-----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, L0Ryax6NjQgUCpPw2kVsAXXg1MLwfxBbgCe0PCMIclMiC6uecSeg+iYTuFtEWRIg GZ3CXRZEXB1E0/1EsXNkJg== 0000950168-96-002191.txt : 19961118 0000950168-96-002191.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950168-96-002191 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN NATIONAL CORP /NC/ CENTRAL INDEX KEY: 0000092230 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 560939887 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10853 FILM NUMBER: 96665506 BUSINESS ADDRESS: STREET 1: 500 N CHESTNUT ST CITY: LUMBERTON STATE: NC ZIP: 28358 BUSINESS PHONE: 9196712000 MAIL ADDRESS: STREET 1: 500 NORTH CHESTNUT STREET CITY: LUMBERTON STATE: NC ZIP: 28358 10-Q 1 SOUTHERN NATIONAL 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: SEPTEMBER 30, 1996 Commission file number: 1-10853 SOUTHERN NATIONAL CORPORATION (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0939887 (State of Incorporation) (I.R.S. Employer Identification No.) 200 WEST SECOND STREET WINSTON-SALEM, NORTH CAROLINA 27101 (Address of Principal Executive Offices) (Zip Code)
(910) 733-2000 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (Check Mark) No__ At October 31, 1996, 109,113,999 shares of the registrant's common stock, $5 par value, were outstanding. This Form 10-Q has 21 pages. The Exhibit Index is included on page 19. SOUTHERN NATIONAL CORPORATION FORM 10-Q SEPTEMBER 30, 1996 INDEX
PAGE NO. Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited).......................................................................... 3 Consolidated Financial Statements......................................................................... 3 Notes to Consolidated Financial Statements................................................................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 9 Analysis of Financial Condition........................................................................... 9 Asset/Liability Management................................................................................ 11 Capital Adequacy and Resources............................................................................ 12 Analysis of Results of Operations......................................................................... 13 Part II. OTHER INFORMATION Item 1. Legal Proceedings......................................................................................... 19 Item 6. Exhibits and Reports on Form 8-K.......................................................................... 19 SIGNATURES.......................................................................................................... 20 EXHIBIT 2 Agreement and Plan of Reorganization between Southern National Corporation and United Carolina Bancshares Corporation, dated November 1, 1996, and exhibits thereto: a) Stock Option Agreement between Southern National Corporation and United Carolina Bancshares Corporation and b) Stock Option Agreement between United Carolina Bancshares Corporation and Southern National Corporation. EXHIBIT 11 Computation of Earnings Per Share EXHIBIT 27 Financial Data Schedule -- Included with electronically-filed document only. ......
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 1996 1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Cash and due from banks...................................................................... $ 656,632 $ 585,527 Interest-bearing deposits with banks......................................................... 429 1,172 Federal funds sold and securities purchased under resale agreements or similar arrangements.............................................................................. 7,433 118,977 Securities available for sale................................................................ 5,489,878 5,201,344 Securities held to maturity (market value: $130,291 at September 30, 1996, and $159,886 at December 31, 1995)........................................................................ 126,848 153,969 Loans held for sale.......................................................................... 178,582 245,280 Loans and leases, net of unearned income..................................................... 13,932,414 13,706,711 Allowance for loan and lease losses....................................................... (184,203) (175,588) Loans and leases, net................................................................... 13,748,211 13,531,123 Premises and equipment, net.................................................................. 314,406 313,858 Other assets................................................................................. 574,138 485,180 TOTAL ASSETS............................................................................ $21,096,557 $ 20,636,430 LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing demand deposits.......................................................... $ 2,039,356 $ 1,885,725 Savings and interest checking................................................................ 1,380,011 1,591,488 Money rate savings........................................................................... 3,204,789 3,049,810 Other time deposits.......................................................................... 8,394,256 8,157,033 Total deposits.......................................................................... 15,018,412 14,684,056 Short-term borrowed funds.................................................................... 2,095,282 2,595,416 Long-term debt............................................................................... 2,050,211 1,383,935 Accounts payable and other liabilities....................................................... 275,846 261,681 TOTAL LIABILITIES....................................................................... 19,439,751 18,925,088 SHAREHOLDERS' EQUITY: Preferred stock, $5 par, 5,000,000 shares authorized, none issued and outstanding at September 30, 1996, and 733,869 at December 31, 1995...................................... -- 3,669 Common stock, $5 par, 300,000,000 shares authorized, 109,112,010 issued and outstanding at September 30, 1996, and 109,151,655 at December 31, 1995.................................. 545,560 545,758 Paid-in capital.............................................................................. 137,974 269,404 Retained earnings............................................................................ 987,979 865,658 Loan to employee stock ownership plan and unvested restricted stock.......................... (2,971) (4,314) Net unrealized (depreciation) appreciation on securities available for sale.................. (11,736) 31,167 TOTAL SHAREHOLDERS' EQUITY.............................................................. 1,656,806 1,711,342 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................................. $21,096,557 $ 20,636,430
See accompanying notes to consolidated financial statements. 3 SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE NINE MONTHS FOR THE THREE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INTEREST INCOME Interest and fees on loans and leases............................ $320,498 $321,808 $ 957,961 $ 938,187 Interest and dividends on securities............................. 84,796 79,528 236,117 233,814 Interest on short-term investments............................... 208 401 584 1,790 Total interest income......................................... 405,502 401,737 1,194,662 1,173,791 INTEREST EXPENSE Interest on deposits............................................. 144,489 142,779 421,847 415,093 Interest on short-term borrowed funds............................ 24,594 48,688 81,602 141,748 Interest on long-term debt....................................... 28,842 20,384 76,678 49,768 Total interest expense........................................ 197,925 211,851 580,127 606,609 NET INTEREST INCOME................................................ 207,577 189,886 614,535 567,182 Provision for loan and lease losses.............................. 13,500 7,933 38,161 23,315 NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES...... 194,077 181,953 576,374 543,867 NONINTEREST INCOME Service charges on deposit accounts.............................. 27,340 22,381 79,358 66,162 Mortgage banking activities...................................... 6,992 9,019 24,834 18,581 Trust income..................................................... 5,963 4,483 16,803 13,478 Agency insurance commissions..................................... 5,549 3,479 16,315 11,757 Other insurance commissions...................................... 2,943 2,195 8,117 8,095 Other nondeposit fees and commissions............................ 17,780 14,233 50,894 40,977 Securities gains (losses), net................................... 705 1,114 543 (18,731) Other noninterest income......................................... 7,650 5,821 20,131 28,597 Total noninterest income...................................... 74,922 62,725 216,995 168,916 NONINTEREST EXPENSE Personnel expense................................................ 74,599 74,300 225,297 275,693 Occupancy and equipment expense.................................. 26,750 25,621 76,965 83,243 Foreclosed property expense...................................... 214 524 1,306 2,258 Federal deposit insurance expense................................ 36,293 2,901 42,820 18,881 Other noninterest expense........................................ 49,878 43,775 144,461 159,835 Total noninterest expense..................................... 187,734 147,121 490,849 539,910 EARNINGS Income before income taxes....................................... 81,265 97,557 302,520 172,873 Income tax expense............................................... 25,299 32,971 98,536 58,813 Net income....................................................... 55,966 64,586 203,984 114,060 Preferred dividend requirements............................... -- 1,255 610 3,843 Income applicable to common shares............................ $ 55,966 $ 63,331 $ 203,374 $ 110,217 PER COMMON SHARE Net income: Primary....................................................... $ .50 $ .57 $ 1.85 $ 1.01 Fully diluted................................................. $ .50 $ .56 $ 1.83 $ 1.00 Cash dividends declared....................................... $ .27 $ .23 $ .73 $ .63 AVERAGE SHARES OUTSTANDING Primary.......................................................... 110,841,221 110,162,172 110,071,975 109,489,491 Fully diluted.................................................... 111,013,052 114,996,393 111,722,834 114,782,862
See accompanying notes to consolidated financial statements. 4 SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
RETAINED SHARES OF EARNINGS COMMON PREFERRED COMMON PAID-IN AND STOCK STOCK STOCK CAPITAL OTHER* TOTAL (DOLLARS IN THOUSANDS) BALANCE, DECEMBER 31, 1994, AS PREVIOUSLY REPORTED...................................... 102,215,032 $ 3,850 $511,075 $285,599 $695,953 $1,496,477 Merger with Regional Acceptance Corporation accounted for under the pooling of interests method of accounting............. 5,794,215 -- 28,971 (9,800) 9,900 29,071 BALANCE, DECEMBER 31, 1994, AS RESTATED......... 108,009,247 3,850 540,046 275,799 705,853 1,525,548 Add (Deduct) Net income.................................... -- -- -- -- 114,060 114,060 Common stock issued........................... 2,478,754 -- 12,393 24,821 -- 37,214 Redemption of common stock.................... (1,436,550) -- (7,183) (25,674) -- (32,857) Net appreciation on securities available for sale....................................... -- -- -- -- 80,905 80,905 Preferred stock cancellations and conversions................................ 66,447 (148) 332 (2,555) -- (2,371) Cash dividends declared: Common stock............................... -- -- -- -- (77,593) (77,593) Preferred stock............................ -- -- -- -- (3,811) (3,811) Amortization of unearned stock compensation... -- -- -- -- 1,141 1,141 BALANCE, SEPTEMBER 30, 1995..................... 109,117,898 $ 3,702 $545,588 $272,391 $820,555 $1,642,236
BALANCE, DECEMBER 31, 1995, AS PREVIOUSLY REPORTED...................................... 103,357,440 $ 3,669 $516,787 $279,204 $874,403 $1,674,063 Merger with Regional Acceptance Corporation accounted for under the pooling of interests method of accounting............. 5,794,215 -- 28,971 (9,800) 18,108 37,279 BALANCE, DECEMBER 31, 1995, AS RESTATED......... 109,151,655 3,669 545,758 269,404 892,511 1,711,342 Add (Deduct) Net income.................................... -- -- -- -- 203,984 203,984 Common stock issued........................... 1,804,663 -- 9,023 36,070 -- 45,093 Redemption of common stock.................... (6,179,000) -- (30,895) (149,495) -- (180,390) Net depreciation on securities available for sale....................................... -- -- -- -- (42,903) (42,903) Preferred stock cancellations and conversions................................ 4,334,692 (3,669) 21,674 (18,005) -- -- Cash dividends declared: Common stock............................... -- -- -- -- (81,053) (81,053) Preferred stock............................ -- -- -- -- (610) (610) Amortization of unearned stock compensation... -- -- -- -- 1,343 1,343 BALANCE, SEPTEMBER 30, 1996..................... 109,112,010 $ -- $545,560 $137,974 $973,272 $1,656,806
* Includes net unrealized appreciation (depreciation) on securities available for sale, unvested restricted stock and loan to employee stock ownership plan. See accompanying notes to consolidated financial statements. 5 SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
1996 1995 (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................................................................... $ 203,984 $ 114,060 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan and lease losses................................................................ 38,161 23,315 Depreciation of premises and equipment............................................................. 29,403 24,469 Amortization of intangibles........................................................................ 5,364 8,740 Accretion of negative goodwill..................................................................... (4,678) (4,751) Amortization of unearned stock compensation........................................................ 1,343 1,141 Discount accretion and premium amortization on securities, net..................................... 2,052 3,144 Loss (gain) on sales of trading account securities, net............................................ 2 (31) Loss (gain) on sales of securities, net............................................................ (543) 18,731 Loss (gain) on sales of loans, net................................................................. (6,127) (3,366) Loss (gain) on disposals of premises and equipment, net............................................ (220) (6,476) Loss (gain) on foreclosed property and other real estate, net...................................... 2,066 1,353 Proceeds from sales of trading account securities, net of purchases................................ (2) 31 Proceeds from sales of loans held for sale......................................................... 1,107,666 380,443 Purchases of loans held for sale................................................................... (309,600) (180,180) Origination of loans held for sale, net of principal collected..................................... (725,241) (406,631) Decrease (increase) in: Accrued interest receivable...................................................................... 24,115 (26,239) Other assets..................................................................................... (112,874) 28,240 Increase (decrease) in: Accrued interest payable......................................................................... 2,526 18,961 Accounts payable and other liabilities........................................................... 34,088 97,733 Net cash provided by operating activities...................................................... 291,485 92,687 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of securities available for sale................................................. 315,067 1,145,702 Proceeds from maturities of securities available for sale............................................ 1,631,600 688,757 Purchases of securities available for sale........................................................... (1,487,678) (1,826,599) Proceeds from maturities of securities held to maturity.............................................. 29,024 155,549 Purchases of securities held to maturity............................................................. (2,034) (43,544) Leases made to customers............................................................................. (53,082) (33,842) Principal collected on leases........................................................................ 35,419 34,401 Loan originations, net of principal collected........................................................ (988,710) (827,178) Purchases of loans................................................................................... (79,344) (5,382) Proceeds from disposals of premises and equipment.................................................... 2,426 12,605 Purchases of premises and equipment.................................................................. (40,213) (61,250) Proceeds from sales of foreclosed property........................................................... 10,730 8,107 Proceeds from sales of other real estate held for development or sale................................ 5,672 11,447 Other, net........................................................................................... -- (9,177) Net cash used in investing activities.......................................................... (621,123) (750,404) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits............................................................................. 334,356 120,886 Net (decrease) increase in short-term borrowed funds................................................. (500,134) 125,410 Proceeds from long-term debt......................................................................... 1,236,758 1,046,358 Repayments of long-term debt......................................................................... (570,482) (651,831) Net proceeds from common stock issued................................................................ 45,004 37,214 Redemption of common stock........................................................................... (180,390) (32,857) Preferred stock cancellations and conversions........................................................ -- (2,371) Cash dividends paid on common and preferred stock.................................................... (76,656) (57,770) Net cash provided by financing activities...................................................... 288,456 585,039 Net Decrease in Cash and Cash Equivalents.............................................................. (41,182) (72,678) CASH AND CASH EQUIVALENTS at beginning of period....................................................... 705,676 671,777 CASH AND CASH EQUIVALENTS at end of period............................................................. $ 664,494 $ 599,099 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest........................................................................................... $ 578,174 $ 587,914 Income taxes....................................................................................... 112,108 78,933 Noncash financing and investing activities: Transfer of loans to foreclosed property........................................................... 13,200 6,438 Transfer of fixed assets to other real estate owned................................................ 8,416 21,846 Common stock issued upon conversion of debentures.................................................. -- 4,896 Restricted stock issued............................................................................ 88 -- Securitization of mortgage loans................................................................... 817,268 53,540
