5,000,000 After 2002..................................................... 10,000,000 ----------- $35,375,187 ----------- -----------
(10) NET CAPITAL REQUIREMENTS As a broker/dealer, Wheat is subject to the net capital rules of the Securities and Exchange Commission, the New York Stock Exchange, Inc., and the Commodity Futures Trading Commission and elects to compute its net capital requirements in accordance with the alternative method. Under this method, Wheat is required to maintain minimum net capital, as defined, equal to 2% of aggregate debit balances arising from customer transactions, as defined. The net capital rules also provide that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5% of aggregate debits. At March 31, 1997, Wheat's net capital of $81,615,378 was $70,847,475 in excess of the minimum net capital required. (11) STOCKHOLDERS' EQUITY On July 15, 1995, the Parent formed the Wheat First Butcher Singer Grantor Trust (the "Trust"). The Trust is a grantor trust organized solely to purchase shares of the Company's Nonvoting Preferred Stock and to issue shares ("Trust Shares") representing beneficial ownership interests in the Trust to designated employees of the Company. During the years ended March 31, 1997 and 1996, the Trustees of the Trust authorized 119,100 and 88,050 Trust Shares, respectively, which were issued to employees of the Company. In conjunction with these transactions, the Company simultaneously issued 119,100 and 88,050 shares of Nonvoting Preferred Stock to the Trust. The significant characteristics of the Company's stockholders' equity are described below. NONVOTING PREFERRED STOCK -- The holder of the nonvoting preferred stock has essentially the same rights, privileges, and restrictions as holders of the common stock, except that the preferred stockholder has preferences upon liquidation and no voting rights. COMMON STOCK -- Holders of the common stock are restricted in the sale, donation, assignment, pledging, or transfer of their stock. DIVIDENDS -- The Company's dividend payments are practically restricted to the extent of restrictions on Wheat's dividend payments. Wheat's dividend payments are restricted by the Securities and Exchange Commission, New York Stock Exchange, Inc., and Commodity Futures Trading Commission net capital rules. STOCK REDEMPTION AGREEMENTS -- The Company has agreements with holders of all outstanding common stock (the "Common Stock Redemption Agreement"), except for the Company's associate stock ownership plan, whereby it is required to purchase the common stock in the event of the stockholder's death, disability, or retirement. In addition, the Company has agreements with stockholders whose age plus years of service exceed 75, whereby it may purchase some or all of such stockholders' shares. The purchase price for all such shares, at the option of the stockholder, is either the book value per share, as defined, or a price equal to ten times the average earnings per share for the last three full twelve-month periods. In D-19 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (11) STOCKHOLDERS' EQUITY -- Continued addition, if a stockholder terminates employment for reasons other than death, disability, or retirement, the Company has the option to purchase the stock at book value. The Company also has an agreement with the Trust, the holder of the preferred stock, whereby it is required to purchase the preferred stock in the event of redemption of Trust Shares. Trust Shares are redeemable under an agreement between the Trust and its shareholders. The provisions of this agreement are the same as those of the Common Stock Redemption Agreement. The shares of capital stock consist of the following at March 31:
1997 1996 ISSUED AND ISSUED AND AUTHORIZED OUTSTANDING OUTSTANDING ----------- ----------- ----------- Preferred stock -- nonvoting, noncumulative, nonconvertible, no par value.................................................... 1,000,000 189,800 87,150 Common stock -- voting, $2 par value........................... 19,000,000 8,764,836 8,793,733 Common stock -- nonvoting, $2 par value........................ 500,000 -- --
(12) INCOME TAXES Income tax expense (benefit) consists of the following for the years ended March 31:
1997 1996 ----------- ----------- Current: Federal.......................................................................... $18,968,000 $16,884,000 State and local.................................................................. 4,420,000 3,988,000 ----------- ----------- 23,388,000 20,872,000 ----------- ----------- Deferred Federal.......................................................................... (1,834,000) (1,650,000) State and local.................................................................. (557,000) (320,000) ----------- ----------- (2,391,000) (1,970,000) ----------- ----------- $20,997,000 $18,902,000 ----------- ----------- ----------- -----------
Income tax expense differs from the amount computed by applying the statutory federal income tax rate to income before income taxes for the following reasons:
1997 1996 ------------------ ------------------ AMOUNT % AMOUNT % ----------- --- ----------- --- Federal income taxes computed at the statutory rate.................. $18,373,000 35 $16,540,000 35 State and local income taxes, net of federal income tax benefit...... 2,511,000 5 2,384,000 5 Tax-exempt interest.................................................. (606,000) (1) (543,000) (1) Other, net........................................................... 719,000 1 521,000 1 ----------- --- ----------- --- $20,997,000 40 $18,902,000 40 ----------- --- ----------- --- ----------- --- ----------- ---
D-20 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (12) INCOME TAXES -- Continued The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows at March 31:
1997 1996 ----------- ----------- Deferred tax assets: Deferred compensation....................................................... $ 3,447,000 $ 1,810,000 Other liabilities........................................................... 5,260,000 4,199,000 Unrealized depreciation of investment securities............................ 439,000 436,000 Goodwill.................................................................... 355,000 290,000 Other....................................................................... 138,000 161,000 ----------- ----------- 9,639,000 6,896,000 Deferred tax liabilities: Not readily marketable securities........................................... (915,000) (1,002,000) Property and equipment...................................................... (753,000) (717,000) Other....................................................................... (676,000) (273,000) ----------- ----------- (2,344,000) (1,992,000) ----------- ----------- $ 7,295,000 $ 4,904,000 ----------- ----------- ----------- -----------
No valuation allowance related to the deferred tax assets is deemed necessary based on the Company's history of operating earnings, and its expectation that it is more likely than not that future operating income will be sufficient to fully realize the benefits of the deferred tax assets. (13) EMPLOYEE BENEFIT PLANS The Company's retirement program consists of defined contribution plans and covers substantially all employees. The Company matches 25% of employee contributions up to 6% of eligible compensation, as defined. Any additional employer contributions are made at the discretion of the Company's Board of Directors. The Company's retirement expense was $9,039,000 in 1997 and $9,139,000 in 1996. All expenses are accrued and charged against current operations. (14) COMMITMENTS AND CONTINGENT LIABILITIES The Company is not involved in any litigation, which based upon the advice of legal counsel handling such matters, would be expected to have a material adverse effect on the consolidated financial position of the Company. As of March 31, 1997, Wheat had irrevocable letter of credit agreements that totaled $27,086,500. The agreements, which are used in lieu of deposits with clearing organizations, bear interest at 1/4% and are fully collateralized by customer-owned margin securities. (15) FINANCIAL INSTRUMENTS Trading and investment securities and securities sold, but not yet purchased are carried in the consolidated statements of financial condition at market value, if available, or estimated fair value. Due to the relatively short-term nature of receivables, payables, short-term borrowings, and repurchase agreements, the carrying amounts are reasonable estimates of fair value. The fair value of long-term borrowings and capital lease obligation was approximately the same as the carrying amount of such debt at March 31, 1997. The fair value of the liabilities subordinated to claims of general creditors, determined by interest rates currently available, is approximately $34,600,000 and $33,800,000 at March 31, 1997 and 1996, respectively. In the normal course of business, Wheat's clearance activities involve the execution, settlement, and financing of various securities and commodities transactions. These activities may expose Wheat to off-balance-sheet credit risk in the event D-21 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (15) FINANCIAL INSTRUMENTS -- Continued the counterparty to the transaction is unable to fulfill its contractual obligations. Credit risk is reduced by the industry policy of obtaining and maintaining adequate collateral until the commitment is completed. In connection with these activities, Wheat executes and clears customer transactions involving the sale of securities not yet purchased and the writing of option contracts. Wheat also executes customer transactions for the purchase and sale of commodity futures contracts, substantially all of which are transacted on a margin basis subject to individual exchange regulations. Such transactions may expose Wheat to off-balance-sheet risk if margin requirements are not sufficient to fully cover losses that customers may incur. If the customer fails to satisfy its obligation, Wheat may be required to purchase or sell financial