See accompanying notes to consolidated financial statements. 6 SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (Unaudited) A. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated balance sheets of Southern National Corporation and subsidiaries ("Southern National" or "SNC") as of September 30, 1996 and December 31, 1995; the consolidated statements of income for the three months and nine months ended September 30, 1996 and 1995; and the consolidated statements of cash flows for the nine months ended September 30, 1996 and 1995. The consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the footnotes included in Southern National's latest annual report on Form 10-K should be referred to in connection with the reading of these unaudited interim consolidated financial statements. Certain 1995 amounts have been reclassified to conform with statement presentations for 1996. The reclassifications have no effect on shareholders' equity or net income as previously reported. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. NATURE OF OPERATIONS Southern National is a multi-bank holding company headquartered in Winston-Salem, North Carolina. Southern National conducts its operations in North Carolina, South Carolina and Virginia primarily through its commercial banking subsidiaries and, to a lesser extent, through its other subsidiaries. The commercial banking subsidiaries, Branch Banking and Trust Company ("BB&T"), Branch Banking and Trust Company of South Carolina ("BB&T-SC") and Branch Banking and Trust Company of Virginia ("BB&T-VA"), provide a wide range of traditional banking services for retail and commercial customers, including small and mid-size businesses, public agencies and local governments, trust companies and individuals. Substantially all of Southern National's loans are to businesses and individuals in the Carolinas and Virginia. Subsidiaries of the commercial banks offer lease financing to commercial businesses and municipal governments; investment alternatives, including discount brokerage services, annuities, mutual funds and government and municipal bonds; life and property and casualty insurance on an agency basis; and insurance premium financing. C. NEW ACCOUNTING PRONOUNCEMENTS During 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement establishes accounting standards for long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and to be disposed of. The statement requires such assets to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Any resulting impairment loss is required to be reported in the period in which the recognition criteria are first applied and met. Southern National adopted the provisions of the statement on January 1, 1996. The implementation did not have a material impact on the consolidated financial position or consolidated results of operations. In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights," which amends SFAS No. 65, "Accounting for Certain Mortgage Banking Activities." SFAS No. 122 requires that mortgage banking enterprises recognize, as separate assets, rights to service mortgage loans for others, however those servicing rights are acquired. The statement further requires mortgage banking enterprises to assess their capitalized mortgage servicing rights for impairment based on the fair value of those rights. Southern National elected, in the third quarter of 1995, to adopt this statement effective as of January 1, 1995. The impact of the adoption of this statement resulted in additional mortgage banking income of $2.5 million, before taxes, or $.02 per fully diluted share, after taxes, during the first nine months of 1995. SFAS No. 122 prohibits retroactive application to prior years. In October of 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes financial accounting and reporting standards for stock-based compensation plans. The statement defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages the adoption of 7 that method of accounting. However, the statement also allows entities to continue to account for such plans under Accounting Principles Board ("APB") Opinion No. 25. Entities electing to account for such plans in accordance with APB Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in the statement had been applied. Southern National adopted the statement effective January 1, 1996 and elected to continue to account for stock-based compensation plans under the provisions of APB Opinion No. 25. Therefore, the implementation of the statement did not have an impact on Southern National's consolidated financial position or consolidated results of operations. Southern National will make the required pro forma disclosures of net income and earnings per share using accounting methods prescribed by SFAS No. 123 in the Form 10-K for the year ending December 31, 1996. In June of 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The statement, which becomes effective for transactions occurring after December 31, 1996, provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on the financial components approach that focuses on control. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes all assets it does not control and derecognizes liabilities when extinguished. The statement also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. Management does not anticipate that the implementation of the statement will have a material impact on the consolidated financial position or consolidated results of operations of Southern National. D. MERGERS AND ACQUISITIONS On August 22, 1996, Southern National announced plans to acquire Fidelity Financial Bankshares Corporation ("Fidelity") of Richmond, Va. Under the terms of the agreement, Fidelity shareholders will receive .7931 shares of Southern National common stock for each share of Fidelity common stock held. The deal is valued at $24.68 per Fidelity share. The exchange ratio is fixed between Southern National stock prices of $26.50 and $31.50. Outside this collar, the exchange ratio is variable based on Southern National's common stock price and will fall within a range of .7137 and .8758. The transaction will be accounted for under the purchase method of accounting. Fidelity, with $321 million in assets, operates seven branches in the Richmond metropolitan area through its banking subsidiary, Fidelity Federal Savings Bank, which will merge into BB&T-VA. On September 1, 1996, Southern National completed the acquisition of Regional Acceptance Corporation of Greenville, N.C. ("Regional") in a stock transaction accounted for under the pooling-of-interests method of accounting. Accordingly, the consolidated financial statements and supplemental financial information contained herein has been restated to reflect Regional's financial condition and results of operations. Regional's shareholders received .3861 shares of Southern National stock in exchange for each share of Regional stock held. Pursuant to the acquisition, Southern National issued approximately 5.85 million shares of common stock. Regional will continue to operate as an independent subsidiary of Southern National Corporation. Regional, which specializes in indirect financing for consumer purchases of mid-model and late-model used automobiles, operates 28 branch offices in North Carolina, South Carolina, Tennessee and Virginia. On September 9, 1996, Southern National announced plans to acquire Boyle-Vaughan Associates, Inc., an independent insurance agency based in Columbia, S.C. On October 1, 1996, Southern National announced an agreement to acquire the William Goldsmith Agency Inc. and the C. Dan Joyner Insurance Agency, both based in Greenville, S.C. These insurance agencies will be accounted for as purchase transactions. On November 4, 1996, Southern National announced plans to acquire United Carolina Bancshares Corporation ("UCB") of Whiteville, N.C. in a stock transaction to be accounted for as a pooling of interests. Under the terms of the agreement, UCB shareholders will receive 1.135 shares of Southern National common stock in exchange for each share of UCB common stock held. The transaction, which will be structured as a tax-free exchange, is valued at $985 million, or $40.01 per UCB common share, based on the November 1, 1996 closing price of Southern National common stock of $35.25. The exchange ratio is subject to renegotiation if Southern National's stock price declines 20% compared to the stock price on the agreement date or declines 15% relative to an index of peer bank stocks. UCB, which conducts business primarily through its commercial banking subsidiaries, has $4.4 billion in assets and operates 153 branch offices in North and South Carolina. 8 E. SUPPLEMENTAL CASH FLOW INFORMATION During the first quarter of 1996, Southern National redeemed all outstanding shares of Convertible Preferred Stock. This transaction, a noncash financing activity, resulted in the conversion of 733,869 shares of preferred stock into 4,334,692 shares of common stock. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report includes statements which are based on current expectations. These statements are forward looking and actual results may differ materially from those contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations". Factors affecting the ultimate outcomes of these expectations include business conditions in the commercial banking industry, overall economic conditions, competitive factors with other financial institutions and with non-bank financial service companies, fluctuations in interest rates and other factors. ANALYSIS OF FINANCIAL CONDITION Southern National's total assets at September 30, 1996 were $21.1 billion, a $460.1 million increase from the balance at December 31, 1995. The primary components of the increase were securities, which increased $261.4 million, and loans and leases, which grew $159.0 million. These increases were offset by declines in other earning assets of $112.3 million. Growth in loans was affected by securitizations. During 1996 and 1995, Southern National has transferred $1.2 billion in mortgage loans from the mortgage portfolio to the securities portfolio. During the third quarter of 1996, Southern National securitized $307.1 million of loans. This is designed to provide Southern National with additional liquidity and flexibility in managing mortgage loan assets. The resulting mortgage-backed securities are being used to replace lower-yielding U.S. Treasuries in the securities portfolio as they mature, thereby improving margin. Management intends to hold the mortgage-backed securities in the available for sale portfolio for the foreseeable future. Annualized loan growth, excluding the impact of these securitizations, was 9.1% comparing end of period loans at September 30, 1996 and December 31, 1995. Average loans, excluding the impact of $974.8 million of securitized loans, increased at an annualized rate of 7.4% comparing the quarters ended September 30, 1996 and 1995. Growth in average loans has been healthy in all categories comparing the quarterly averages for the third quarters of 1996 and 1995. Mortgage loans, excluding the impact of the loan securitizations, grew at a rate of 5.5%, average commercial loans increased 8.3% over the same time frame and average consumer loans grew at a rate of 8.2%. The trends in lending have been improving since the completion of the merger of equals and momentum has particularly increased in recent quarters. At September 30, 1996, securities available for sale had unrealized depreciation, after tax, of $11.7 million compared to unrealized appreciation, after tax, of $31.2 million at December 31, 1995. The taxable equivalent yield on the securities portfolio during the third quarter was 6.74%, up from 6.32% for the fourth quarter of 1995 and up from 6.23% for the third quarter of the prior year. During the fourth quarter of 1995, Southern National began to restructure the balance sheet by changing the mix of investments held. The primary result of this strategy has been a reduction of holdings in U.S. Treasuries, as such investments have been replaced with securitized mortgage loans from Southern National's mortgage loan portfolio. The change in mix was undertaken to improve the overall investment yield of the securities portfolio, as reflected in these improved quarterly yields. On the liability side of the balance sheet, long-term debt rose $666.3 million compared to December 31, 1995, primarily as a result of the issuance of $225.0 million of senior bank notes and $250.0 million of subordinated notes during 1996. This growth was offset by a $500.1 million reduction in short-term borrowed funds compared to year end 1995. Total deposits increased by $334.4 million from the balance at December 31, 1995. Southern National, as well as many other financial institutions, has been experiencing a trend of slower deposit growth because of competition for deposits from various non-financial institution sources. However, through an increased emphasis on demand deposits, which composed 46% of the increase in total deposits, Southern National has experienced stronger growth during 1996. Noninterest-bearing demand deposits increased $153.6 million, or 8.1%, during the first nine months of 1996. Slower deposit growth during 1995 caused management to rely more heavily on nondeposit funding sources, such as Federal Home Loan Bank advances and Federal funds purchased. The improved deposit growth during 1996 also contributed to the reduction in short-term borrowed funds. Less reliance on short-term borrowed funds should provide more stability for the net interest margin. 9 ASSET QUALITY Nonperforming assets were $78.9 million at September 30, 1996, compared to $79.9 million at December 31, 1995. The allowance for losses as a percentage of loans and leases was 1.31% compared to 1.26% nine months earlier, and nonperforming assets as a percentage of loan-related assets were .56% at September 30, 1996 compared to .57% at December 31, 1995. Loans 90 days or more past due and still accruing interest totaled $28.2 million compared to a prior year-end balance of $29.1 million. Southern National has experienced higher levels of net charge-offs during 1996, particularly in the credit card category of consumer loans. This trend is consistent with other institutions; however, Southern National's credit card portfolio is small compared to our peers and the trend is not expected to have a significant impact on overall credit quality. Southern National's asset quality indicators remain at or above historic rates and management does not anticipate a material change in asset quality levels during the remainder of 1996. The provision for loan and lease losses for the first nine months of 1996 was $38.2 million compared to $23.3 million in the first nine months of 1995. The increase in the provision reflects higher net charge-offs during 1996 and continued growth in loans. Regional, Southern National's nonstandard automobile finance subsidiary, affects Southern National's credit quality through higher net charge-offs and nonperforming assets. This results from the cyclical nature of Regional's business and rapid growth of the subsidiary through expansion. The higher charge-offs are not expected to have a significant effect on Southern National's overall credit quality. Asset quality statistics relevant to the last five calendar quarters are presented in the accompanying table. ASSET QUALITY ANALYSIS
9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 (DOLLARS IN THOUSANDS) ALLOWANCE FOR LOAN & LEASE LOSSES Beginning balance.............................................. $181,269 $178,885 $175,588 $177,149 $178,929 Provision for loan and lease losses............................ 13,500 13,261 11,400 11,317 7,933 Net charge-offs................................................ (10,566) (10,877) (8,103) (12,878) (9,713) Ending balance.............................................. $184,203 $181,269 $178,885 $175,588 $177,149 RISK ASSETS Nonaccrual loans and leases.................................... $ 63,088 $ 68,014 $ 69,473 $ 66,198 $ 65,807 Foreclosed real estate......................................... 7,166 4,926 4,938 6,868 6,981 Other foreclosed property...................................... 8,609 7,426 6,336 6,784 5,914 Nonperforming assets........................................ $ 78,863 $ 80,366 $ 80,747 $ 79,850 $ 78,702 Loans 90 days or more past due and still accruing.............. $ 28,222 $ 18,025 $ 28,249 $ 29,094 $ 26,909 ASSET QUALITY RATIOS Nonaccrual loans and leases as a percentage of total loans and leases......................................................... .45% .48% .49% .47% .46% Nonperforming assets as a percentage of: Total assets................................................... .37 .39 .40 .39 .38 Loans and leases plus foreclosed property...................... .56 .57 .57 .57 .55 Net charge-offs as a percentage of average loans and leases...... .30 .31 .23 .36 .27 Allowance for loan and lease losses as a percentage of loans and leases......................................................... 1.31 1.28 1.26 1.26 1.25 Ratio of allowance for loan and lease losses to: Net charge-offs................................................ 4.38X 4.19x 5.49x 3.44x 4.60x Nonaccrual loans and leases.................................... 2.92 2.67 2.57 2.65 2.69
All items referring to loans and leases include loans held for sale and are net of unearned income. Applicable ratios are annualized. 10 ASSET/LIABILITY MANAGEMENT Asset/liability management activities are designed to assure liquidity and, through the management of Southern National's interest sensitivity position, to manage the impact of interest rate fluctuations on net interest income. It is the responsibility of the Asset/Liability Management Committee ("ALCO") to set policy guidelines and to establish long-term strategies with respect to interest rate exposure and liquidity. The ALCO meets regularly to review Southern National's interest rate and liquidity risk exposures in relation to present and prospective market and business conditions, and adopts funding and balance sheet management strategies that are intended to assure that the potential impact on earnings and liquidity is within established parameters. A prime objective in interest rate risk management is the avoidance of wide fluctuations in net interest income through balancing the impact of changes in interest rates on interest-sensitive assets and interest-sensitive liabilities. Management uses Interest Sensitivity Simulation Analysis to measure the interest rate sensitivity of earnings. Balance sheet repositioning is the most cost-effective means of managing interest rate risk and is accomplished through strategic pricing of asset and liability accounts. The expected result of strategic pricing is the development of appropriate maturity and repricing streams in those accounts to produce consistent net income during adverse interest rate environments. The ALCO monitors loan, investment and liability portfolios to ensure comprehensive management of interest rate risk on the balance sheet. These portfolios are analyzed for proper fixed-rate and variable-rate "mixes" given a specific interest rate outlook. Management has established parameters for asset/liability management which prescribe a maximum impact on net interest income of 3% for a 150 basis point change over nine months, for the most likely interest rate scenario, and a maximum of 6% for a 300 basis point change over 12 months. It is management's on-going objective to effectively manage the impact of changes in interest rates and minimize the resulting effect on earnings. At September 30, 1996, fluctuations in interest rate scenarios of this magnitude would not have a significant impact on Southern National's earnings. Future strategies for managing the balance sheet include maintaining an equity to asset ratio of 7.0% to 8.0%. The current equity ratio, at 7.9%, allows Southern National flexibility in making decisions affecting equity because current balances are at the top of the target range. Southern National recently announced plans to repurchase shares of its common stock for reissue in connection with the proposed acquisition of Fidelity. Repurchase of the shares should allow Southern National to manage its capital position more effectively. Management also intends to continue to eliminate low margin assets on the balance sheet. The securitizations, referred to earlier, have improved securities yields by moving $1.2 billion in mortgage loans to the securities portfolio where they have been used to replace lower yielding U.S. Treasuries as these investments have matured. This strategy will continue into the foreseeable future. Management is also considering non-certificate core funding strategies, as certificate accounts are not always the most cost-effective source of funding. DERIVATIVES AND OFF-BALANCE SHEET FINANCIAL INSTRUMENTS Interest rate volatility often increases to the point that balance sheet repositioning through the use of account repricing and other on-balance sheet strategies cannot occur rapidly enough to avoid adverse net income effects. At those times, off-balance sheet or synthetic hedges are utilized. Management uses interest rate swaps, caps and floors to supplement balance sheet repositioning. These financial instruments are designed to move the interest sensitivity of Southern National toward a neutral position. Interest rate swaps are contractual agreements between two parties to exchange a series of cash flows representing interest payments. A swap allows both parties to transform the repricing characteristics of an asset or liability from a fixed to a floating rate, a floating rate to a fixed rate, or one floating rate to another floating rate. The underlying principal positions are not affected. Swap terms generally range from one year to ten years depending on need. At September 30, 1996, interest rate swaps and floors with a total notional value of $1.1 billion, and terms of up to seven years, were outstanding. 11 The following tables set forth certain information concerning Southern National's interest rate swaps and floors at September 30, 1996: INTEREST RATE SWAPS AND FLOORS SEPTEMBER 30, 1996
NOTIONAL RECEIVE PAY UNREALIZED TYPE AMOUNT RATE RATE GAINS (LOSSES) (DOLLARS IN THOUSANDS) Receive fixed swaps.................................................. $ 485,000 6.60% 5.51% $ 2,306 Pay fixed swaps...................................................... 304,610 5.56 5.47 35 Basis swaps.......................................................... 250,000 5.69 5.51 (1,718) Floors............................................................... 105,000 -- -- 284 Total................................................................ $ 1,144,610 6.08% 5.50% $ 907 RECEIVE PAY FIXED BASIS SWAPS YEAR-TO-DATE ACTIVITY FIXED SWAPS SWAPS AND FLOORS TOTAL Balance, December 31, 1995........................................... $ 140,000 $ 353,413 $ 250,000 $ 743,413 Additions............................................................ 450,000 -- 105,000 555,000 Maturities/amortizations............................................. (105,000) (48,803) -- (153,803) Terminations......................................................... -- -- -- -- Balance, September 30, 1996.......................................... $ 485,000 $ 304,610 $ 355,000 $1,144,610 ONE YEAR ONE TO FIVE AFTER FIVE MATURITY SCHEDULE* OR LESS YEARS YEARS TOTAL Receive fixed swaps.................................................. $ 35,000 $ 200,000 $ 250,000 $ 485,000 Pay fixed swaps...................................................... 15,604 284,620 4,386 304,610 Basis swaps.......................................................... -- 250,000 -- 250,000 Floors............................................................... -- 105,000 -- 105,000 Total................................................................ $ 50,604 $ 839,620 $ 254,386 $1,144,610
*Maturities are based on full contract extensions. CAPITAL ADEQUACY AND RESOURCES The maintenance of appropriate levels of capital is a management priority. Capital adequacy is monitored on an on-going basis by management. Southern National's principal capital planning goals are to provide an adequate return to shareholders while retaining a sufficient base from which to provide future growth and compliance with all regulatory standards. Total shareholders' equity was $1.7 billion at September 30, 1996 and December 31, 1995. As a percentage of total assets, total shareholders' equity was 7.9% at September 30, 1996, down from 8.3% at December 31, 1995. Southern National's book value per common share at September 30, 1996 was $15.18, versus $15.04 at December 31, 1995. Average shareholders' equity as a percentage of average assets was 7.9% for the quarter ended September 30, 1996 and 8.2% for the three months ended December 31, 1995. Tier 1 and total risk-based capital ratios at September 30, 1996 were 11.3% and 14.3%, respectively. The leverage ratio was 7.9% at the end of the third quarter. The comparable ratios at the end of 1995 were 13.2%, 14.4% and 7.9%, respectively. These capital ratios measure the capital to risk-weighted assets and off-balance sheet items as defined by Federal Reserve Board ("FRB") guidelines. An 8.00% minimum of total capital to risk-weighted assets is required. One-half of the 8.00% minimum must consist of tangible common shareholders' equity (Tier 1 capital) under regulatory guidelines. The leverage ratio, established by the FRB, measures Tier 1 capital to average total assets less goodwill and must be maintained in conjunction with the risk-based capital standards. The regulatory minimum for the leverage ratio is 3.00%. The declines in certain capital ratios reflect the impact of a common stock repurchase plan which was undertaken to facilitate the conversion of all of Southern National's preferred stock outstanding. The preferred stock was redeemed on 12 March 29, 1996, at the price of $104.05 per share. Each share of preferred stock was convertible into 5.9068 shares of common stock. CAPITAL ADEQUACY RATIOS
1996 1995 THIRD SECOND FIRST FOURTH THIRD QUARTER QUARTER QUARTER QUARTER QUARTER Average equity to average assets............................................. 7.93% 8.00% 8.20% 8.17% 7.83% Equity to assets at period end............................................... 7.85 7.81 7.88 8.29 7.89 Risk-based capital ratios: Tier 1 capital............................................................. 11.3 11.9 12.3 13.2 12.1 Total capital.............................................................. 14.3 15.0 13.5 14.4 13.4 Leverage ratio............................................................... 7.9 7.9 7.7 7.9 7.7
ANALYSIS OF RESULTS OF OPERATIONS Southern National had net income for the first nine months of 1996 totaling $204.0 million, compared to $114.1 million during the first nine months of 1995. On a fully diluted per share basis, earnings for the nine months ended September 30, 1996 were $1.83, compared to $1.00 for the same period in 1995. For the third quarter, net income totaled $56.0 million, or $.50 per fully diluted share. This represents a 13.3% decrease from third quarter 1995 net income of $64.6 million, or $.56 per fully diluted share. The 1996 earnings reflect the impact of a one-time assessment levied by the Federal Deposit Insurance Corporation ("FDIC") totaling approximately $33 million on a pre-tax basis. The purpose of the assessment was to recapitalize the Savings Association Insurance Fund ("SAIF") and was levied on all institutions with SAIF-insured deposits. Southern National was significantly affected by the assessment because of its past thrift acquisitions. Excluding the impact of this assessment, Southern National earned $225.3 million for the first nine months of 1996, or $2.02 per fully diluted share. The significant increase from the prior year earnings resulted from $76.3 million in after-tax nonrecurring charges and securities losses related to the merger between Southern National and BB&T Financial Corporation ("BB&T FC") which were recorded in the first nine months of 1995. Excluding nonrecurring items from the prior year and the impact of the assessment recorded in the third quarter of 1996, Southern National's net income would have increased 18.3%, or $34.9 million. For the third quarter, net income totaled $77.2 million on a recurring basis compared to $68.3 million recorded for the third quarter of 1995, an increase of $9.0 million, or 13.2%. On a fully diluted per share basis, recurring net income for the quarter was $.70, a 18.6% increase over the $.59 earned on a recurring basis in the third quarter of 1995. Southern National's growth in recurring earnings resulted from three factors. First, net interest margin improved from 4.13% for the first nine months of 1995 to 4.43% for the first nine months of 1996. Second, following the merger of Southern National and BB&T FC, management targeted a growth rate in noninterest income of 20%. The 22.7% growth in recurring noninterest income for the nine months ended September 30, 1996 compared to the same period in 1995 exceeds this goal and demonstrates progress in achieving the revenue enhancements which were expected to be a strength of the combined bank. Third, Southern National has controlled noninterest expenses following the merger as shown by the improvement in the efficiency ratio to 53.3% from 56.4% for the nine months ended September 30, 1996 and 1995, respectively. Southern National's market area continues to grow at a healthy, sustainable rate. The core business has shown positive trends each of the six quarters since the Southern National / BB&T FC merger. Southern National's operations were somewhat affected by Hurricane Fran during the quarter. The hurricane caused significant damage to portions of BB&T's market area, as well as damaging certain banking offices and interrupting business in those offices. Management does not believe, however, that the hurricane caused any material impact on Southern National's consolidated financial condition or consolidated results of operations. NET INTEREST INCOME Net interest income on a fully taxable equivalent ("FTE") basis was $639.4 million for the first nine months of 1996 compared to $591.1 million for the same period in 1995, a 8.2% increase. For the nine months ended September 30, 1996 and 13 1995, average interest-earning assets increased $107.4 million, or .6%, to $19.3 billion, while average interest-bearing liabilities decreased by $120.0 million. As mentioned previously, Southern National also experienced substantial positive development in the net interest margin. The 30 basis point increase in margin was primarily rate driven, rather than volume driven. The increase was caused primarily by a 43 basis point increase in yields from securities, combined with a 53 basis point decrease in rates paid on savings, interest checking and MRS sweeps, a 64 basis point decline in rates paid on short-term borrowed funds and a 52 basis point decrease in rates paid on long-term debt. These fluctuations reflect the restructuring of the securities portfolio, as well as other categories of the balance sheet, which has slowed growth in total assets, thus reducing Southern National's dependence on costly nondeposit funding sources. The improvement in margin also reflects a change in management focus from pricing strategies to quality strategies. Loans and deposits were very competitively priced following the merger of Southern National and BB&T FC to protect current market positions and retain customer relationships. The net interest margin was 4.42% for the third quarter, down from 4.49% for the second quarter of 1996. The reduction for the current quarter reflects the impact of prepayment penalties associated with changing the funding strategy for the recently-acquired Regional. Southern National paid off Regional's existing borrowings because Southern National has greater access to more cost-effective funding sources than were being utilized by Regional. Management anticipates improved net interest margins for Regional because of the changes made in funding. The following table demonstrates fluctuations in net interest income and the related yields, and details the portions of these changes caused by changes in rates versus changes in volumes. 14 NET INTEREST INCOME AND RATE/VOLUME ANALYSIS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
CHANGE AVERAGE BALANCES YIELD/RATE INCOME/EXPENSE INCREASE DUE TO FULLY TAXABLE EQUIVALENT 1996 1995 1996 1995 1996 1995 (DECREASE) RATE (DOLLARS IN THOUSANDS) ASSETS Securities (1): U.S. Treasury, government and other (5).............. $ 4,943,840 $ 5,261,508 6.54% 6.08% $ 242,473 $ 239,945 $ 2,528 $ 17,474 States and political subdivisions............... 152,762 172,660 9.04 8.92 10,356 11,540 (1,184) 160 Total securities (5)....... 5,096,602 5,434,168 6.61 6.18 252,829 251,485 1,344 17,634 Other earning assets (2)....... 14,443 41,744 5.71 5.76 617 1,799 (1,182) (16) Loans and leases, net of unearned income (1)(3)(4)(5). 14,145,508 13,673,281 9.12 9.23 966,078 944,431 21,647 (11,577) Total Earnings assets...... 19,256,553 19,149,193 8.45 8.36 1,219,524 1,197,715 21,809 6,041 Non-earning assets......... 1,163,799 1,195,379 TOTAL ASSETS............. $20,420,352 $20,344,572 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits: Savings, interest-checking and MRS sweeps................. $ 3,141,071 $ 3,231,733 1.75 2.28 41,045 55,200 (14,155) (12,695) Money market deposits........ 1,398,939 1,634,222 3.55 3.53 37,211 43,110 (5,899) 357 Time deposits................ 8,323,308 7,697,780 5.51 5.50 343,591 316,783 26,808 696 Total interest-bearing deposits................. 12,863,318 12,563,735 4.38 4.42 421,847 415,093 6,754 (11,642) Short-term borrowed funds...... 2,055,123 3,188,018 5.30 5.94 81,602 141,748 (60,146) (13,898) Long-term debt................. 1,756,915 1,043,602 5.86 6.38 76,678 49,768 26,910 (4,592) Total interest-bearing liabilities.............. 16,675,356 16,795,355 4.65 4.83 580,127 606,609 (26,482) (30,132) Demand deposits............ 1,833,456 1,697,375 Other liabilities.......... 268,845 274,959 Shareholders' equity....... 1,642,695 1,576,883 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $20,420,352 $20,344,572 Average interest rate spread... 3.80 3.53 Net yield on earning assets.... 4.43% 4.13% $ 639,397 $ 591,106 $ 48,291 $ 36,173 Taxable equivalent adjustment.. $ 24,862 $ 23,924 FULLY TAXABLE EQUIVALENT VOLUME ASSETS Securities (1): U.S. Treasury, government and other (5).............. $(14,946) States and political subdivisions............... (1,344) Total securities (5)....... (16,290) Other earning assets (2)....... (1,166) Loans and leases, net of unearned income (1)(3)(4)(5). 33,224 Total Earnings assets...... 15,768 Non-earning assets......... TOTAL ASSETS............. LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits: Savings, interest-checking and MRS sweeps................. (1,460) Money market deposits........ (6,256) Time deposits................ 26,112 Total interest-bearing deposits................. 18,396 Short-term borrowed funds...... (46,248) Long-term debt................. 31,502 Total interest-bearing liabilities.............. 3,650 Demand deposits............ Other liabilities.......... Shareholders' equity....... TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... Average interest rate spread... Net yield on earning assets.... $ 12,118 Taxable equivalent adjustment..