instruments at prevailing market prices in order to fulfill the customer's obligation. Wheat's customer financing and securities settlement activities require Wheat to pledge customer securities as collateral in support of various secured financing sources. In addition, Wheat pledges customer securities as collateral to satisfy margin deposits of various exchanges. Much of this collateral is held by independent third parties, and if the third party is unable to meet its contractual obligation to return customer securities pledged as collateral, Wheat may be exposed to the risk of acquiring these securities at prevailing market prices in order to satisfy its customer obligations. Wheat sells short treasury bond and municipal bond index futures contracts to hedge its fixed income inventories. The futures contracts involve off-balance-sheet risk since the cost to close out the contracts may exceed the amounts recognized in the consolidated statement of financial condition. The contracts are listed on regulated exchanges and are marked to market daily with the resulting gain or loss reflected in revenue. The exchanges guarantee performance of counterparties; therefore credit risk is limited to a default by the exchange. There were no contracts outstanding at March 31, 1997 and 1996. The average fair values of these contracts during the years ended March 31, 1997 and 1996 were not material. D-22 (KPMG Peat Marwick LLP logo) SUITE 1900 1021 EAST CARY STREET RICHMOND, VA 23219-4023 INDEPENDENT AUDITORS' REPORT The Board of Directors Wheat First Butcher Singer, Inc.: We have audited the accompanying consolidated statements of financial condition of Wheat First Butcher Singer, Inc. and subsidiaries as of March 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wheat First Butcher Singer, Inc. and subsidiaries as of March 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP May 6, 1996 (Member Firm of Klynveid Peat Marwick Goerdeler logo) D-23 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION MARCH 31, 1996 AND 1995
1996 1995 ------------ ------------ ASSETS Cash and cash equivalents.................................................................... $ 17,956,061 $ 14,143,988 Receivable from brokers, dealers, and clearing organizations (note 2)........................ 42,433,353 66,952,110 Receivable from customers (note 3)........................................................... 454,784,786 353,186,291 Securities purchased under agreements to resell.............................................. 25,893,963 7,884,000 Trading and investment securities (notes 4 and 5)............................................ 93,571,079 78,906,498 Property and equipment, at cost (less accumulated depreciation and amortization of $39,108,221 in 1996 and $32,292,949 in 1995) (notes 6 and 7)............................... 36,956,209 32,598,900 Deferred income taxes (note 11).............................................................. 4,904,000 2,934,000 Other assets................................................................................. 60,350,468 51,532,465 ------------ ------------ $736,849,919 $608,138,252 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings (note 5)............................................................... 99,723,024 46,529,812 Payable to brokers, dealers, and clearing organizations (note 2)............................. 195,030,032 204,363,126 Payable to customers (note 3)................................................................ 126,814,465 104,233,554 Securities sold under agreements to repurchase............................................... 11,066,256 23,871,029 Securities sold, but not yet purchased (note 4).............................................. 32,035,822 17,368,147 Accrued compensation and benefits............................................................ 69,061,622 46,681,355 Accounts payable and other liabilities....................................................... 47,103,499 33,400,048 Long-term borrowings and capital lease obligations (notes 6 and 7)........................... -- 1,984,975 ------------ ------------ 580,834,720 478,432,046 Liabilities subordinated to claims of general creditors (note 8)............................. 34,392,649 33,916,325 Stockholders' equity (notes 9 and 10)........................................................ 121,622,550 95,789,881 Commitments and contingent liabilities (notes 7, 13, and 14) ------------ ------------ $736,849,919 $608,138,252 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. D-24 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED MARCH 31, 1996 AND 1995
1996 1995 ------------ ------------ Revenues: Commissions................................................................................ $157,121,938 $105,399,440 Principal transactions..................................................................... 80,314,051 69,541,636 Investment banking......................................................................... 51,100,288 44,334,844 Asset management and related fees.......................................................... 57,498,194 44,964,062 Interest and dividends..................................................................... 40,573,137 34,459,959 Execution and clearing fees................................................................ 13,885,505 10,793,604 Other...................................................................................... 13,268,699 9,408,530 ------------ ------------ 413,761,812 318,902,075 ------------ ------------ Expenses: Compensation and benefits.................................................................. 252,079,355 192,344,929 Occupancy and equipment.................................................................... 26,551,213 23,285,881 Communications............................................................................. 23,439,466 19,184,634 Advertising and sales promotion............................................................ 16,374,910 11,158,164 Interest................................................................................... 19,135,755 16,030,253 Brokerage, clearing and exchange fees...................................................... 7,779,952 6,580,943 Other...................................................................................... 21,145,394 15,926,353 ------------ ------------ 366,506,045 284,511,157 ------------ ------------ Income before income taxes................................................................... 47,255,767 34,390,918 Income taxes (note 11)....................................................................... 18,902,000 13,585,000 ------------ ------------ Net income................................................................................... $ 28,353,767 $ 20,805,918 ------------ ------------ ------------ ------------ Earnings per share based on weighted average shares outstanding of 8,801,725 in 1996 and 8,869,928 in 1995.......................................................................... $ 3.22 $ 2.35 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. D-25 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED MARCH 31, 1996 AND 1995
NON-VOTING VOTING ADDITIONAL PREFERRED COMMON PAID-IN RETAINED STOCK STOCK CAPITAL EARNINGS TOTAL ---------- ----------- ----------- ------------ ------------ Balance, March 31, 1994......................... $ -- $17,862,988 $ 8,857,848 $ 57,400,880 $ 84,121,716 Purchase and retirement of 843,814 shares of voting common stock........................... -- (1,687,628) (863,039) (10,336,493) (12,887,160) Issuance of 585,350 shares of voting common stock......................................... -- 1,170,700 4,365,916 -- 5,536,616 Cash dividends ($.20 per share)................. -- -- -- (1,787,209) (1,787,209) Net income...................................... -- -- -- 20,805,918 20,805,918 ---------- ----------- ----------- ------------ ------------ Balance, March 31, 1995......................... -- 17,346,060 12,360,725 66,083,096 95,789,881 Purchase and retirement of 421,997 shares of voting common stock........................... -- (843,994) (695,959) (6,409,964) (7,949,917) Issuance of 542,700 shares of voting common stock......................................... -- 1,085,400 5,112,234 -- 6,197,634 Issuance of 88,050 shares of non-voting preferred stock............................... 1,021,225 -- -- -- 1,021,225 Purchase and retirement of 900 shares of non-voting preferred stock.................... (11,120) -- -- -- (11,120) Cash dividends: Preferred ($.15 per share).................... -- -- -- (11,412) (11,412) Common ($.20 per share)....................... -- -- -- (1,767,508) (1,767,508) Net income...................................... -- -- -- 28,353,767 28,353,767 ---------- ----------- ----------- ------------ ------------ Balance, March 31, 1996......................... $1,010,105 $17,587,466 $16,777,000 $ 86,247,979 $121,622,550 ---------- ----------- ----------- ------------ ------------ ---------- ----------- ----------- ------------ ------------
See accompanying notes to consolidated financial statements. D-26 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 1996 AND 1995
1996 1995 ------------- ------------ Cash flows from financing activities: Net income................................................................................. $ 28,353,767 $ 20,805,918 Adjustments to reconcile net income to cash and cash equivalents used for operating activities: Noncash charges (credits) included in net income: Depreciation and amortization...................................................... 9,881,362 7,496,196 Deferred income tax expense (benefit).............................................. (1,970,000) 4,767,000 Other.............................................................................. (5,203) (806,836) (Increase) decrease in assets: Receivable from brokers, dealers, and clearing organizations....................... 8,895,053 (21,449,152) Receivable from customers.......................................................... (101,598,495) (3,482,989) Securities purchased under agreements to resell.................................... (18,009,963) 15,026,900 Trading securities................................................................. (12,493,824) (10,495,899) Other assets....................................................................... (6,971,914) 16,032,992 Increase (decrease) in liabilities: Payable to brokers, dealers, and clearing organizations............................ 5,225,418 (7,629,430) Payable to customers............................................................... 22,580,911 13,008,065 Securities sold under agreements to repurchase..................................... (4,851,244) (15,260,594) Securities sold, but not yet purchased............................................. 14,667,675 (1,828,195) Other liabilities.................................................................. 36,217,434 (17,506,474) ------------- ------------ Total adjustments............................................................................ (48,432,790) (22,128,416) ------------- ------------ Net cash and cash equivalents used for operating activities.................................. (20,079,023) (1,322,498) ------------- ------------ Cash flows from investing activities: Purchase of investment securities.......................................................... (2,331,251) (3,330,665) Proceeds from sale of investment securities................................................ 204,702 563,605 Purchase of property, equipment, leasehold improvements, and software...................... (13,705,501) (8,301,456) Proceeds from sale of property and equipment............................................... 10,619 28,022 ------------- ------------ Net cash and cash equivalents used for investing activities.................................. (15,821,431) (11,040,494) ------------- ------------ Cash flows from financing activities: Proceeds from (payments for): Short-term borrowings, net.............................................................. $ 53,193,212 $(10,072,719) Securities loaned, net of securities borrowed........................................... 1,065,192 25,327,219 Securities sold under agreements to repurchase.......................................... (7,953,529) 7,133,700 Long-term borrowings and capital lease obligation....................................... (2,087,472) (327,134) Subordinated notes...................................................................... (2,710,647) (1,190,899) Sale of common and preferred stock...................................................... 4,495,809 4,605,150 Repurchase of common and preferred stock................................................ (4,511,118) (6,502,811) Dividends paid.......................................................................... (1,778,920) (1,787,209) ------------- ------------ Net cash and cash equivalents provided by financing activities............................... 39,712,527 17,185,297 ------------- ------------ Net increase in cash and cash equivalents.................................................... 3,812,073 4,822,305 Cash and cash equivalents at beginning of year............................................... 14,143,988 9,321,683 ------------- ------------ Cash and cash equivalents at end of year..................................................... $ 17,956,061 $ 14,143,988 ------------- ------------ ------------- ------------ Supplemental disclosures of cash flow information: Income tax payments........................................................................ $ 17,421,443 $ 8,845,863 Interest payments.......................................................................... 21,990,657 15,444,785 ------------- ------------ ------------- ------------ Supplemental disclosure of noncash investing and financing activities: Subordinated debt issued in connection with the repurchase of common stock................. $ 3,233,025 $ 6,042,422 Notes received from the sale of common stock............................................... 3,941,957 2,886,723 Charitable contribution of investment securities........................................... 31,219 1,272,405 ------------- ------------ ------------- ------------
See accompanying notes to consolidated financial statements. D-27 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Wheat First Butcher Singer, Inc. (the "Parent") is a holding company that owns all of the outstanding capital stock of Wheat, First Securities, Inc. ("Wheat") and other diversified financial services subsidiaries. Wheat is a broker/dealer registered under the Securities Exchange Act of 1934 with offices in seventeen states and the District of Columbia. A summary of the significant accounting and reporting policies of Wheat First Butcher Singer, Inc. and subsidiaries (the "Company") is presented below. USE OF ESTIMATES Generally accepted accounting principles require management to make estimates and assumptions when preparing its financial statements. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The Company's consolidated financial statements include the accounts of Wheat First Butcher Singer, Inc. and its subsidiaries, all of which are wholly owned. All material intercompany balances and transactions are eliminated in consolidation. SECURITIES TRANSACTIONS Customers' securities transactions are recorded on settlement date with related commission revenues and expenses recorded on trade date. Securities transactions of the Company are recorded on trade date. Marketable securities are valued at market value. Not readily marketable securities are valued at estimated fair value as determined by management. Unrealized gains and losses are included in revenues in the accompanying consolidated statements of income. INVESTMENT BANKING Management fees on investment banking transactions and selling concessions are recorded on trade date. Underwriting fees are generally recorded on trade date except for those related to syndicate participations, which are recorded on the date the underwriting syndicate is closed. INCOME TAXES The Parent and its subsidiaries file consolidated income tax returns. Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 AND EQUIPMENT Depreciation and amortization are provided on a straight-line basis using estimated useful lives of twenty-five to thirty-one years for buildings and three to ten years for equipment and software. CONSOLIDATED STATEMENTS OF CASH FLOWS For purposes of the consolidated statements of cash flows, the Company considers cash and cash equivalents to include cash on hand, cash in depository accounts with other financial institutions, and money market investments, except for those carried in trading accounts, with original maturities of ninety days or less. Cash equivalents at March 31, 1996 and 1995 were $2,092,000 and $1,988,000, respectively. D-28 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued EARNINGS PER SHARE Earnings per share is computed by dividing net income by the weighted average number of non-voting preferred and common shares outstanding during the year. Because the non-voting preferred stock receives dividends equivalent to the voting common stock, it is treated as a common stock equivalent for earnings per share calculations. REPURCHASE AND RESALE AGREEMENTS Repurchase and resale agreements are accounted for as collateralized financing transactions and are recorded at their contractual amounts, including accrued interest. The Company's policy is to take possession of securities purchased under resale agreements. The Company monitors this collateral daily, and additional collateral is requested where appropriate to protect against credit risk exposure. (2) RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS, AND CLEARING ORGANIZATIONS Receivable from and payable to brokers, dealers, and clearing organizations consist of the following at March 31:
1996 1995 ------------ ------------ Receivable from brokers, dealers, and clearing organizations: Securities failed to deliver............................................................ $ 19,458,629 $ 3,852,561 Deposits paid for securities borrowed................................................... 11,907,596 27,531,300 Receivable from clearing organization................................................... -- 31,339,083 Other................................................................................... 11,067,128 4,229,166 ------------ ------------ $ 42,433,353 $ 66,952,110 ------------ ------------ ------------ ------------ Payable to brokers, dealers, and clearing organizations: Securities failed to receive............................................................ $ 14,371,880 $ 6,095,732 Deposits received for securities loaned................................................. 177,136,929 191,695,441 Other................................................................................... 3,521,223 6,571,953 ------------ ------------ $195,030,032 $204,363,126 ------------ ------------ ------------ ------------
(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. D-29 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (4) TRADING AND INVESTMENT SECURITIES Trading and investment securities consist of the following at March 31:
1996 1995 ------------ ------------ Owned: Marketable securities: Money market instruments.................................................................. $ 8,469,071 $19,775,169 U.S. government and government agency obligations......................................... 22,035,199 20,344,309 State and municipal obligations........................................................... 39,657,338 24,122,920 Corporate bonds........................................................................... 6,801,591 5,370,743 Corporate stocks.......................................................................... 10,255,189 5,111,423 ------------ ------------ 87,218,388 74,724,564 Not readily marketable securities............................................................ 6,352,691 4,181,934 ------------ ------------ $ 93,571,079 $78,906,498 ------------ ------------ ------------ ------------ Sold, but not yet purchased: U.S. government and government agency obligations............................................ 28,575,199 12,784,023 State and municipal obligations.............................................................. 393,464 110,913 Corporate bonds.............................................................................. 590,158 321,914 Corporate stocks............................................................................. 2,477,001 4,151,297 ------------ ------------ $ 32,035,822 $17,368,147 ------------ ------------ ------------ ------------