(1) Yields related to securities, loans and leases exempt from both federal and state income taxes, federal income taxes only or state income taxes only are stated on a taxable equivalent basis using statutory tax rates in effect for the periods presented. (2) Includes federal funds sold and securities purchased under resale agreements or similar arrangements. (3) Loan fees, which are not material for the periods shown, are included for rate calculation purposes. (4) Nonaccrual loans have been included in the average balances. (5) Includes assets which were held for sale or available for sale at amortized cost. 15 Net interest income FTE for the third quarter of 1996 was $215.9 million, up from $198.4 million for the third quarter of 1995. The higher level of net interest income reflects a significant increase in the net interest margin, from 4.04% to 4.42% comparing the third quarters. The average yield earned on earning assets increased 11 basis points. However, the rates paid on interest-bearing liabilities declined by 26 basis points, with reductions in rates paid on deposits, short-term borrowed funds and long-term debt. Hedging strategies have been used in the past and will be utilized in the future to reduce sensitivity to interest rate movements. See "ASSET/LIABILITY MANAGEMENT" for additional discussion of hedging strategies. NONINTEREST INCOME Noninterest income for the nine months ended September 30, 1996 was $217.0 million, compared to $168.9 million for the same period in 1995. Securities losses of $19.8 million recorded in the first quarter of 1995 were a major contributing factor to the increase in noninterest income. These securities losses resulted from a restructuring of the securities portfolio done in connection with the merger of Southern National and BB&T FC. However, Southern National also experienced positive development in core noninterest income. Service charges on deposits, mortgage banking activities, general and other insurance commissions and trust income all showed strong gains during the period. The percentage of total revenues, calculated as net interest income plus noninterest income excluding securities gains or losses, derived from noninterest (fee-based) income for the nine months ended September 30, 1996 was 26.0%, up from 24.9% for the first nine months of 1995. Management anticipates continued growth in noninterest income, with an ultimate target ratio of noninterest income to total revenues of 30%. Service charges on deposits grew for the first nine months in 1996 compared to 1995, increasing by $13.2 million, or 19.9%. The primary factor contributing to the significant growth in service charges on deposits was increased fees during 1996. For the third quarter, service charges increased $5.0 million, or 22.2%, over the same quarter last year. The greatest increases involved commercial account analysis income and overdraft charges. Looking forward, management anticipates new fees on automated teller machines ("ATMs") to provide an additional $6 million in fee income on an annual basis with very little related expense. As part of Southern National's emphasis on alternative delivery systems, management anticipates the addition of 75 new ATMs in existing branches and an additional 200 ATMs in non-branch locations. Trust income grew $3.3 million, or 24.7%, for the nine months ended September 30,1996 compared to the same period in 1995. For the third quarter of 1996, trust services income totaled $6.0 million, an increase of $1.5 million over the third quarter of 1995. Southern National also realized substantial growth in agency insurance commissions, up $4.6 million, or 38.8%, compared to the first nine months of 1995. The growth in agency insurance commissions resulted primarily from unusually large contingency commissions and earnings from sales of life insurance contracts. Comparing the third quarters of 1996 and 1995, agency insurance commissions grew at a rate of 59.5%. With the announced acquisitions of Boyle-Vaughan Associates, Inc., William Goldsmith Agency Inc. and the C. Dan Joyner Insurance Agency, all in South Carolina, Southern National has assembled the largest independent agency system in the Carolinas. Management anticipates continued growth in agency insurance commissions and will continue to pursue acquisitions of quality independent agencies. Mortgage banking activities increased 33.7%, or $6.3 million, for the nine months ended September 30, 1996 compared to the same period in 1995. For the third quarter of 1996, mortgage banking activities decreased $2.0 million, or 22.5%. The increase in the year-to-date balances resulted from increased net gains on higher volumes of sales of mortgage loans and higher fees during the first nine months of 1996. The reduction in the quarter reflects larger losses from loan sales recorded for the three months ended September 30, 1996. Other nondeposit fees and commissions increased by $9.9 million to a level of $50.9 million in 1996 compared with $41.0 million for the first nine months of 1995. The primary component generating the increase in nondeposit fees and commissions was investment services, which increased $5.7 million. For the third quarter of 1996, other nondeposit fees and commissions increased $3.5 million compared to the prior year, also driven by investment services. Other income decreased $8.5 million for the first nine months of 1996 because of a premium totaling $12.3 million relating to a divestiture of deposits recorded in 1995. This divestiture was necessary in order to comply with anti-trust laws following the merger of Southern National and BB&T FC. For the third quarter, other income increased $1.8 million compared with the third quarter of 1995. 16 NET INTEREST INCOME AND RATE/VOLUME ANALYSIS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
CHANGE AVERAGE BALANCES YIELD/RATE INCOME/EXPENSE INCREASE DUE TO FULLY TAXABLE EQUIVALENT 1996 1995 1996 1995 1996 1995 (DECREASE) RATE (DOLLARS IN THOUSANDS) ASSETS Securities (1): U.S. Treasury, government and other (5).................. $ 5,210,191 $ 5,286,634 6.69% 6.20% $ 87,080 $ 81,904 $ 5,176 $ 6,385 States and political subdivisions............... 143,615 166,290 8.88 9.03 3,189 3,753 (564) (55) Total securities (5)....... 5,353,806 5,452,924 6.74 6.23 90,269 85,657 4,612 6,330 Other earning assets (2)....... 14,983 31,033 5.79 5.13 218 401 (183) 46 Loans and leases, net of unearned income (1)(3)(4)(5)................. 14,145,593 14,020,701 9.10 9.17 323,363 324,193 (830) (2,819) Total earning assets....... 19,514,382 19,504,658 8.45 8.34 413,850 410,251 3,599 3,557 Non-earning assets......... 1,188,691 1,240,632 TOTAL ASSETS............. $20,703,073 $20,745,290 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits: Savings, interest-checking and MRS sweeps............. $ 3,105,541 $ 3,268,889 1.62 2.22 12,630 18,314 (5,684) (4,773) Money market deposits........ 1,437,753 1,514,249 3.63 3.40 13,132 12,974 158 833 Time deposits................ 8,596,251 7,722,931 5.49 5.73 118,727 111,491 7,236 (4,669) Total interest-bearing deposits................. 13,139,545 12,506,069 4.37 4.53 144,489 142,779 1,710 (8,609) Short-term borrowed funds...... 1,823,310 3,297,130 5.37 5.86 24,594 48,688 (24,094) (3,870) Long-term debt................. 1,977,109 1,309,932 5.80 6.17 28,842 20,384 8,458 (1,288) Total interest-bearing liabilities.............. 16,939,964 17,113,131 4.65 4.91 197,925 211,851 (13,926) (13,767) Demand deposits............ 1,853,529 1,705,197 Other liabilities.......... 266,860 303,285 Shareholders' equity....... 1,642,720 1,623,677 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $20,703,073 $20,745,290 Average interest rate spread... 3.80 3.43 Net yield on earning assets.... 4.42% 4.04% $215,925 $198,400 $ 17,525 $ 17,324 Taxable equivalent adjustment................... $ 8,348 $ 8,514 FULLY TAXABLE EQUIVALENT VOLUME ASSETS Securities (1): U.S. Treasury, government and other (5).................. $ (1,209) States and political subdivisions............... (509) Total securities (5)....... (1,718) Other earning assets (2)....... (229) Loans and leases, net of unearned income (1)(3)(4)(5)................. 1,989 Total earning assets....... 42 Non-earning assets......... TOTAL ASSETS............. LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits: Savings, interest-checking and MRS sweeps............. (911) Money market deposits........ (675) Time deposits................ 11,905 Total interest-bearing deposits................. 10,319 Short-term borrowed funds...... (20,224) Long-term debt................. 9,746 Total interest-bearing liabilities.............. (159) Demand deposits............ Other liabilities.......... Shareholders' equity....... TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... Average interest rate spread... Net yield on earning assets.... $ 201 Taxable equivalent adjustment...................
(1) Yields related to securities, loans and leases exempt from both federal and state income taxes, federal income taxes only or state income taxes only are stated on a taxable equivalent basis using statutory tax rates in effect for the periods presented. (2) Includes federal funds sold and securities purchased under resale agreements or similar arrangements. (3) Loan fees, which are not material for the periods shown are included for rate calculation purposes. (4) Nonaccrual loans have been included in the average balances. Only the interest collected on such loans is included as income. (5) Includes assets held for sale or available for sale at amortized cost. NONINTEREST EXPENSE Noninterest expense was $490.8 million for the first nine months of 1996 compared to $539.9 million for the same period a year ago. Merger-related accruals and expenses led to an elevated level of noninterest expense in the first nine months of 1995. These items included $104.8 million of pretax nonrecurring charges which primarily affected personnel expense, occupancy and equipment expense and other noninterest expense. Excluding nonrecurring charges, personnel expense, the largest component of noninterest expense, increased from $217.5 million for the first nine months of 1995 to $225.3 million for the same period in 1996. This modest increase of 3.6% reflects efficiencies of scale accomplished as a result of the Southern National/BB&T FC merger. The only component of 17 personnel expense currently increasing is incentive compensation because of increased sales and higher productivity in many areas. The nonrecurring charges discussed above contributed $58.2 million to total personnel costs during the first nine months of 1995 in the form of severance pay, termination of employment contracts, early retirement packages and related benefits. For the third quarter of 1996, personnel expense totaled $74.6 million, a increase of $3.2 million from the $71.4 million recorded in the third quarter of 1995 on a recurring basis. This increase reflects additional incentive compensation, as discussed above. Occupancy and equipment expense, excluding nonrecurring charges, for the nine months ended September 30, 1996 increased $4.0 million, or 5.5%, compared to 1995. On-going depreciation of property and equipment purchased in connection with implementing the merger is a major component of the increase. The $10.3 million in nonrecurring charges relating to branch closings and the consolidation of bank operations and systems associated with the merger had a significant impact on the total occupancy and equipment expense in the prior year. For the third quarter of 1996, occupancy and equipment expense totaled $26.8 million, up slightly from the $25.9 million incurred on a recurring basis in the prior year. Federal deposit insurance expense increased $23.9 million, or 126.8%, for the nine months ended September 30, 1996, compared to the same period in the prior year, as a result of the recording of a one-time assessment by the FDIC on SAIF-insured deposits, as discussed above. During 1995 and 1996, significant legislation was passed affecting deposit insurance premiums. During the third quarter of 1995, the FDIC reduced the rates paid from $.23 per $100 to $.04 on deposits insured by the Bank Insurance Fund ("BIF"). Effective January 1, 1996, insurance premiums charged on BIF-insured deposits were eliminated because of the recapitalization of the BIF. Southern National continued to pay insurance premiums on SAIF-insured deposits during 1996 through the third quarter, when the one-time assessment was levied. The assessment recapitalized the SAIF, and, therefore, future insurance premiums on SAIF-insured deposits were eliminated. Effective January 1, 1997, Southern National will pay $.0644 per $100 of SAIF-insured deposits and $.0129 per $100 of BIF-insured deposits to service the Financing Corporation ("FICO") bonds. Southern National anticipates a reduction in FDIC-related expense in the fourth quarter of 1996 of $3.0 million and an annual cost savings of approximately $8.8 million. The one-time SAIF assessment eliminates a cost disadvantage Southern National had with some competitors who did not have SAIF-insured deposits. Southern National incurred Federal deposit insurance expense of $36.3 million during the third quarter of 1996, up from $2.9 million recorded in the prior year. The increase reflects the SAIF assessment, which totaled approximately $33 million, before tax, and was recorded during the third quarter. Excluding $36.3 million in nonrecurring charges which were recorded in the first nine months of last year, other noninterest expenses increased $20.9 million, or 16.9%. This increase was driven by increases in advertising, up $2.7 million and loan and lease expenses, up $5.3 million. The increased advertising costs are related to a marketing program to increase BB&T's brand identity. While it is difficult to measure the impact of advertising costs, and any program takes time to be effective, studies have noted an increase in BB&T's brand identity and in the "switch preference" of customers of competitors. Additional loan and lease expenses resulted from a home equity loan incentive program. For the third quarter, other expenses totaled $49.9 million, up from the $40.4 million recorded in the third quarter of 1995 on a recurring basis. This increase reflects higher levels of advertising and promotional expenditures made during the third quarter of 1996. Southern National's efficiency ratio, excluding the impact of the SAIF assessment, improved to 53.3% for the first nine months of 1996 compared to 56.4%, excluding nonrecurring charges, for the same period in 1995. PROVISION FOR INCOME TAXES The provision for income taxes increased to $98.5 million for the first nine months of 1996 compared to $58.8 million recorded in the first nine months of 1995. Excluding the impact of the nonrecurring charges recorded in 1995, the income tax provision for the prior year totaled $95.2 million. Comparing the recurring balances, the provision for income taxes increased $15.0 million, or 15.8%, because of higher pretax income. Effective tax rates were 32.9% and 33.3% for the nine months ended September 30, 1996 and 1995, respectively. For the third quarter of 1996, the provision for income taxes totaled $37.0 million, excluding the impact of the assessment, up $1.6 million, or 4.6%, compared to the third quarter 1995 balance. The effective tax rates for the three months ended September 30, 1996 and 1995 were 32.4% and 34.2%, respectively. PROFITABILITY MEASURES
1996 1995 THIRD SECOND FIRST FOURTH THIRD QUARTER QUARTER QUARTER QUARTER QUARTER Return on average assets..................................................... 1.08% 1.50% 1.43% 1.39% 1.24% Return on average common equity.............................................. 13.55 18.77 17.99 17.50 16.19 Net interest margin.......................................................... 4.42 4.49 4.38 4.17 4.04 Efficiency ratio (taxable equivalent)*....................................... 53.3 53.0 53.8 51.8 54.0
* Excludes securities gains (losses), foreclosed property expense and nonrecurring items for all periods. 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The nature of the business of Southern National's banking subsidiaries ordinarily results in a certain amount of litigation. The subsidiaries of Southern National are involved in various legal proceedings, all of which are considered incidental to the normal conduct of business. Management believes that the liabilities arising from these proceedings will not have a materially adverse effect on the consolidated financial position or consolidated results of operations of Southern National. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 2 -- Agreement and Plan of Reorganization between Southern National Corporation and United Carolina Bancshares Corporation, dated November 1, 1996 and exhibits thereto: a) Stock Option Agreement between Southern National Corporation and United Carolina Bancshares Corporation and b) Stock Option Agreement between United Carolina Bancshares Corporation and Southern National Corporation. Exhibit 11 -- "Computation of Earnings Per Share" is included herein. Exhibit 27 -- "Financial Data Schedule" is included in the electronically-filed document as required. (b) Southern National filed a Form 8-K under Item 5 on April 15, 1996 to report the results of operations and financial condition as of March 31, 1996. Southern National filed a Form 8-K under Item 5 on May 3, 1996 to report plans to acquire Regional Acceptance Corporation of Greenville, N.C. Southern National filed a Form 8-K under Item 5 on July 12, 1996 to report the results of operations and financial condition as of June 30, 1996. Southern National filed a Form 8-K under Item 5 on August 27, 1996 to report plans to acquire Fidelity Financial Bankshares Corporation of Richmond, Va. Southern National filed a Form 8-K under Item 5 on September 3, 1996 to report that the acquisition of Regional Acceptance Corporation had been completed through the issuance of 5.85 million shares of common stock. Southern National filed a Form 8-K under Item 5 on October 11, 1996 to report the results of operations and financial condition as of September 30, 1996. Southern National filed a Form 8-K under Item 5 on October 11, 1996 to report plans to purchase a number of common shares equal to the amount issued in the Fidelity Financial Bankshares Corporation transaction. Southern National also reported that the transaction would be accounted for as a purchase, instead of a pooling of interests, which was originally planned. Southern National filed an 8-K under Item 5 on November 4, 1996 to report plans to acquire United Carolina Bancshares Corporation of Whiteville, N.C. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTHERN NATIONAL CORPORATION (Registrant) Date: November 14, 1996 By: /s/ SCOTT E. REED SCOTT E. REED, SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Date: November 14, 1996 By: /s/ SHERRY A. KELLETT SHERRY A. KELLETT, EXECUTIVE VICE PRESIDENT AND CONTROLLER (PRINCIPAL ACCOUNTING OFFICER) 20 EX-2 2 EXHIBIT 2 AGREEMENT AND PLAN OF REORGANIZATION UNITED CAROLINA BANCSHARES CORPORATION AND SOUTHERN NATIONAL CORPORATION TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS..............................................................................................1 ARTICLE II THE MERGER...............................................................................................6 2.1 Merger..........................................................................................6 2.2 Filing; Plan of Merger..........................................................................6 2.3. Effective Time..................................................................................6 2.4 Closing.........................................................................................7 2.5 Effect of Merger................................................................................7 2.6 Further Assurances..............................................................................7 2.7 Merger Consideration............................................................................8 2.8 Conversion of Shares; Payment of Merger Consideration...........................................8 2.9 Dissenting Shares...............................................................................9 2.10 Conversion of Stock Options.....................................................................9 2.11 Merger of Subsidiary...........................................................................11 2.12 Anti-Dilution..................................................................................11 ARTICLE III REPRESENTATIONS AND WARRANTIES OF UCB...................................................................11 3.1 Capital Structure..............................................................................11 3.2 Organization, Standing and Authority...........................................................12 3.3 Ownership of Subsidiaries.....................................................................12 3.4 Organization, Standing and Authority of the Subsidiaries.......................................12 3.5 Authorized and Effective Agreement.............................................................12 3.6 Securities Filings.............................................................................13 3.7 Financial Statements; Minute Books.............................................................13 3.8 Material Adverse Change........................................................................14 3.9 Absence of Undisclosed Liabilities.............................................................14 3.10 Properties.....................................................................................14 3.11 Environmental Matters..........................................................................14 3.12 Allowance for Loan Losses......................................................................15 3.13 Tax Matters....................................................................................15 3.14 Employees; Compensation; Benefit Plans.........................................................16 3.15 Certain Contracts..............................................................................20 3.16 Legal Proceedings; Regulatory Approvals........................................................20 3.17 Compliance with Laws...........................................................................21 3.18 Brokers and Finders............................................................................21 3.19 Loans..........................................................................................21 3.20 Repurchase Agreements..........................................................................21 3.21 Deposit Accounts...............................................................................22 3.22 Related Party Transactions.....................................................................22 3.23 Certain Information............................................................................22 3.24 Accounting, Tax and Regulatory Matters.........................................................22 3.25 State Takeover Laws............................................................................23 3.26 Derivatives Contracts..........................................................................23 3.27 Fairness Opinion...............................................................................23 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SNC..................................................................................................23 4.1 Capital Structure of SNC.......................................................................23 4.2 Organization, Standing and Authority of SNC....................................................23 4.3 Authorized and Effective Agreement.............................................................24 4.4 Organization, Standing and Authority of SNC Subsidiaries and Acquisition Subsidiary.....................................................................................24 4.5 Securities Documents...........................................................................25 4.6 Financial Statements...........................................................................25 4.7 Material Adverse Change........................................................................25 4.8 Legal Proceedings; Regulatory Approvals........................................................25 4.9 Absence of Undisclosed Liabilities.............................................................26 4.10 Allowance for Loan Losses......................................................................26 4.11 Tax Matters....................................................................................26 4.12 Compliance with Laws...........................................................................26 4.13 Certain Information............................................................................27 4.14 Accounting, Tax and Regulatory Matters.........................................................27 4.15 Share Ownership................................................................................27 ARTICLE V COVENANTS...............................................................................................27 5.1 Shareholders' Meetings.........................................................................27 5.2 Registration Statement; Joint Proxy Statement/Prospectus.......................................28 5.3 Plan of Merger; Reservation of Shares..........................................................28 5.4 Additional Acts................................................................................29 5.5 Best Efforts...................................................................................29 5.6 Certain Accounting Matters.....................................................................29 5.7 Access to Information..........................................................................30 5.8 Press Releases.................................................................................30 5.9 Forbearances of UCB............................................................................30 5.10 Employment Agreements..........................................................................33 5.11 Affiliates.....................................................................................33 5.12 Employee Benefit Plans.........................................................................33 5.13 Directors and Officers Protection..............................................................34 5.14 Forbearances of SNC............................................................................35 5.15 Assumption of Agreement by Acquiror............................................................36 5.16 Reports........................................................................................36 5.17 Exchange Listing...............................................................................36 ARTICLE VI CONDITIONS PRECEDENT....................................................................................37 6.1 Conditions Precedent --SNC and UCB.............................................................37 6.2 Conditions Precedent -- UCB....................................................................38 6.3 Conditions Precedent -- SNC ...................................................................39 ARTICLE VII TERMINATION, WAIVER AND AMENDMENT.......................................................................40 7.1 Termination....................................................................................40 7.2 Effect of Termination..........................................................................43 7.3 Survival of Representations, Warranties and Covenants..........................................43 7.4 Waiver.........................................................................................44 7.5 Amendment or Supplement........................................................................44 ARTICLE VIII MISCELLANEOUS...........................................................................................44 8.1 Expenses.......................................................................................44 8.2 Entire Agreement...............................................................................44 8.3 No Assignment..................................................................................45 8.4 Notices........................................................................................45 8.5 Captions.......................................................................................46 8.6 Counterparts...................................................................................46 8.7 Governing Law..................................................................................46
AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION ("Reorganization Agreement" or "Agreement"), dated as of November 1, 1996, between UNITED CAROLINA BANCSHARES CORPORATION ("UCB"), a North Carolina corporation having its principal office at Whiteville, North Carolina, and SOUTHERN NATIONAL CORPORATION ("SNC"), a North Carolina corporation having its principal office at Winston-Salem, North Carolina; R E C I T A L S: The parties desire that a wholly-owned subsidiary of SNC to be formed ("Acquisition Subsidiary") shall be merged with and into UCB (said transaction being hereinafter referred to as the "Merger") pursuant to a plan of merger (the "Plan of Merger") substantially in the form set forth in Articles of Merger attached as Annex A hereto ("Articles of Merger"), and the parties desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated hereby. NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions When used herein, the capitalized terms set forth below shall have the following meanings: "Bank Holding Company Act" shall mean the Bank Holding Company Act of 1956, as amended. "Business Day" shall mean all days other than Saturdays, Sundays and Federal Reserve holidays. "Closing Date" shall mean the date specified pursuant to Section 2.4 as the date on which the parties hereto shall close the transactions contemplated herein. "Code" shall mean the Internal Revenue Code of 1986, as amended. 1 "Commission" shall mean the Securities and Exchange Commission. "CRA" shall mean the Community Reinvestment Act of 1977, as amended. "Disclosed" shall mean disclosed in a Securities Document filed with the Commission or in the UCB Disclosure Letter. "Effective Time" shall mean the time specified in Section 2.3 as the Effective Time of the Merger. "Environmental Claim" means any written notice from any governmental authority or third party alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based upon, or resulting from the presence, or release into the environment, of any Materials of Environmental Concern. "Environmental Laws" means all applicable federal, state and local laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, that relate to pollution or protection of human health or the environment. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "FDIA" shall mean the Federal Deposit Insurance Act, as amended. "FDIC" shall mean the Federal Deposit Insurance Corporation. "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System. "Financial Statements" shall mean (a) with respect to SNC, (i) the consolidated balance sheets (including related notes and schedules, if any) of SNC as of December 31, 1995, 1994, and 1993, and the related consolidated statements of income, shareholders' equity and cash flows (including related notes and schedules, if any) for each of the three years ended December 31, 1995, 1994, and 1993, as filed by SNC in Securities Documents and (ii) the consolidated balance sheets of SNC (including related notes and schedules, if any) and the related consolidated statements of income, shareholders' equity and cash flows (including related notes and schedules, if any) included in Securities Documents filed by SNC with respect to periods ended subsequent to December 31, 1995, and (b) with respect to UCB, (i) the consolidated balance sheets (including related notes and schedules, if any) of UCB as of December 31, 1995, 1994, and 1993, and the related consolidated statements of income, changes in shareholders' equity and cash flows (including related notes and schedules, if any) for each of the three years ended December 31, 1995, 1994, and 1993 as filed by UCB in Securities Documents and (ii) the consolidated balance 2 sheets of UCB (including related notes and schedules, if any) and the related consolidated statements of income, changes in shareholders' equity and cash flows (including related notes and schedules, if any) included in Securities Documents filed by UCB with respect to periods ended subsequent to December 31, 1995. "Joint Proxy Statement/Prospectus" shall mean the joint proxy statement and prospectus, together with any supplements thereto, sent to shareholders of UCB and the shareholders of SNC to solicit their votes in connection with this Agreement and the Plan of Merger. "Material Adverse Effect" on SNC or UCB shall mean an event, change, or occurrence which, individually or together with any other event, change or occurrence, has a material adverse effect on (i) the financial condition, results of operations, business or business prospects of SNC and the SNC Subsidiaries, taken as a whole, or UCB and the Subsidiaries, taken as a whole, or (ii) the ability of SNC or UCB to perform its obligations under this Agreement or to consummate the Merger and the other transactions contemplated by this Agreement, provided that "Material Adverse Effect" shall not be deemed to include the impact of (a) actions and omissions of a party (or any of its affiliates) taken with the prior informed consent of the other party in contemplation of the transactions contemplated hereby, and (b) the direct effects of compliance with this Agreement on the operating performance of the parties, including expenses incurred by the parties in consummating the transactions contemplated by this Agreement. "Materials of Environmental Concern" means pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products and any other materials regulated under Environmental Laws. "NCBCA" shall mean the North Carolina Business Corporation Act as amended. "NYSE" shall mean the New York Stock Exchange, Inc. "Registration Statement" shall mean the registration statement of SNC with respect to the SNC Common Stock to be issued in the Merger as declared effective by the Commission under the Securities Act. "Rights" shall mean warrants, options, rights, convertible securities and other arrangements or commitments which obligate an entity to issue or dispose of any of its capital stock or other ownership interests, and stock appreciation rights, performance units and similar stock-based rights whether or not they obligate the issuer thereof to issue stock or other securities or to pay cash. "Securities Act" shall mean the Securities Act of 1933, as amended. "Securities Documents" shall mean all reports, proxy statements, registration statements and all similar documents filed, or required to be filed, pursuant to the Securities Laws. 3 "Securities Laws" shall mean the Securities Act; the Exchange Act; the Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940, as amended; the Trust Indenture Act of 1939 as amended; and the rules and regulations of the Commission promulgated thereunder. "SNC Common Stock" shall mean the shares of common stock, par value $5.00 per share, of SNC. "SNC Option Agreement" shall mean the Option Agreement dated as of even date herewith under which SNC has an option to purchase shares of UCB, which shall be executed immediately following execution of this Reorganization Agreement. "SNC Subsidiaries" shall mean the Subsidiaries of SNC, which shall include any corporation, bank, savings association, or other organization acquired as a Subsidiary of SNC in the future and held as a Subsidiary by SNC at the Effective Time. "Stock Option Plan" shall mean, collectively or singularly, UCB's 1986 Key Employee Stock Option Plan; 1995 Stock Option and Incentive Award; Stock Option Policy for Nonemployee Directors of Triad Bank; Triad Bank Employees' Stock Option Plan (Non- qualified); Seaboard Savings Bank, Inc., SSB 1993 Nonstatutory Stock Option Plan for Directors; Seaboard Savings Bank, Inc., SSB 1993 Incentive Stock Option Plan; and Bank of Iredell 1987 Employee Nonqualified Stock Option Program. "Stock Option" shall mean, collectively, any option, granted under the Stock Option Plan and unexercised on the date hereof, to acquire shares of UCB Common Stock, aggregating 357,577 shares. "Subsidiaries" shall mean all those corporations, associations, or other business entities of which the entity in question either owns or controls 50% or more of the outstanding equity securities either directly or through an unbroken chain of entities as to each of which 50% or more of the outstanding equity securities is owned directly or indirectly by its parent (provided, there shall not be included any such entity the equity securities of which are owned or controlled in a fiduciary capacity). "TILA" shall mean the Truth in Lending Act, as amended. "UCB Common Stock" shall mean the shares of common stock, par value $4.00 per share, of UCB. "UCB Disclosure Letter" shall mean the written information entitled "UCB Disclosure Letter" dated the date of this Agreement and delivered not later than ten days after the execution of this Agreement by UCB to SNC, and describing in reasonable detail the matters contained therein. Each disclosure made therein shall be in existence on the date of this Agreement and shall specifically reference each Section of this Agreement under which such disclosure is made. 4 Information disclosed with respect to one Section shall not be deemed to be disclosed for purposes of any other Section not specifically referenced. "UCB Option Agreement" shall mean the Option Agreement dated as of even date herewith under which UCB has an option to purchase shares of SNC, which shall be executed immediately following execution of this Reorganization Agreement. "UCB Subsidiaries" shall mean the Subsidiaries of UCB, which shall include any corporation, bank, savings association, or other organization acquired as a Subsidiary of UCB in the future and held as a Subsidiary by UCB at the Effective Time. 1.2 Terms Defined Elsewhere The capitalized terms set forth below are defined in the following sections: Acquisition Subsidiary Recitals Agreement Introduction Articles of Merger Recitals Average Closing Price Section 7.1(i) Closing Section 2.4 Closing Date Section 2.4 Closing Value Section 2.7 Constituent Corporations Section 2.1 Determination Date Section 7.1(i) Dissenting Shareholder Section 2.9 Dissenting Shares Section 2.9 Employee Section 5.12 Exchange Ratio Section 2.7 Index Group Section 7.1(i) Maximum Amount Section 5.13(b) Merger Recitals Merger Consideration Section 2.7 PBGC Section 3.14(b)(iv) Plan Section 3.14(b)(i) Plan of Merger Recitals Reorganization Agreement Introduction SNC Introduction SNC Option Plan Section 2.10(c) SNC Ratio Section 7.1(A)(2) Surviving Corporation Section 2.1(a) UCB Introduction UCB-SC Section 3.4 5 ARTICLE II THE MERGER 2.1 Merger Acquisition Subsidiary and UCB are constituent corporations (the "Constituent Corporations") to the Merger as contemplated by the NCBCA. At the Effective Time: (a) Acquisition Subsidiary shall be merged with and into UCB in accordance with the applicable provisions of the NCBCA, with UCB being the surviving corporate entity (hereinafter sometimes referred to as the "Surviving Corporation"). (b) The separate existence of Acquisition Subsidiary shall cease and the Merger shall in all respects have the effect provided for in Section 2.5. (c) The Articles of Incorporation of UCB at the Effective Time shall become the Articles of Incorporation of the Surviving Corporation. (d) The Bylaws of UCB at the Effective Time shall become the Bylaws of the Surviving Corporation. 