(5) SHORT-TERM BORROWINGS Short-term borrowings consist of the following at March 31:
1996 1995 -------------------------- -------------------------- MARKET MARKET AMOUNT VALUE OF AMOUNT VALUE OF OUTSTANDING COLLATERAL OUTSTANDING COLLATERAL ----------- ----------- ----------- ----------- Non-interest bearing book overdrafts............................ $30,808,024 $ -- $27,782,132 $ -- Bank loans collateralized by customers' margin securities....... 36,415,000 91,793,000 1,847,680 13,399,000 Bank loans collateralized by firms securities................... 30,000,000 51,094,000 15,000,000 19,611,000 Unsecured revolving bank loan................................... 2,500,000 -- 1,900,000 -- ----------- ----------- ----------- ----------- ----------- ----------- $99,723,024 $46,529,812 ----------- ----------- ----------- -----------
Bank loans collateralized by customers' margin securities and firm securities generally bear interest at a rate that varies with the federal funds rate and are payable on demand. The unsecured bank loan under a revolving credit agreement bears interest at a rate that varies with the bank's 30-day LIBOR. The revolving credit agreement expires December 31, 1996, and any outstanding balance is payable on June 30, 1997. The revolving credit loan agreement contains covenants, among others, that require the Company to maintain minimum levels of stockholders' equity, retain minimum levels of current year earnings, and require Wheat to maintain minimum levels of net capital, as defined. (6) LONG-TERM BORROWINGS On October 12, 1995, the Company entered into an unsecured revolving loan agreement that provides for a maximum borrowing of $15,000,000. Interest on the revolving loan agreement varies with the federal funds rate or the eurodollar rate. The agreement expires on October 9, 1996, but is renewable annually at the discretion of the lender. If not renewed, any D-30 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (6) LONG-TERM BORROWINGS -- Continued outstanding balance is payable in three equal annual installments commencing October 31, 1997. There were no amounts outstanding under this agreement at March 31, 1996. On February 1, 1996, the Company entered into a secured revolving loan agreement that provides for a maximum borrowing of $16,000,000. The loan is secured by certain property and buildings. Because one of the buildings serving as collateral was not complete, the maximum borrowing providing at March 31, 1996 was $8,600,000. Interest on the revolving loan agreement varies with the federal funds rate or LIBOR. The agreement expires on February 1, 1997, but is renewable annually at the discretion of the lender. If not renewed, any outstanding balance is payable in quarterly installments over three years commencing March 31, 1997. There were no amounts outstanding under this agreement at March 31, 1996. In conjunction with this loan agreement, the mortgage note payable, with a balance outstanding of $1,708,295 at March 31, 1995, was paid January 31, 1996. The revolving loan agreements contain covenants that require the Company to maintain minimum levels of stockholders' equity, retain minimum levels of current year earnings, and require Wheat to maintain minimum levels of net capital, as defined. (7) LEASES The Company had a capital lease obligation for computer equipment that expired in 1996. The gross amount of equipment under the capital lease was $549,353 at March 31, 1995, with related depreciation of $272,673. The Company leases its office space under operating leases expiring at various dates to 2006. Minimum future rental payments required under such leases, including related sublease income on office space, that have initial or remaining noncancelable lease terms in excess of one year as of March 31, 1996 are as follows:
YEAR ENDING OPERATING SUBLEASE MARCH 31, LEASES INCOME - ----------------------------------------------------------------------- ----------- ----------- 1997................................................................... $11,745,648 $ 994,019 1998................................................................... 11,717,214 1,024,699 1999................................................................... 11,408,432 1,056,244 2000................................................................... 10,973,711 996,021 2001................................................................... 9,888,883 991,311 After 2001............................................................. 35,260,770 5,716,817 ----------- ----------- $90,994,658 $10,779,111 ----------- ----------- ----------- -----------
Some of the Company's leases contain escalation clauses and renewal options. Total rental expense under operating leases approximated $9,973,000 in 1996 and $9,516,000 in 1995. (8) LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS Liabilities subordinated to claims of general creditors consisted of the following at March 31:
1996 1995 ------------ ------------ Liability pursuant to cash subordination agreement............................................. $ 25,000,000 $25,000,000 Subordinated promissory notes payable.......................................................... 9,392,649 8,916,325 ------------ ------------ $ 34,392,649 $33,916,325 ------------ ------------ ------------ ------------
Wheat has a $25,000,000 cash subordination agreement which bears interest at 7.18% and is payable in five equal annual installments beginning January 26, 2000. The cash subordination agreement has been approved by the applicable regulatory authorities and is includable by Wheat for purposes of computing its net capital under the rules of these regulatory authorities. To the extent that such borrowings are required for Wheat's continued compliance with minimum net capital D-31 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (8) LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS -- Continued requirements, they may not be repaid. The cash subordination agreement contains covenants, among others, that require Wheat to maintain minimum levels of stockholder's equity and net capital, as defined. The subordinated promissory notes were issued to stockholders in connection with the retirement of common stock by the Company. These notes are payable in equal annual installments and bear interest at 9%. The aggregate maturities of liabilities subordinated to claims of general creditors as of March 31, 1996 are as follows:
YEAR ENDING MARCH 31, PRINCIPAL - --------------------------------------------------------------------------------------- ------------ 1997................................................................................... $ 3,354,686 1998................................................................................... 2,849,786 1999................................................................................... 2,379,921 2000................................................................................... 5,808,256 2001................................................................................... 5,000,000 After 2001............................................................................. 15,000,000 ------------ $ 34,392,649 ------------ ------------
(9) NET CAPITAL REQUIREMENTS As a broker/dealer, Wheat is subject to the net capital rules of the Securities and Exchange Commission, the New York Stock Exchange, Inc., and the Commodity Futures Trading Commission and elects to compute its net capital requirements in accordance with the alternative method. Under this method, Wheat is required to maintain minimum net capital, as defined, equal to 2% of aggregate debit balances arising from customer transactions, as defined. The net capital rules also provide that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5% of aggregate debits. At March 31, 1996, Wheat's net capital of $81,206,698 was 16.7% of aggregate debit balances and was $71,467,196 in excess of the minimum net capital required. (10) STOCKHOLDERS' EQUITY On July 15, 1995, the Parent formed the Wheat First Butcher Singer Grantor Trust (the "Trust"). The Trust is a grantor trust organized solely to purchase shares of the Company's Non-Voting Preferred Stock and to issue shares ("Trust Shares") representing beneficial ownership interests in the Trust to designated employees of the Company. During the year ended March 31, 1996, the Trustees of the Trust authorized 88,050 Trust Shares, which were issued to employees of the Company. In conjunction with these transactions, the Company simultaneously issued 88,050 shares of Non-Voting Preferred Stock to the Trust. The significant characteristics of the Company's stockholders' equity are described below. NON-VOTING PREFERRED STOCK -- The holder of the non-voting preferred stock has essentially the same rights, privileges, and restrictions as holders of the common stock, except that preferred stockholders have preferences upon liquidation and no voting rights. COMMON STOCK -- Holders of the common stock are restricted in the sale, donation, assignment, pledging, or transfer of their stock. DIVIDENDS -- The Company's dividend payments are practically restricted to the extent of restrictions on Wheat's dividend payments. Wheat's dividend payments are restricted by the Securities and Exchange Commission, New York Stock Exchange, Inc., and Commodity Futures Trading Commission net capital rules. STOCK REDEMPTION AGREEMENTS -- The Company has agreements with holders of all outstanding common stock (the "Common Stock Redemption Agreement"), except for the Company's associate stock ownership plan, whereby it is required D-32 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (10) STOCKHOLDERS' EQUITY -- Continued to purchase the common stock in the event of the stockholder's death, disability, or retirement. In addition, the Company has agreements with stockholders whose age plus years of service exceed 75, whereby it may purchase some or all of such stockholders' shares. The purchase price for all such shares, at the option of the stockholder, is either the book value per share, as defined, or a price equal to ten times the average earnings per share for the last three full twelve-month periods. In addition, if a stockholder terminates employment for reasons other than death, disability, or retirement, the Company has the option to purchase the stock at book value. The Company also has an agreement with the Trust, the holder of the preferred stock, whereby it is required to purchase the preferred stock in the event of redemption of Trust Shares. Trust Shares are redeemable under an agreement between the Trust and its shareholders. The provisions of this agreement are the same as those of the Common Stock Redemption Agreement. The shares of capital stock consist of the following at March 31:
1996 1995 ISSUED AND ISSUED AND AUTHORIZED OUTSTANDING OUTSTANDING ----------- ----------- ----------- Preferred stock -- nonvoting, noncumulative, nonconvertible, no par value............. 1,000,000 87,150 -- Common stock -- voting, $2 par value.................................................. 19,000,000 8,793,733 8,673,030 Common stock -- nonvoting, $2 par value............................................... 500,000 -- -- ----------- ----------- ----------- ----------- ----------- -----------
(11) INCOME TAXES Income tax expense (benefit) consists of the following for the year ended March 31:
1996 1995 ----------- ----------- Current: Federal.............................................................. $16,884,000 $ 7,242,000 State and local...................................................... 3,988,000 1,576,000 ----------- ----------- 20,872,000 8,818,000 ----------- ----------- Deferred: Federal.............................................................. (1,650,000) 3,789,000 State and local...................................................... (320,000) 978,000 ----------- ----------- (1,970,000) 4,767,000 ----------- ----------- $18,902,000 $13,585,000 ----------- ----------- ----------- -----------
Income tax expense differs from the amount computed by applying the statutory federal income tax rate to income before income taxes for the following reasons:
1996 1995 ------------------ ------------------ AMOUNT % AMOUNT % ----------- --- ----------- --- Federal income taxes computed at the statutory rate................................. $16,540,000 35 $12,037,000 35 State and local income taxes, net of federal income tax benefit..................... 2,384,000 5 1,660,000 5 Tax-exempt interest................................................................. (543,000) (1) (497,000) (1) Other, net.......................................................................... 521,000 1 385,000 1 ----------- --- ----------- --- $18,902,000 40 $13,585,000 40 ----------- --- ----------- --- ----------- --- ----------- ---
D-33 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (11) INCOME TAXES -- Continued The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows at March 31:
1996 1995 ----------- ----------- Deferred tax assets: Deferred compensation......................................................................... $ 1,810,000 $ 1,384,000 Other liabilities............................................................................. 4,199,000 2,656,000 Unrealized depreciation of investment securities.............................................. 436,000 -- Goodwill...................................................................................... 290,000 -- Other......................................................................................... 161,000 191,000 ----------- ----------- 6,896,000 4,231,000 Deferred tax liabilities: Investment securities......................................................................... (1,002,000) -- Unrealized appreciation of investment securities.............................................. -- (1,172,000) Equipment and leasehold improvements.......................................................... (717,000) (125,000) Other......................................................................................... (273,000) -- ----------- ----------- (1,992,000) (1,297,000) ----------- ----------- $ 4,904,000 $ 2,934,000 ----------- ----------- ----------- -----------
No valuation allowance related to the deferred tax assets is deemed necessary based on the Company's history of operating earnings, and its expectations that it is more likely than not that future operating income will be sufficient to fully realize the benefits of the deferred tax assets. (12) EMPLOYEE BENEFIT PLANS The Company's retirement program consists of defined contribution plans and covers substantially all employees. The Company matches 25% of employee contributions up to 6% of eligible compensation, as defined. Any additional employer contributions are made at the discretion of the Company's Board of Directors. The Company's retirement expense was $9,139,000 in 1996 and $4,240,000 in 1995. All expenses are accrued and charged against current operations. (13) COMMITMENTS AND CONTINGENT LIABILITIES Wheat has been named in various legal actions relating to its securities business. In the opinion of management, based upon the advice of legal counsel handling such matters, the resolution of open litigation is not expected to have a material adverse effect on the consolidated financial position of the Company. As of March 31, 1996, Wheat had irrevocable letter of credit agreements that totaled $26,111,500. The agreements, which are used in lieu of deposits with clearing organizations, bear interest at 1/4% and are fully collateralized by customer-owned margin securities. (14) FINANCIAL INSTRUMENTS Trading and investment securities and securities sold, but not yet purchased are carried in the consolidated statements of financial condition at market value, if available, or estimated fair value. Due to the relatively short-term nature of receivables, payables, short-term borrowings, and repurchase agreements, the carrying amounts are reasonable estimates of fair value. The fair value of the liabilities subordinated to claims of general creditors, determined by interest rates currently available, is approximately $33,600,000 and $33,900,000 at March 31, 1996 and 1995, respectively. In the normal course of business, Wheat's clearance activities involve the execution, settlement, and financing of various securities and commodities transactions. These activities may expose Wheat to off-balance-sheet credit risk in the event D-34 WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (14) FINANCIAL INSTRUMENTS -- Continued the counterparty to the transaction is unable to fulfill its contractual obligations. Credit risk is reduced by the industry policy of obtaining and maintaining adequate collateral until the commitment is completed. In connection with these activities, Wheat executes and clears customer transactions involving the sale of securities not yet purchased and the writing of option contracts. Wheat also executes customer transactions for the purchase and sale of commodity futures contracts, substantially all of which are transacted on a margin basis subject to individual exchange regulations. Such transactions may expose Wheat to off-balance-sheet risk if margin requirements are not sufficient to fully cover losses that customers may incur. If the customer fails to satisfy its obligations, Wheat may be required to purchase or sell financial instruments at prevailing market prices in order to fulfill the customer's obligation. Wheat's customer financing and securities settlement activities require Wheat to pledge customer securities as collateral in support of various secured financing sources. In addition, Wheat pledges customer securities as collateral to satisfy margin deposits of various exchanges. Much of this collateral is held by independent third parties, and if the third party is unable to meet its contractual obligation to return customer securities pledged as collateral, Wheat may be exposed to the risk of acquiring these securities at prevailing market prices in order to satisfy its customer obligations. Wheat sells short treasury bond and municipal bond index futures contracts to hedge its fixed income inventories. The futures contracts involve off-balance-sheet risk since the cost to close out the contracts may exceed the amounts recognized in the consolidated statement of financial condition. The contracts are listed on regulated exchanges and are marked to market daily with the resulting gain or loss reflected in revenue. The exchanges guarantee performance of counterparties; therefore credit risk is limited to a default by the exchange. The notional amounts and fair values of these contracts at March 31, 1996 and 1995 and average fair value during the years ended March 31, 1996 and 1995 were not material. D-35 OWNERSHIP OF WHEAT CAPITAL STOCK BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as of the Record Date regarding the number of shares of Wheat Common Stock beneficially owned by (i) each person who is known by Wheat to beneficially own five percent or more of the outstanding shares of Wheat Common Stock, (ii) each of Wheat's directors, and (iii) all directors and executive officers of Wheat 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 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 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. No person owns five percent or more of the outstanding shares of Wheat Preferred Stock, other than Welford E. Sanders, a managing director of Wheat, who owns 25,000 shares (11.7%) of the Wheat Preferred Stock, and no director or executive officer of Wheat owns any shares of Wheat Preferred Stock.