2.2 Filing; Plan of Merger The Merger shall not become effective unless (i) this Agreement and the Plan of Merger are duly approved by a vote of a majority of the outstanding shares of each of UCB (subject in the case of UCB to the provisions of Article X of its Articles of Incorporation) and Acquisition Subsidiary entitled to be voted, and (ii) the issuance of the shares of SNC Common Stock pursuant to the terms of this Agreement has been approved by a vote of a majority of the votes cast at the SNC shareholders' meeting held to consider matters related to this Agreement; provided the total vote cast represents over 50 percent of the shares of SNC Common Stock entitled to vote. Upon fulfillment or waiver of the conditions specified in Article VI and provided that this Agreement has not been terminated pursuant to Article VII, the Constituent Corporations will cause the Articles of Merger to be executed and filed with the Office of the Secretary of State of North Carolina. The Plan of Merger is incorporated herein by reference, and adoption of this Agreement by the Boards of Directors of the Constituent Corporations and approval by the shareholders of the Constituent Corporations shall constitute adoption and approval of the Plan of Merger. 2.3. Effective Time The Merger shall be effective at the day and hour specified in the Articles of Merger filed with the Secretary of State of North Carolina (herein sometimes referred to as the "Effective Time"). 6 2.4 Closing The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the executive offices of SNC, BB&T Financial Center, 200 West Second Street, Winston- Salem, North Carolina, at 11:00 a.m. on the Business Day designated by SNC which is within thirty days following the satisfaction of the conditions to Closing set forth in Article VI, or such later date as the parties may otherwise agree (the "Closing Date"). 2.5 Effect of Merger From and after the Effective Time, the separate existence of Acquisition Subsidiary shall cease, and the Surviving Corporation shall thereupon and thereafter, to the extent consistent with its Articles of Incorporation, possess all the rights, privileges, immunities, and franchises, of a public as well as of a private nature, of each of the Constituent Corporations; and all property, real, personal and mixed, and all debts due on whatever account, and all other choses in action, and all and every other interest of or belonging to or due to each of the Constituent Corporations shall be taken and deemed to be transferred to and vested in the Surviving Corporation without further act or deed; and the title to any real estate or any interest therein vested in either of the Constituent Corporations shall not revert or be in any way impaired by reason of the Merger. The Surviving Corporation shall thenceforth be responsible and liable for all the liabilities, obligations and penalties of each of the Constituent Corporations; and any claim existing or action or proceeding, civil or criminal, pending by or against either of the Constituent Corporations may be prosecuted as if the Merger had not taken place, or the Surviving Corporation may be substituted in its place; and any judgment rendered against either of the Constituent Corporations may be enforced against the Surviving Corporation. Neither the rights of creditors nor any liens upon the property of either of the Constituent Corporations shall be impaired by reason of the Merger. 2.6 Further Assurances If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any further deeds, assignments or assurances in law or any other actions are necessary, desirable or proper to vest, perfect or confirm of record or otherwise, in the Surviving Corporation, the title to any property or rights of the Constituent Corporations acquired or to be acquired by reason of, or as a result of, the Merger, the Constituent Corporations agree that such Constituent Corporations and their proper officers and directors shall and will execute and deliver all such proper deeds, assignments and assurances in law and do all things necessary, desirable or proper to vest, perfect or confirm title to such property or rights in the Surviving Corporation and otherwise to carry out the purpose of this Agreement, and that the proper officers and directors of the Surviving Corporation are fully authorized and directed in the name of the Constituent Corporations or otherwise to take any and all such actions. 7 2.7 Merger Consideration As used herein, the term "Merger Consideration" shall mean the whole shares of SNC Common Stock to be exchanged for each share of UCB Common Stock issued and outstanding as of the Effective Time, and cash (without interest) to be payable in exchange for any fractional share of SNC Common Stock which would otherwise be exchanged for a share of UCB Common Stock. The number of shares of SNC Common Stock to be issued in exchange for each issued and outstanding share of UCB Common Stock shall be in the ratio of 1.135 shares of SNC Common Stock for each share of UCB Common Stock issued and outstanding (subject to possible adjustment pursuant to Section 7.1(h), the "Exchange Ratio"). The value of any fractional share shall be determined by multiplying the fractional part of such share of SNC Common Stock by the market value of one share of SNC Common Stock at the Effective Time, which shall be the closing price of such common stock on the NYSE-Composite Transactions List (as reported by THE WALL STREET JOURNAL or, if not reported thereby, any other authoritative source selected by SNC) on the first trading day preceding the Effective Time. No such holder will be entitled to dividends, voting rights, or any other rights as a shareholder in respect of any fractional shares. 2.8 Conversion of Shares; Payment of Merger Consideration (a) At the Effective Time, by virtue of the Merger and without any action on the part of UCB or the holders of record of UCB Common Stock, each share of UCB Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into and shall represent the right to receive, upon surrender of the certificate representing such share of UCB Common Stock (as provided in paragraph (d) below), the Merger Consideration. (b) Each share of the common stock of Acquisition Subsidiary issued and outstanding immediately prior to the Effective Time shall be converted into one share of the Surviving Corporation. (c) Until surrendered, each outstanding certificate which prior to the Effective Time represented one or more shares of UCB Common Stock shall be deemed upon the Effective Time for all purposes to represent only the right to receive the Merger Consideration as described in this Section 2.8. No interest will be paid or accrued on the Merger Consideration upon the surrender of the certificate or certificates representing shares of UCB Common Stock. With respect to any certificate for UCB Common Stock that has been lost or destroyed, the Surviving Corporation shall pay the Merger Consideration attributable to such certificate upon receipt of a surety bond or other adequate indemnity and evidence reasonably satisfactory to it of ownership of the shares represented thereby. After the Effective Time, no transfer of the shares of UCB Common Stock outstanding immediately prior to the Effective Time shall be made on the stock transfer books of the Surviving Corporation. (d) Promptly after the Effective Time, UCB shall cause to be delivered or mailed to each UCB shareholder a form of letter of transmittal and instructions for use in effecting the surrender of the certificates which, immediately prior to the Effective Time, represented any 8 shares of UCB Common Stock in exchange for the Merger Consideration. Upon surrender of such certificates, together with such letter of transmittal duly executed and completed in accordance with the instructions thereto, and such other documents as may be reasonably requested, UCB shall promptly cause the transfer to the persons entitled thereto of the Merger Consideration. (e) The Surviving Corporation shall pay any dividends or other distributions with a record date prior to the Effective Time which have been declared or made by UCB in respect of such shares of UCB Common Stock in accordance with the terms of this Agreement and which remain unpaid at the Effective Time. To the extent permitted by law, former shareholders of record of UCB shall be entitled to vote after the Effective Time at any meeting of SNC shareholders the number of whole shares of SNC Common Stock into which their respective shares of UCB Common Stock are converted, regardless of whether such holders have exchanged their certificates for certificates representing UCB Common Stock for certificates representing SNC Common Stock in accordance with the provisions of this Agreement. Whenever a dividend or other distribution is declared by SNC on the SNC Common Stock, the record date for which is at or after the Effective Time, the declaration shall include dividends or other distributions on all shares of SNC Common Stock issuable pursuant to this Agreement, but after the Effective Time no dividend or other distribution payable to the holders of record of SNC Common Stock as of any time subsequent to the Effective Time shall be delivered to the holder of any certificate until such holder surrenders such certificate for exchange as provided in this Section 2.8. Upon surrender of such certificate, both the SNC Common Stock certificate and any undelivered dividends and cash payments payable hereunder (without interest) shall be delivered and paid with respect to each share represented by such certificate. 2.9 Dissenting Shares Any UCB shareholder who shall have dissented from the Merger in accordance with the NCBCA and who has properly exercised such shareholder's rights to demand payment of the value of the Shareholder's shares (the "Dissenting Shares") as provided in the NCBCA (the "Dissenting Shareholder") shall thereafter have only such rights, if any, as are provided a Dissenting Shareholder in accordance with the NCBCA and shall have no rights under Sections 2.7 and 2.8; provided, however, that if a Dissenting Shareholder shall withdraw (in accordance with the NCBCA) the demand for such appraisal or shall become ineligible for such appraisal, then such Dissenting Shareholder's Dissenting Shares automatically shall cease to be Dissenting Shares and shall be converted into and represent only the right to receive from the Surviving Corporation the Merger Consideration provided for in Section 2.7 upon surrender of the certificate representing the Dissenting Shares. 2.10 Conversion of Stock Options (a) At the Effective Time, each Stock Option then outstanding, whether or not then exercisable, shall be converted into and become rights with respect to SNC Common Stock, and SNC shall assume each Stock Option, in accordance with the terms of the Stock Option Plan and 9 stock option agreement, or other agreement, by which it is evidenced, except that from and after the Effective Time (i) SNC and its Compensation Committee shall be substituted for UCB and the Committee of UCB's Board of Directors administering the Stock Option Plan, (ii) each Stock Option assumed by SNC may be exercised solely for shares of SNC Common Stock, (iii) the number of shares of SNC Common Stock subject to such Stock Option shall be the number of whole shares of SNC (omitting any fractional share) determined by multiplying the number of shares of UCB Common Stock subject to such Stock Option immediately prior to the Effective Time by the Exchange Ratio, and (iv) the per share exercise price under each such Stock Option shall be adjusted by dividing the per share exercise price under each such Stock Option by the Exchange Ratio and rounding up to the nearest cent. In addition, notwithstanding the provisions of clauses (iii) and (iv) of the first sentence of this Section 2.10(a), each Stock Option which is an "incentive stock option" shall be adjusted as required by Section 424 of the Code, and the Regulations promulgated thereunder, so as to continue as an incentive stock option under Section 424(a) of the Code, and so as not to constitute a modification, extension, or renewal of the option, within the meaning of Section 424(h) of the Code. SNC and UCB agree to take all necessary steps to effectuate the foregoing provisions of this Section 2.10. (b) As soon as practicable after the Effective Time, SNC shall deliver to the participants in the Stock Option Plan an appropriate notice setting forth such participant's rights pursuant thereto, and the grants pursuant to such Stock Option Plan shall continue in effect on the same terms and conditions (subject to the adjustments required by Section 2.10(a) after giving effect to the Merger). SNC shall comply with the terms of the Stock Option Plan to ensure, to the extent required by and subject to the provisions of such Stock Option Plan, that Stock Options which qualified as incentive stock options prior to the Effective Time continue to qualify as incentive stock options after the Effective Time. At or prior to the Effective Time, SNC shall take all corporate action necessary to reserve for issuance sufficient shares of SNC Common Stock for delivery upon exercise of Stock Options assumed by it in accordance with this Section 2.10. As soon as practicable after the Effective Time, SNC shall file a registration statement on Form S-3 or Form S-8, as the case may be (or any successor or other appropriate forms), with respect to the shares of SNC Common Stock subject to Stock Options and shall use its reasonable efforts to maintain the effectiveness of such registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding. With respect to those individuals who subsequent to the Merger will be subject to the reporting requirements under Section 16(a) of the Exchange Act, where applicable, SNC shall administer the Stock Option Plan assumed pursuant to this Section 2.10 in a manner that complies with Rule 16b-3 promulgated under the Exchange Act to the extent necessary to preserve for such individuals the benefits of Rule 16b-3 to the extent such benefits were available to them prior to the Effective Time. UCB hereby represents that the Stock Option Plan in its current form complies with Rule 16b-3 to the extent, if any, required as of November 1, 1996. (c) Notwithstanding the foregoing provisions of this Section 2.10, SNC may at its election substitute as of the Effective Time options under the Southern National Corporation 1995 Omnibus Stock Incentive Plan (the "SNC Option Plan") for all or a part of the Stock Options, subject to the following conditions: (i) the requirements of Section 2.10(a)(iii) and (iv) shall be 10 met; (ii) such substitution shall not constitute a modification, extension or renewal of any of the Stock Options which are incentive stock options; (iii) the substituted options shall continue in effect on the same terms and conditions as the Stock Option Plan or other document granting the Stock Option; and (iv) each grant of a substitute option shall have been specifically approved in advance by the full Board of Directors of SNC or by a committee consisting solely of "non-employee" directors as defined in Rule 16b-3. As soon as practicable following the Effective Time, SNC shall deliver to the participants receiving substitute options under the SNC Option Plan an appropriate notice setting forth such participant's rights pursuant thereto. SNC has reserved under the SNC Option Plan adequate shares of SNC Common Stock for delivery upon exercise of any such substituted options. SNC hereby represents that the SNC Option Plan in its current form complies with Rule 16b-3 to the extent, if any, required as of November 1, 1996. 2.11 Merger of Subsidiary In the event that SNC shall request, UCB shall cooperate in taking such actions, and shall cooperate in causing the UCB Subsidiaries to take such actions, as may be required in order to effect, at the Effective Time, the merger of one or more of the UCB Subsidiaries with and into, in each case, one of the SNC Subsidiaries. 2.12 Anti-Dilution In the event SNC changes the number of shares of SNC Common Stock issued and outstanding prior to the Effective Time as a result of a stock split, stock dividend or other similar recapitalization, and the record date thereof (in the case of a stock dividend) or the effective date thereof (in the case of a stock split or similar recapitalization for which a record date is not established) shall be prior to the Effective Time, the Exchange Ratio shall be proportionately adjusted. ARTICLE III REPRESENTATIONS AND WARRANTIES OF UCB Except as otherwise Disclosed, UCB represents and warrants to SNC as follows: 3.1 Capital Structure The authorized capital stock of UCB consists of 40,000,000 shares of UCB Common Stock, and 2,000,000 shares of preferred stock, par value $10.00 per share. As of the date hereof, 24,265,175 shares of UCB Common Stock are issued and outstanding, and no other shares of capital stock of UCB, common or preferred, are issued and outstanding. All outstanding shares of UCB Common Stock have been duly authorized and are validly issued, fully paid and nonassessable. No other classes of capital stock of UCB are authorized. No shares of capital stock have been reserved for any purpose, except for (i) 357,577 shares of UCB Common Stock in connection with the Stock Option Plan, (ii) 4,828,960 shares of UCB Common Stock in connection with the SNC Option Agreement, (iii) 2,500,000 shares of UCB Common Stock in 11 connection with its 401(k) plan; and (iv) 900,000 shares of UCB Common Stock in connection with its Long-Term Incentive Plan. Except as set forth herein, there are no Rights authorized, issued or outstanding with respect to the capital stock of UCB. Holders of UCB Common Stock do not have preemptive rights. 