WHEAT COMMON STOCK NAME BENEFICIALLY OWNED (1) PERCENT OF CLASS - --------------------------------------------------------------- ---------------------- ---------------- Wheat First Butcher Singer, Inc. Associate Stock Ownership Plan 2,314,000 26.8% Lewis C. Everett 318,577 3.7 Mark M. Gambill 423,287 4.9 Daniel J. Ludeman 212,223 2.5 Thomas L. Souders 169,213 2.0 Marshall B. Wishnack 438,461 5.1 Carlton M. Collins 130,282 1.5 David L. Monday 107,422 1.2 William J. Fields 136,380 1.6 Don R. Hays 83,098 0.9 J. Edward Knowles 99,857 1.2 J. Hamilton Scherer, Jr. 95,762 1.1 All directors and executive officers as a group (11 persons) 2,214,562 25.7%
- --------------- (1) Includes shares of Wheat Common Stock attributable to a participant's account in the Wheat ASOP. D-36 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Sections 55-8-50 through 55-8-58 of the NCBCA contain specific provisions relating to indemnification of directors and officers of North Carolina corporations. In general, the statute provides 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 in the statute that the director or officer meets a certain standard of conduct, provided when a director or officer is liable to the corporation, the corporation may not indemnify him. The statute also permits a director or officer of a corporation who is a party to a proceeding to apply to the courts for indemnification, unless the articles of incorporation provide otherwise, and the court may order indemnification under certain circumstances set forth in the statute. The statute further provides that a corporation may in its articles of incorporation or bylaws or by contract or resolution provide indemnification in addition to that provided by the statute, subject to certain conditions set forth in the statute. FUNC's bylaws provide for the indemnification of FUNC's directors and executive officers by FUNC against liabilities arising out of his status as such, excluding any liability relating to activities which were at the time taken known or believed by such person to be clearly in conflict with the best interests of FUNC. The FUNC Articles provide for the elimination of the personal liability of each director of FUNC to the fullest extent permitted by the provisions of the NCBCA, as the same may from time to time be in effect. FUNC maintains directors and officers liability insurance, which provides coverage of up to $80,000,000, subject to certain deductible amounts. In general, the policy insures (i) FUNC's directors and officers against loss by reason of any of their wrongful acts, and/or (ii) FUNC 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. II-1 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT NO. DESCRIPTION ----------- ---------------------------------------------------------------------------------------------------------------- (2)(a) The Merger Agreement, including the form of Voting Agreement as Exhibit A thereto. (Incorporated by reference to ANNEX A to the Prospectus/Proxy Statement included in this Registration Statement.) Omitted exhibits to be furnished upon request of the Commission. (2)(b) The CoreStates acquisition agreement. (Incorporated by reference to Exhibit (2) to FUNC's Current Report on Form 8-K dated November 28, 1997.) Omitted exhibits to be filed upon request of the Commission. (2)(c) The Signet acquisition agreement. (Incorporated by reference to Exhibit (2) to FUNC's Current Report on Form 8-K dated November 18, 1997). Omitted exhibits to be furnished upon request of the Commission. (3)(a) Articles of Incorporation of FUNC, as amended. (Incorporated by reference to Exhibit (4) to FUNC's 1990 First Quarter Report on Form 10-Q, to Exhibit (99)(a) to FUNC's 1993 First Quarter Report on Form 10-Q and to Exhibit (4)(a) to FUNC's Current Report on Form 8-K dated January 10, 1996.) (3)(b) Bylaws of FUNC, as amended. (Incorporated by reference to Exhibit (3)(b) to FUNC's 1995 Annual Report on Form 10-K.) (4)(a) Shareholder Protection Rights Agreement, as amended. (Incorporated by reference to Exhibits (4)(b) to FUNC's Forms 8-K dated December 18, 1990 and October 20, 1992, and to Exhibit (99) to FUNC's Current Reports on Form 8-K dated June 20, 1995 and June 21, 1995 and to Exhibit (4) to FUNC's Current Report on Form 8-K dated October 16, 1996.) (4)(b) All instruments defining the rights of holders of long-term debt of FUNC and its subsidiaries. (Not filed pursuant to (4)(iii) of Item 601(b) of Regulation S-K; to be furnished upon request of the Commission.) (5) Opinion of Marion A. Cowell, Jr., Esq.* (8)(a) Tax opinion of Sullivan & Cromwell. (8)(b) Tax opinion of Wachtell, Lipton, Rosen & Katz. (12) Computations of Consolidated Ratios of Earnings to Fixed Charges. (Incorporated by reference to Exhibit (12) to FUNC's 1997 Third Quarter Report on Form 10-Q.) (23)(a) Consent of KPMG Peat Marwick LLP. (23)(b) Consent of KPMG Peat Marwick LLP. (23)(c) Consent of Marion A. Cowell, Jr., Esq. (Included in Exhibit (5).)* (23)(d) Consent of Sullivan & Cromwell. (Included in Exhibit (8)(a).) (23)(e) Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit (8)(b).) (23)(f) Consent of Wheat, First Securities, Inc.* (23)(g) Consent of Ernst & Young LLP. (23)(h) Consent of KPMG LLP. (23)(i) Consent of KPMG LLP. (24) Power of Attorney.* (27) FUNC's Financial Data Schedule. (Incorporated by reference to Exhibit (27) to FUNC's 1997 Third Quarter Report on Form 10-Q.) (99)(a) Form of Wheat Common Stock proxy for the Special Meeting of Stockholders of Wheat.* (99)(b) Form of Wheat Preferred Stock proxy for the Special Meeting of Stockholders of Wheat.*
- --------------- * Previously filed. ITEM 22. UNDERTAKINGS. (a)(1) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933 (as amended and the rules and regulations thereunder, the "Securities Act"), each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (as amended and the rules and regulations thereunder, the "Exchange Act") (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (2) 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) promulgated pursuant to the Securities Act, 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. (3) The registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415 promulgated pursuant to the Securities Act, will be filed as a part of an amendment to the II-2 registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, 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. (4) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions of this Item 22, or otherwise (other than insurance), the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (b) 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. (c) 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. (d) 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; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective 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, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to Registration Statement No. 333-39515 on Form S-4 to be signed on its behalf by the undersigned, thereunto, duly authorized, in the City of Charlotte, State of North Carolina, on December 17, 1997. FIRST UNION CORPORATION By: MARION A. COWELL, JR. ----------------------------------- MARION A. COWELL, JR. EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to Registration Statement No. 333-39515 on Form S-4 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE CAPACITY - ------------------------------------------------------ ------------------------------------------------------------------ *EDWARD E. CRUTCHFIELD Chairman and Chief Executive Officer and Director - ------------------------------------------------------ EDWARD E. CRUTCHFIELD *ROBERT T. ATWOOD Executive Vice President and Chief Financial Officer - ------------------------------------------------------ ROBERT T. ATWOOD *JAMES H. HATCH Senior Vice President and Corporate Controller (Principal - ------------------------------------------------------ Accounting Officer) JAMES H. HATCH *EDWARD E. BARR Director - ------------------------------------------------------ EDWARD E. BARR *G. ALEX BERNHARDT Director - ------------------------------------------------------ G. ALEX BERNHARDT *W. WALDO BRADLEY Director - ------------------------------------------------------ W. WALDO BRADLEY *ROBERT J. BROWN Director - ------------------------------------------------------ ROBERT J. BROWN *A. DANO DAVIS Director - ------------------------------------------------------ A. DANO DAVIS *R. STUART DICKSON Director - ------------------------------------------------------ R. STUART DICKSON *B.F. DOLAN Director - ------------------------------------------------------ B.F. DOLAN
II-4
SIGNATURE CAPACITY - ------------------------------------------------------ ------------------------------------------------------------------ *RODDEY DOWD, SR. Director - ------------------------------------------------------ RODDEY DOWD, SR. *JOHN R. GEORGIUS Director - ------------------------------------------------------ JOHN R. GEORGIUS Director - ------------------------------------------------------ ARTHUR M. GOLDBERG *WILLIAM H. GOODWIN, JR. Director - ------------------------------------------------------ WILLIAM H. GOODWIN, JR. *HOWARD H. HAWORTH Director - ------------------------------------------------------ HOWARD H. HAWORTH *FRANK M. HENRY Director - ------------------------------------------------------ FRANK M. HENRY *LEONARD G. HERRING Director - ------------------------------------------------------ LEONARD G. HERRING Director - ------------------------------------------------------ JACK A. LAUGHERY Director - ------------------------------------------------------ MALCOLM S. MCDONALD *MAX LENNON Director - ------------------------------------------------------ MAX LENNON *RADFORD D. LOVETT Director - ------------------------------------------------------ RADFORD D. LOVETT *MACKEY J. MCDONALD Director - ------------------------------------------------------ MACKEY J. MCDONALD *JOSEPH NEUBAUER Director - ------------------------------------------------------ JOSEPH NEUBAUER *RANDOLPH N. REYNOLDS Director - ------------------------------------------------------ RANDOLPH N. REYNOLDS *RUTH G. SHAW Director - ------------------------------------------------------ RUTH G. SHAW
II-5
SIGNATURE CAPACITY - ------------------------------------------------------ ------------------------------------------------------------------ *CHARLES M. SHELTON, SR. Director - ------------------------------------------------------ CHARLES M. SHELTON, SR. *LANTY L. SMITH Director - ------------------------------------------------------ LANTY L. SMITH *ANTHONY P. TERRACCIANO Director - ------------------------------------------------------ ANTHONY P. TERRACCIANO *DEWEY L. TROGDON Director - ------------------------------------------------------ DEWEY L. TROGDON Director - ------------------------------------------------------ JOHN D. UIBLE *B. J. WALKER Director - ------------------------------------------------------ B. J. WALKER *By Marion A. Cowell, Jr., Attorney-in-Fact MARION A. COWELL, JR. - ------------------------------------------------------ MARION A. COWELL, JR.
Date: December 17, 1997 II-6 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION - ----------- ------------------------------------------------------ ------------------------------------------------------ (2)(a) The Merger Agreement, including the Form of Voting Incorporated by reference to ANNEX A to the Agreement as Exhibit A thereto. Prospectus/Proxy Statement included in this Registration Statement. Omitted exhibits to be furnished upon request of the Commission. (2)(b) The CoreStates acquisition agreement. Incorporated by reference to Exhibit (2) to FUNC's Current Report on Form 8-K dated November 28, 1997. Omitted exhibits to be furnished upon request of the Commission. (2)(c) The Signet acquisition agreement. Incorporated by reference to Exhibit (2) to FUNC's Current Report on Form 8-K dated November 18, 1997. Omitted exhibits to be filed upon request of the Commission. (3)(a) Articles of Incorporation of FUNC, as amended. Incorporated by reference to Exhibit (4) to FUNC's 1990 First Quarter Report on Form 10-Q, to Exhibit (99)(a) to FUNC's 1993 First Quarter Report on Form 10-Q and to Exhibit (4)(a) to FUNC's Current Report on Form 8-K dated January 10, 1996. (3)(b) Bylaws of FUNC, as amended. Incorporated by reference to Exhibit (3)(b) to FUNC's 1995 Annual Report on Form 10-K. (4)(a) Shareholder Protection Rights Agreement, as amended. Incorporated by reference to Exhibits (4)(b) to FUNC's Forms 8-K dated December 18, 1990 and October 20, 1992, and to Exhibit (99) to FUNC's Current Reports on Form 8-K dated June 20, 1995 and June 21, 1995 and to Exhibit (4) to FUNC's Current Report on Form 8-K dated October 16, 1996. (4)(b) All instruments defining the rights of holders of Not filed pursuant to (4)(iii) of Item 601(b) of long-term debt of FUNC and its subsidiaries. Regulation S-K; to be furnished upon request of the Commission. (5) Opinion of Marion A. Cowell, Jr., Esq. * (8)(a) Tax opinion of Sullivan & Cromwell. Filed herewith. (8)(b) Tax opinion of Wachtell, Lipton, Rosen & Katz. Filed herewith. (12) Computations of Consolidated Ratios of Earnings to Incorporated by reference to Exhibit (12) to FUNC's Fixed Charges. 1997 Third Quarter on Form 10-Q. (23)(a) Consent of KPMG Peat Marwick LLP. Filed herewith. (23)(b) Consent of KPMG Peat Marwick LLP. Filed herewith. (23)(c) Consent of Marion A. Cowell, Jr., Esq. * (23)(d) Consent of Sullivan & Cromwell. Included in Exhibit (8)(a). (23)(e) Consent of Wachtell, Lipton, Rosen & Katz. Included in Exhibit (8)(b). (23)(f) Consent of Wheat, First Securities, Inc. * (23)(g) Consent of Ernst & Young LLP. Filed herewith. (23)(h) Consent of KPMG LLP. Filed herewith. (23)(i) Consent of KPMG LLP. Filed herewith. (24) Power of Attorney. * (27) FUNC's Financial Data Schedule. Incorporated by reference to Exhibit (27) to FUNC's 1997 Third Quarter Report on Form 10-Q. (99)(a) Form of Wheat Common Stock proxy for the Special * Meeting of Stockholders of Wheat. (99)(b) Form of Wheat Preferred Stock proxy for the Special * Meeting of Stockholders of Wheat.
- --------------- * Previously filed EX-8 2 EXHIBIT 8(A) EXHIBIT (8)(A) TAX OPINION OF SULLIVAN & CROMWELL December 16, 1997 Ladies and Gentlemen: We have acted as counsel to First Union Corporation, a North Carolina corporation, ("First Union") in connection with the planned merger (the "Merger") of First Union Virginia Inc., a Virginia Corporation and wholly owned subsidiary of First Union ("FUNC Subsidiary"), with and into Wheat First Butcher Singer, Inc., a Virginia corporation ("Wheat"), pursuant to the Agreement and Plan of Merger, dated as of August 20, 1997 and amended and restated as of December 16, 1997 (the "Agreement"), by and among Wheat, First Union and FUNC Subsidiary. Capitalized terms used but not defined herein shall have the meanings specified in the Proxy Statement or the appendices thereto (including the Agreement). We have assumed with your consent that (1) the Merger will be effected in accordance with the Agreement and will qualify as a merger under applicable law and (2) the representations contained in the letters of representation from First Union and Wheat to us dated December 16, 1997 were true and correct when made and will be true and correct at the Effective Time. On the basis of the foregoing, and our consideration of such other matters of fact and law as we have deemed necessary or appropriate, it is our opinion, under presently applicable federal income tax law, that: (i) no gain or loss will be recognized for federal income tax purposes by Wheat stockholders upon the exchange in the Merger of shares of Wheat Common Shares or Wheat Preferred Stock solely for First Union Common Shares (except with respect to cash received in lieu of a fractional share interests in First Union Common Stock deemed received); (ii) the basis of First Union Common Stock received in the Merger by Wheat stockholders (including the basis of fractional share interests in First Union Common Stock deemed received) will be the same as the basis of the shares of Wheat Common Stock or Wheat Preferred Stock surrendered in exchange therefor; (iii) the holding period of First Union Common Stock received in the Merger by a Wheat stockholder (including the holding period of fractional share interests in First Union Common Stock deemed received) will include the holding period of the shares of Wheat Common Stock or Wheat Preferred Stock surrendered in exchange therefor, provided such shares of Wheat Common Stock or Wheat Preferred Stock were held as capital assets at the Effective Time; and (iv) cash received by a holder of Wheat Common Stock or Wheat Preferred Stock in lieu of fractional share interests in First Union Common Stock will be treated as received for such fractional share interests and, provided the fractional share would have constituted a capital asset in the hands of such holder, the holder should in general recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the portion of the stockholder's adjusted tax basis in the Wheat Common Stock or Wheat Preferred Stock allocable to the fractional share interests. We express no opinion as to the effect of the Merger on any shareholder that is required to recognize unrealized gains and losses for federal income tax purposes at the end of each taxable year under a mark-to-market system. The federal income tax consequences described herein may not apply to certain classes of taxpayers, including, without limitation, Wheat stockholders who received their Wheat Common Stock or Wheat Preferred Stock upon the exercise of employee stock options or otherwise as compensation, that hold their Wheat Common Stock or Wheat Preferred Stock as part of a "straddle" or "conversion transaction" for federal income tax purposes, or that are foreign persons, insurance companies, financial institutions or securities dealers, and will not apply to Wheat stockholders that dissent from the Merger and receive cash in exchange for their shares. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to this opinion in the Registration Statement. In giving this consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1993, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, SULLIVAN & CROMWELL EX-8 3 EXHIBIT 8(B) EXHIBIT (8)(B) TAX OPINION OF WACHTELL, LIPTON, ROSEN & KATZ December 17, 1997 WHEAT FIRST BUTCHER SINGER, INC. Riverfront Plaza 901 East Byrd Street Richmond, Virginia 23219 Ladies/Gentlemen: We have acted as special counsel to Wheat First Butcher Singer, Inc., a Virginia corporation ("Wheat First"), in connection with the proposed merger (the "Merger") of First Union Virginia, Inc., a Virginia Corporation ("Merger Sub"), a direct wholly-owned subsidiary of First Union Corporation, a North Carolina corporation ("FUNC"), with and into Wheat First, upon the terms and conditions set forth in the Agreement and Plan of Merger dated as of August 20, 1997, as amended and restated as of December 16, 1997, by and among Wheat First, FUNC, and Merger Sub (the "Agreement"). At your request, in connection with the filing of the Registration Statement on Form S-4 filed with the Securities and Exchange Commission in connection with the Merger (the "Registration Statement"), we are rendering our opinion concerning certain federal income tax consequences of the Merger. For purposes of the opinion set forth below, we have relied, with the consent of Wheat First and the consent of FUNC, upon the accuracy and completeness of the statements and representations (which statements and representations we have neither investigated nor verified) contained, respectively, in the certificates of the officers of Wheat First and FUNC (copies of which are attached hereto and which are incorporated herein by reference), and have assumed that such certificates will be complete and accurate as of the Effective Time. We have also relied upon the accuracy of the Registration Statement and the Proxy Statement/Prospectus included therein (together, the "Proxy Statement"). Any capitalized term used and not defined herein has the meaning given to it in the Proxy Statement or the appendices thereto (including the Agreement). We have also assumed that the transactions contemplated by the Agreement will be consummated in accordance therewith and as described in the Proxy Statement and that the Merger will qualify as a statutory merger under the applicable laws of the Commonwealth of Virginia. Based upon and subject to the foregoing, it is our opinion that, under currently applicable United States federal income tax law: (i) No gain or loss will be recognized for federal income tax purposes by Wheat First stockholders upon the exchange in the Merger of shares of Wheat Common Stock or Wheat Preferred Stock solely for FUNC Common Shares (except with respect to cash received in lieu of a fractional share interest in FUNC Common Stock deemed received); (ii) The basis of FUNC Common Shares received in the Merger by Wheat First stockholders (including the basis of any fractional share interest in FUNC Common Stock deemed received) will be the same as the basis of the shares of Wheat Common Stock or Wheat Preferred Stock surrendered in exchange therefor; (iii) The holding period of the FUNC Common Shares received in the Merger by a Wheat First stockholder (including the holding period of any fractional share interest in FUNC Common Stock) will include the holding period of the shares of Wheat Common Stock or Wheat Preferred Stock surrendered in exchange therefor, provided such shares of Wheat Common Stock or Wheat Preferred Stock were held as capital assets at the Effective Time; and (iv) Cash received by a holder of Wheat Common Stock or Wheat Preferred Stock in lieu of a fractional share interest in FUNC Common Stock will be treated as received for such fractional share interest and, provided the fractional share would have constituted a capital asset in the hands of such holder, the holder should in general recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the portion of the adjusted tax basis in the Wheat Common Stock or Wheat Preferred Stock allocable to the fractional share interest. We hereby consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement, and to the references to us under the captions "SUMMARY -- Certain Federal Income Tax Consequences" and "THE MERGER -- Certain Federal Income Tax Consequences" and elsewhere in the Proxy Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended. This opinion may not be applicable to special situations, such as Wheat First stockholders who received their Wheat Common Stock or Wheat Preferred Stock upon the exercise of employee stock options or otherwise as compensation, that hold their Wheat Common Stock or Wheat Preferred Stock as part of a "straddle" or "conversion transaction," or that are insurance companies, securities dealers, financial institutions or foreign persons. Very truly yours, WACHTELL, LIPTON, ROSEN & KATZ EX-23 4 EXHIBIT 23(A) EXHIBIT (23)(A) CONSENT OF KPMG PEAT MARWICK LLP BOARD OF DIRECTORS WHEAT FIRST BUTCHER SINGER, INC. We consent to the inclusion in this Amendment No. 1 to the Registration Statement on Form S-4 (333-39515) of First Union Corporation of our reports dated May 14, 1997 and May 6, 1996, relating to the consolidated statements of financial condition of Wheat First Butcher Singer, Inc. as of March 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended March 31, 1997. We also consent to the reference to our firm under the caption "Experts." KPMG PEAT MARWICK LLP Richmond, Virginia December 17, 1997 EX-23 5 EXHIBIT 23(B) EXHIBIT (23)(B) CONSENT OF KPMG PEAT MARWICK LLP BOARD OF DIRECTORS FIRST UNION CORPORATION We consent to the incorporation by reference in this Amendment No. 1 to the Registration Statement on Form S-4 (333-39515) of First Union Corporation of our report dated January 16, 1997, relating to the consolidated balance sheets of First Union Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the 1996 Annual Report to Stockholders which is incorporated by reference in the 1996 Form 10-K of First Union Corporation. We also consent to the reference to our firm under the caption "Experts." KPMG PEAT MARWICK LLP Charlotte, North Carolina December 17, 1997 EX-23 6 EXHIBIT 23(G) EXHIBIT (23)(G) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Prospectus/Proxy Statement of Wheat First Butcher Singer, Inc. that is made a part of the Registration Statement (Form S-4 No. 333-39515) and related prospectus of First Union Corporation for the registration of 10,267,029 shares of its common stock and to the incorporation by reference therein of our report dated January 22, 1997, with respect to the consolidated financial statements of CoreStates Financial Corp included in the Current Report on Form 8-K dated November 28, 1997 of First Union Corporation. ERNST & YOUNG LLP Philadelphia, Pennsylvania December 16, 1997 EX-23 7 EXHIBIT 23(H) EXHIBIT (23)(H) CONSENT OF KPMG PEAT MARWICK LLP BOARD OF DIRECTORS CORESTATES FINANCIAL CORP We consent to the incorporation by reference in this Amendment No. 1 to the Registration Statement on Form S-4 (333-39515) of First Union Corporation of our report dated January 17, 1996, except as to Note 2, which is as of February 23, 1996, relating to the consolidated balance sheet of Meridian Bancorp, Inc. and subsidiaries as of December 31, 1995, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the two-year period ended December 31, 1995, which report appears in First Union Corporation's Current Report on Form 8-K dated November 28, 1997. The report includes an explanatory paragraph indicating that Meridian Bancorp, Inc. adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, and No. 112, Employers' Accounting for Postemployment Benefits, in 1994. We also consent to the reference to our firm under the caption "Experts." KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania December 16, 1997 EX-23 8 EXHIBIT 23(I) EXHIBIT (23)(I) CONSENT OF KPMG PEAT MARWICK LLP BOARD OF DIRECTORS CORESTATES FINANCIAL CORP We consent to the incorporation by reference in this Amendment No. 1 to the Registration Statement on Form S-4 (333-39515) of First Union Corporation of our report dated January 16, 1996, except as to Note 20, which is as of February 23, 1996, relating to the consolidated balance sheet of United Counties Bancorporation and subsidiaries as of December 31, 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 1995, which report appears in First Union Corporation's Current Report on Form 8-K dated November 28, 1997. The report includes an explanatory paragraph indicating that United Counties Bancorporation adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, in 1994. We also consent to the reference to our firm under the caption "Experts." KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania December 16, 1997 -----END PRIVACY-ENHANCED MESSAGE-----