3.2 Organization, Standing and Authority UCB is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina with full corporate power and authority to carry on its business as now conducted and to own, lease and operate its assets. UCB is not required to be qualified to do business in any other state of the United States or foreign jurisdiction. UCB is registered as a bank holding company under the Bank Holding Company Act. 3.3 Ownership of Subsidiaries Except as Disclosed in the UCB Disclosure Letter, UCB does not own, directly or indirectly, any outstanding capital stock or other voting securities or ownership interests of any corporation, partnership, joint venture, or other organization which would constitute a Subsidiary, except for the UCB Subsidiaries. The outstanding shares of capital stock of the UCB Subsidiaries are validly issued and outstanding, fully paid and nonassessable, and all such shares are directly or indirectly owned by UCB free and clear of all liens, claims and encumbrances or preemptive rights of any person. No Rights are authorized, issued or outstanding with respect to the capital stock of the UCB Subsidiaries, and there are no agreements, understandings or commitments relating to the right of UCB to vote or to dispose of said shares. None of the shares of capital stock of the UCB Subsidiaries has been issued in violation of the preemptive rights of any person. 3.4 Organization, Standing and Authority of the Subsidiaries Each UCB Subsidiary which is an insured depository institution is a state-chartered, non-member commercial bank. Each of the UCB Subsidiaries is validly existing and in good standing under the laws of its state of organization. Each of the UCB Subsidiaries has full power and authority to carry on its business as now conducted, and is duly qualified to do business in its state of organization. No UCB Subsidiary is required to be qualified to do business in any other state of the United States or foreign jurisdiction other than such UCB Subsidiary's state of organization, or is engaged in any activities that have not been Disclosed. 3.5 Authorized and Effective Agreement (a) UCB has all requisite corporate power and authority to enter into and (subject to receipt of all necessary governmental approvals and the receipt of approval of the UCB shareholders of this Agreement and the Plan of Merger) to perform all of its obligations under this Reorganization Agreement, the Articles of Merger, the UCB Option Agreement and the SNC Option Agreement. The execution and delivery of this Reorganization Agreement, the Articles of Merger and said Option Agreements, and consummation of the transactions contemplated 12 hereby and thereby, have been duly and validly authorized by all necessary corporate action in respect thereof, except in the case of this Agreement and the Plan of Merger, the approval of UCB shareholders pursuant to and to the extent required by applicable law. This Agreement and the Plan of Merger constitute legal, valid and binding obligations of UCB, and each is enforceable against UCB in accordance with its terms, in each such case subject to (i) bankruptcy, fraudulent transfer, insolvency, moratorium, reorganization, conservatorship, receivership, or other similar laws from time to time in effect relating to or affecting the enforcement of rights of creditors of FDIC insured institutions or the enforcement of creditors' rights generally; and (ii) general principles of equity, and except that the availability of equitable remedies or injunctive relief is within the discretion of the appropriate court. (b) Neither the execution and delivery of this Agreement, the Articles of Merger, the UCB Option Agreement or the SNC Option Agreement, nor consummation of the transactions contemplated hereby or thereby, nor compliance by UCB with any of the provisions hereof or thereof, shall (i) conflict with or result in a breach of any provision of the articles of incorporation or by-laws of UCB or any UCB Subsidiary, (ii) subject to receipt of any required consents or approvals, constitute or result in a breach of any term, condition or provision of, or constitute a default under, or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any lien, charge or encumbrance upon any property or asset of UCB or any UCB Subsidiary pursuant to, any note, bond, mortgage, indenture, license, agreement or other instrument or obligation, or (iii) subject to receipt of all required governmental approvals, violate any order, writ, injunction, decree, statute, rule or regulation applicable to UCB or any UCB Subsidiary. 3.6 Securities Filings UCB has timely filed all Securities Documents required by the Securities Laws since December 31, 1993. UCB shall Disclose to SNC a true and complete copy of each Securities Document filed by UCB with the Commission after December 31, 1993 and prior to the date hereof, which are all of the Securities Documents that UCB was required to file during such period. As of their respective dates of filing, such Securities Documents complied in all material respects with the Securities Laws as then in effect, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.7 Financial Statements; Minute Books The Financial Statements of UCB fairly present or will fairly present, as the case may be, the consolidated financial position of UCB and the UCB Subsidiaries as of the dates indicated and the consolidated results of operations, changes in shareholders' equity and statements of cash flows for the periods then ended (subject, in the case of unaudited interim statements, to normal year-end audit adjustments that are not material in amount or effect) in conformity with generally accepted accounting principles applicable to financial institutions applied on a consistent basis. The minute books of UCB and each of the UCB Subsidiaries contain or will contain at Closing 13 legally sufficient records of all meetings and other corporate actions of its shareholders and Board of Directors (including committees of its Board of Directors). 3.8 Material Adverse Change Since December 31, 1995, UCB and the UCB Subsidiaries have not incurred any material liability except as disclosed in the most recent UCB Financial Statements, or entered into any transactions with affiliates, other than in the ordinary course of business consistent with past practices, nor has there been any change, or any event involving a prospective change, in the business, financial condition or results of operations of UCB and the UCB Subsidiaries which has had, or is reasonably likely to have, a Material Adverse Effect on UCB. 3.9 Absence of Undisclosed Liabilities Neither UCB nor any UCB Subsidiary has any liability (contingent or otherwise) that is material to UCB on a consolidated basis or that, when combined with all other similar liabilities, would be material to UCB on a consolidated basis, except as disclosed in the most recent Financial Statements of UCB and except for liabilities made in the ordinary course of its business since the date of UCB's most recent Financial Statements. 3.10 Properties (a) UCB and the UCB Subsidiaries have good and marketable title, free and clear of all liens, encumbrances, charges, defaults or equitable interests, to all of the properties and assets, real and personal, reflected on the consolidated balance sheet included in the Financial Statements of UCB as of December 31, 1995 or acquired after such date, except (i) liens for current taxes not yet due and payable, (ii) pledges to secure deposits and other liens incurred in the ordinary course of banking business, (iii) such imperfections of title, easements and encumbrances, if any, as are not material in character, amount or extent, or (iv) dispositions and encumbrances for adequate consideration in the ordinary course of business. (b) All leases and licenses pursuant to which UCB or any UCB Subsidiary, as lessee or licensee, leases or licenses rights to real or personal property, are valid and enforceable in accordance with their respective terms. 3.11 Environmental Matters Except as Disclosed: (a) UCB and the UCB Subsidiaries are in compliance with all Environmental Laws. Neither UCB nor any UCB Subsidiary has received any communication alleging that UCB or the UCB Subsidiary is not in such compliance, and there are no present circumstances that would prevent or interfere with the continuation of such compliance. 14 (b) UCB has not received notice of any pending, and there are no pending or, to the best of UCB's knowledge, threatened, legal, administrative, arbitral or other proceedings, asserting Environmental Claims or other claims, causes of action or governmental investigations of any nature, seeking to impose, or that could result in the imposition of, any liability arising under any Environmental Laws upon (i) UCB or any UCB Subsidiary, (ii) any person or entity whose liability for any Environmental Claim UCB or any UCB Subsidiary has or may have retained or assumed, either contractually or by operation of law, (iii) any real or personal property owned or leased by UCB or any UCB Subsidiary, or any real or personal property which UCB or any UCB Subsidiary has or is judged to have managed or supervised or participated in the management of, or (iv) any real or personal property in which UCB or any UCB Subsidiary holds a security interest securing a loan recorded on the books of UCB or any UCB Subsidiary. Neither UCB nor any UCB Subsidiary is subject to any agreement, order, judgment, decree or memorandum by or with any court, governmental authority, regulatory agency or third party imposing any such liability. (c) UCB and the UCB Subsidiaries are in compliance in all material respects with all recommendations contained in any environmental audits, analyses and surveys relating to all real and personal property owned or leased by UCB or any UCB Subsidiary and all real and personal property which UCB or any UCB Subsidiary has or is judged to have managed or supervised or participated in the management of. (d) There are no past or present actions, activities, circumstances, conditions, events or incidents that could reasonably form the basis of any Environmental Claim or other claim or action or governmental investigation that could result in the imposition of any liability arising under any Environmental Laws against UCB or any UCB Subsidiary or against any person or entity whose liability for any Environmental Claim UCB or any UCB Subsidiary has or may have retained or assumed, either contractually or by operation of law. 3.12 Allowance for Loan Losses The allowance for loan losses reflected on the consolidated balance sheets included in the Financial Statements of UCB is or will be in the opinion of UCB's management adequate in all material respects as of their respective dates, under the requirements of generally accepted accounting principles and applicable regulatory requirements and guidelines as they apply to banks and bank holding companies, to provide for reasonably anticipated losses on outstanding loans net of recoveries. 3.13 Tax Matters (a) UCB and the UCB Subsidiaries, and each of their predecessors, have timely filed (or requests for extensions have been timely filed and any such extensions have been granted and have not expired) all federal, state and local (and, if applicable, foreign) tax returns required by applicable law to be filed by them (including, without limitation, estimated tax returns, income tax returns, information returns, and withholding and employment tax returns) and have paid, or 15 where payment is not required to have been made, have set up an adequate reserve or accrual for the payment of, all taxes required to be paid in respect of the periods covered by such returns and, as of the Effective Time, will have paid, or where payment is not required to have been made, will have set up an adequate reserve or accrual for the payment of, all taxes for any subsequent periods ending on or prior to the Effective Time. Neither UCB nor any UCB Subsidiary will have any material liability for any such taxes in excess of the amounts so paid or reserves or accruals so established. (b) Except as Disclosed, all federal, state and local (and, if applicable, foreign) tax returns filed by UCB and the UCB Subsidiaries are complete and accurate in all material respects. Neither UCB nor any UCB Subsidiary is delinquent in the payment of any tax, assessment or governmental charge. No deficiencies for any tax, assessment or governmental charge have been proposed, asserted or assessed (tentatively or otherwise) against UCB or any UCB Subsidiary which have not been settled and paid. There are currently no agreements in effect with respect to UCB or any UCB Subsidiary to extend the period of limitations for the assessment or collection of any tax. No audit examination or deficiency or refund litigation with respect to such returns is pending. 3.14 Employees; Compensation; Benefit Plans. (a) Compensation. UCB shall have Disclosed a complete and correct list of the name, age, position, rate of compensation and any incentive compensation arrangements, bonuses or commissions or fringe or other benefits, whether payable in cash or in kind, of each director, shareholder, independent contractor, consultant and agent of UCB and of each UCB Subsidiary and each other person (other than an employee as such) to whom UCB or any UCB Subsidiary pays or provides, or has an obligation, agreement (written or unwritten), policy or practice of paying or providing, retirement, health, welfare or other benefits of any kind or description whatsoever. (b) Employee Benefit Plans. (i) UCB shall have Disclosed an accurate and complete list of all Plans, as defined below, contributed to, maintained or sponsored by UCB or any UCB Subsidiary, to which UCB or any UCB Subsidiary is obligated to contribute or has any liability or potential liability, whether direct or indirect, including all Plans contributed to, maintained or sponsored by each member of the controlled group of corporations, within the meaning of Sections 414(b), 414(c), 414(m) and 414(o) of the Code, of which UCB or any UCB Subsidiary is a member. For purposes of this Agreement, the term "Plan" shall mean a plan, arrangement, agreement or program described in the foregoing provisions of this Section 3.14(b)(i) and which is: (A) a profit-sharing, deferred compensation, bonus, stock option, stock purchase, pension, retainer, consulting, retirement, severance, welfare or incentive plan, agreement or arrangement, whether or not funded and whether or not terminated, (B) an employment agreement, (C) a personnel policy or fringe benefit plan, policy, program or arrangement providing for benefits or 16 perquisites to current or former employees, officers, directors or agents, whether or not funded, and whether or not terminated, including without limitation benefits relating to automobiles, clubs, vacation, child care, parenting, sabbatical, sick leave, severance, medical, dental, hospitalization, life insurance and other types of insurance, or (D) any other employee benefit plan as defined in Section 3(3) of ERISA, whether or not funded and whether or not terminated. (ii) Except as Disclosed, neither UCB nor any UCB Subsidiary contributes to, has an obligation to contribute to or otherwise has any liability or potential liability with respect to (A) any multiemployer plan as defined in Section 3(37) of ERISA, (B) any plan of the type described in Sections 4063 and 4064 of ERISA or in section 413 of the Code (and regulations promulgated thereunder), or (C) any plan which provides health, life insurance, accident or other "welfare-type" benefits to current or future retirees or former employees or directors, their spouses or dependents, other than in accordance with Section 4980B of the Code or applicable state continuation coverage law. (iii) Except as Disclosed, none of the Plans obligates UCB or any UCB Subsidiary to pay separation, severance, termination or similar- type benefits solely as a result of any transaction contemplated by this Agreement or solely as a result of a "change in control," as such term is used in Section 280G of the Code (and regulations promulgated thereunder). (iv) Each Plan has been maintained, funded and administered in compliance in all respects with its own terms and in compliance in all respects with all applicable laws and regulations, including but not limited to ERISA and the Code. No actions, suits, claims, complaints, charges, proceedings, hearings, examinations, investigations, audits or demands with respect to the Plans (other than routine claims for benefits) are pending or threatened, and there are no facts which could give rise to or be expected to give rise to any actions, suits, claims, complaints, charges, proceedings, hearings, examinations, investigations, audits or demands. No Plan that is subject to the funding requirements of Section 412 of the Code or Section 302 of ERISA has incurred any "accumulated funding deficiency" as such term is defined in such Sections of ERISA and the Code, whether or not waived, and each Plan has always fully met the funding standards required under Title I of ERISA and Section 412 of the Code. No liability to the Pension Benefit Guaranty Corporation ("PBGC") (except for routine payment of premiums) has been or is expected to be incurred with respect to any Plan that is subject to Title IV of ERISA, no reportable event (as such term is defined in Section 4043 of ERISA) has occurred with respect 17 to any such Plan, and the PBGC has not commenced or threatened the termination of any Plan. None of the assets of UCB or any UCB Subsidiary is the subject of any lien arising under Section 302(f) of ERISA or Section 412(n) of the Code, neither UCB nor any UCB Subsidiary has been required to post any security pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code, and there are no facts which could be expected to give rise to such lien or such posting of security. No event has occurred and no condition exists that would subject UCB or any UCB Subsidiary to any tax under Sections 4971, 4972, 4977 or 4979 of the Code or to a fine or penalty under Section 502(c) of ERISA. (v) Each Plan that is intended to be qualified under Section 401(a) of the Code, and each trust (if any) forming a part thereof, has received a favorable determination letter from the Internal Revenue Service as to the qualification under the Code of such Plan and the tax exempt status of such related trust, and nothing has occurred since the date of such determination letter that could adversely affect the qualification of such Plan or the tax exempt status of such related trust. (vi) No underfunded "defined benefit plan" (as such term is defined in Section 3(35) of ERISA) has been, during the five years preceding the Closing Date, transferred out of the controlled group of corporations (within the meaning of Sections 414(b), (c), (m) and (o) of the Code) of which UCB or any UCB Subsidiary is a member or was a member during such five-year period. (vii) As of the Closing Date, the fair market value of the assets of each Plan that is a tax qualified defined benefit plan equals or exceeds the present value of all vested and non-vested liabilities thereunder determined in accordance with reasonable actuarial methods, factors and assumptions applicable to a defined benefit plan on an ongoing basis. With respect to each Plan that is subject to the funding requirements of Section 412 of the Code and Section 302 of ERISA, all required contributions for all periods ending prior to or as of the Closing Date (including periods from the first day of the then-current plan year to the Closing Date and including all quarterly contributions required in accordance with Section 412(m) of the Code) shall have been made. With respect to each other Plan, all required payments, premiums, contributions, reimbursements or accruals for all periods ending prior to or as of the Closing Date shall have been made. No tax qualified Plan has any material unfunded liabilities. 18 (viii) No prohibited transaction (which shall mean any transaction prohibited by Section 406 of ERISA and not exempt under Section 408 of ERISA or Section 4975 of the Code, whether by statutory, class or individual exemption) has occurred with respect to any Plan which would result in the imposition, directly or indirectly, of any excise tax, penalty or other liability under Section 4975 of the Code or Section 409 or 502(i) of ERISA. Neither UCB, nor to the best knowledge of UCB any UCB Subsidiary, nor any trustee, administrator or other fiduciary of any Plan, nor to the best knowledge of UCB any agent of any of the foregoing has engaged in any transaction or acted or failed to act in a manner which could subject UCB or any UCB Subsidiary to any material liability for breach of fiduciary duty under ERISA or any other applicable law. (ix) With respect to each Plan, all reports and information required to be filed with any government agency or distributed to Plan participants and their beneficiaries have been duly and timely filed or distributed. (x) UCB and each UCB Subsidiary has been and is presently in compliance with all of the requirements of Section 4980B of the Code. (xi) Neither UCB nor any UCB Subsidiary has a liability as of December 31, 1995, under any Plan that, to the extent disclosure is required under generally accepted accounting principles, is not reflected on the consolidated balance sheet included in the Financial Statements of UCB as of December 31, 1995 or otherwise Disclosed. (xii) Neither the consideration nor implementation of the transactions contemplated under this Agreement will increase (A) UCB's or any UCB Subsidiary's obligation to make contributions or any other payments to fund benefits accrued under the Plans as of the date of this Agreement or (B) the benefits accrued or payable with respect to any participant under the Plans (except to the extent benefits may be deemed increased by accelerated vesting). (xiii) With respect to each Plan, UCB has Disclosed or made available true, complete and correct copies of (A) all documents pursuant to which the Plans are maintained, funded and administered, including summary plan descriptions, (B) the three most recent annual reports (Form 5500 series) filed with the Internal Revenue Service (with attachments), (C) the three most recent actuarial reports, if any, (D) the three most recent financial statements, (E) all governmental filings for the last three years, including without limitation, excise tax returns and reportable events filings, and (F) all governmental rulings, determinations, and opinions (and 19 pending requests for governmental rulings, determinations, and opinions) during the past three years. 3.15 Certain Contracts (a) Except as Disclosed, neither UCB nor any UCB Subsidiary is a party to, is bound or affected by, or receives benefits under (i) any agreement, arrangement or commitment, the default of which would have a Material Adverse Effect, whether or not made in the ordinary course of business (other than loans or loan commitments made or certificates or deposits received in the ordinary course of the banking business), or any agreement restricting its business activities, including without limitation agreements or memoranda of understanding with regulatory authorities, (ii) any agreement, indenture or other instrument relating to the borrowing of money by UCB or any UCB Subsidiary or the guarantee by UCB or any UCB Subsidiary of any such obligation, which cannot be terminated within less than 30 days after the Closing Date by UCB or any UCB Subsidiary (without payment of any penalty or cost, except with respect to Federal Home Loan Bank advances), (iii) any agreement, arrangement or commitment relating to the employment of a consultant or the employment, election or retention in office of any present or former director or officer, which cannot be terminated within less than 30 days after the Closing Date by UCB or any UCB Subsidiary (without payment of any penalty or cost), or that provides benefits which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving UCB of the nature contemplated by this Agreement or the SNC Option Agreement, (iv) any contract, agreement or understanding with a labor union, in each case whether written or oral, or (v) any agreement or plan, including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the SNC Option Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement or the SNC Option Agreement. Each agreement, arrangement and commitment Disclosed pursuant to this Section 3.15(a) is in full force and effect. (b) Neither UCB nor any UCB Subsidiary is in default, which default would have a Material Adverse Effect or would adversely affect the transactions contemplated herein, under any agreement, commitment, arrangement, lease, insurance policy, or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a default. 3.16 Legal Proceedings; Regulatory Approvals There are no actions, suits, claims, governmental investigations or proceedings instituted, pending or threatened against UCB or any UCB Subsidiary or against any asset, interest, or right of UCB or any UCB Subsidiary, or against any officer, director or employee of any of them that in any such case, if decided adversely, would reasonably be expected to have a Material Adverse Effect. There are no actions, suits or proceedings instituted, pending or threatened against any 20 present or former director or officer of UCB or any UCB Subsidiary that would reasonably be expected to give rise to a claim against UCB or any UCB Subsidiary for indemnification. There are no actual or threatened actions, suits or proceedings which present a claim to restrain or prohibit the transactions contemplated herein or in the SNC Option Agreement. To the best knowledge of UCB, no fact or condition relating to UCB or any UCB Subsidiary exists (including without limitation noncompliance with the CRA) that would prevent UCB or SNC from obtaining all of the federal and state regulatory approvals contemplated herein. 3.17 Compliance with Laws Each of UCB and each UCB Subsidiary is in compliance in all material respects with all statutes and regulations (including, but not limited to, the CRA, TILA and regulations promulgated thereunder, and other consumer banking laws) applicable and material to the conduct of its business, and neither UCB nor any UCB Subsidiary has received notification that has not lapsed, been withdrawn or abandoned by any agency or department of federal, state or local government (i) asserting a violation or possible violation of any such statute or regulation which violation would reasonably be expected to have a Material Adverse Effect on UCB, (ii) threatening to revoke any license, franchise, permit or government authorization, or (iii) restricting or in any way limiting its operations. Neither UCB nor any UCB Subsidiary is subject to any regulatory or supervisory cease and desist order, agreement, directive, memorandum of understanding or commitment, and none of them has received any communication requesting that it enter into any of the foregoing. 3.18 Brokers and Finders Neither UCB nor any UCB Subsidiary, nor any of their respective officers, directors or employees, has employed any broker, finder or financial advisor or incurred any liability for any fees or commissions in connection with the transactions contemplated herein, in the Plan of Merger or in the SNC Option Agreement, except for fees to accountants and lawyers and an obligation to Wheat First Butcher Singer as Disclosed for investment banking services. 3.19 Loans To the best of UCB's knowledge, substantially all of the loans on the books and records of the UCB Subsidiaries are valid and properly documented. Neither the terms of such loans, nor any of the loan documentation, nor the manner in which such loans have been administered and serviced, violates in any material respect any federal, state or local law, rule, regulation or ordinance applicable thereto, including without limitation, the TILA, Regulations O and Z of the Federal Reserve Board, the CRA, the Equal Credit Opportunity Act, as amended, and state laws, rules and regulations relating to consumer protection, installment sales and usury. 21 3.20 Repurchase Agreements With respect to all agreements currently outstanding pursuant to which UCB or any UCB Subsidiary has purchased securities subject to an agreement to resell, UCB or the UCB Subsidiary has a valid, perfected first lien or security interest in the securities or other collateral securing such agreement, and the value of such collateral equals or exceeds the amount of the debt secured thereby. With respect to all agreements currently outstanding pursuant to which UCB or any UCB Subsidiary has sold securities subject to an agreement to repurchase, neither UCB nor the UCB Subsidiary has pledged collateral materially in excess of the amount of the debt secured thereby. Neither UCB nor any UCB Subsidiary has pledged collateral materially in excess of the amount required under any interest rate swap or other similar agreement currently outstanding. 3.21 Deposit Accounts The deposit accounts of the UCB Subsidiaries that are insured depository institutions are insured by the FDIC to the maximum extent permitted by federal law, and the UCB Subsidiaries have paid all premiums and assessments and filed all reports required to have been paid or filed under the FDIA. 3.22 Related Party Transactions UCB has Disclosed all transactions, investments and loans, including loan guarantees, to which UCB or any UCB Subsidiary is a party with any director, executive officer or 5% shareholder of UCB or any person, corporation, or enterprise controlling, controlled by or under common control with any of the foregoing. All such transactions, investments and loans are on terms no less favorable to UCB than could be obtained from unrelated parties. 3.23 Certain Information When the Joint Proxy Statement/Prospectus is mailed, and at the time of the meeting of shareholders of UCB to vote upon the Plan of Merger, the Joint Proxy Statement/Prospectus and all amendments or supplements thereto, with respect to all information set forth therein provided by UCB, (i) shall comply in all material respects with the applicable provisions of the Securities Laws, and (ii) shall 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, in light of the circumstances in which they were made, not misleading. 3.24 Accounting, Tax and Regulatory Matters Neither UCB nor any UCB Subsidiary has taken or agreed to take any action which would or could reasonably be expected to (i) cause the business combination contemplated hereby not to be accounted for as a pooling-of-interests (except to the extent actions taken pursuant to the terms of this Agreement could have such affect) or not to constitute a reorganization under 22 Section 368 of the Code, or (ii) materially impede or delay receipt of any consents of regulatory authorities referred to in Section 5.4(b) or result in failure of the condition in Section 6.3(b). 3.25 State Takeover Laws UCB and each UCB Subsidiary have taken all necessary action to exempt the transactions contemplated by this Agreement from any applicable moratorium, fair price, business combination, control share or other anti-takeover laws included in Sections 55-9-101 ET SEQ. and 55-9A-01 ET SEQ. of the NCBCA. 3.26 Derivatives Contracts Neither UCB nor any UCB Subsidiary is a party to or has agreed to enter into an exchange-traded or over-the-counter swap, forward, future, option, cap, floor, or collar financial contract, or any other interest rate or foreign currency protection contract not included on its balance sheets in the Financial Statements, which is a financial derivative contract (including various combinations thereof), except as Disclosed. 3.27 Fairness Opinion UCB has received from Wheat First Butcher Singer an opinion that, as of November 1, 1996, the Exchange Ratio is fair to the shareholders of UCB from a financial point of view. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SNC SNC represents and warrants to UCB as follows: 4.1 Capital Structure of SNC The authorized capital stock of SNC consists of (i) 5,000,000 shares of preferred stock, par value $5.00 per share, of which no shares are issued and outstanding, and (ii) 300,000,000 shares of SNC Common Stock, of which 109,112,010 shares were issued and outstanding on September 30, 1996. All outstanding shares of SNC Common Stock have been duly authorized and are validly issued, fully paid and nonassessable. The shares of SNC Common Stock reserved as provided in Section 5.3 are free of any Rights and have not been reserved for any other purpose, and such shares are available for issuance as provided pursuant to the Plan of Merger. Holders of SNC Common Stock do not have preemptive rights. 23 4.2 Organization, Standing and Authority of SNC SNC is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina, with full corporate power and authority to carry on its business as now conducted and to own, lease and operate its assets, and is duly qualified to do business in the states of the United States where its ownership or leasing of property or the conduct of its business requires such qualification and where failure to so qualify would have a Material Adverse Effect. SNC is registered as a bank holding company under the Bank Holding Company Act. 4.3 Authorized and Effective Agreement (a) SNC has all requisite corporate power and authority to enter into and (subject to receipt of all necessary government approvals and receipt of required approval of shareholders of SNC of the issuance of shares pursuant to this Agreement) perform all of its obligations under this Agreement, the SNC Option Agreement and the UCB Option Agreement. The execution and delivery of this Reorganization Agreement, the Articles of Merger and said Option Agreements, and consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of SNC, except in the case of this Agreement and the Plan of Merger, the approval of SNC shareholders pursuant to and to the extent required by applicable law or regulation. This Agreement and the Plan of Merger attached hereto constitute legal, valid and binding obligations of SNC, and each is enforceable against SNC in accordance with its terms, in each case subject to (i) bankruptcy, insolvency, moratorium, reorganization, conservatorship, receivership or other similar laws in effect from time to time relating to or affecting the enforcement of the rights of creditors; and (ii) general principles of equity, and except that the availability of remedies or injunctive relief is within the discretion of the appropriate court. (b) Neither the execution and delivery of this Agreement, the SNC Option Agreement or the UCB Option Agreement, nor consummation of the transactions contemplated hereby or thereby, nor compliance by SNC with any of the provisions hereof or thereof shall (i) conflict with or result in a breach of any provision of the articles of incorporation or bylaws of SNC or any SNC Subsidiary, (ii) constitute or result in a breach of any term, condition or provision of, or constitute a default under, or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any lien, charge or encumbrance upon any property or asset of SNC or any SNC Subsidiary pursuant to any note, bond, mortgage, indenture, license, agreement or other instrument or obligation, which would have a material adverse effect on the business, operations or financial condition of SNC and the SNC Subsidiaries taken as a whole, or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to SNC or any SNC Subsidiary. 24 4.4 Organization, Standing and Authority of SNC Subsidiaries and Acquisition Subsidiary (a) Each of the SNC Subsidiaries is duly organized, validly existing and in good standing under applicable laws. SNC owns, directly or indirectly, all of the stock of each of the SNC Subsidiaries. Each of the SNC Subsidiaries (i) has full power and authority to carry on its business as now conducted and (ii) is duly qualified to do business in the states of the United States and foreign jurisdictions where its ownership or leasing of property or the conduct of its business requires such qualification and where failure to so qualify would have a Material Adverse Effect on SNC. (b) SNC shall cause Acquisition Subsidiary to be duly organized and to be validly existing and in good standing under the laws of the State of North Carolina, with full corporate power and authority to participate in the Merger as contemplated hereby. All of the outstanding shares of Acquisition Subsidiary will at all times through the Effective Time be owned and controlled by SNC. 4.5 Securities Documents SNC (and BB&T Financial Corporation prior to its merger with SNC) has timely filed all Securities Documents required by the Securities Laws since December 31, 1993. As of their respective dates of filing, such Securities Documents complied in all material respects with the Securities Laws as then in effect, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.6 Financial Statements The Financial Statements of SNC fairly present or will fairly present, as the case may be, the consolidated financial position of SNC and the SNC Subsidiaries as of the dates indicated and the consolidated results of operations, changes in shareholders' equity and changes in cash flows for the periods then ended (subject, in the case of unaudited interim statements, to normal year-end audit adjustments that are not material in amount or effect) in conformity with generally accepted accounting principles applicable to financial institutions applied on a consistent basis. 4.7 Material Adverse Change Since December 31, 1995, SNC and the SNC Subsidiaries have not incurred any material liability except as disclosed on the most recent SNC Financial Statements, or entered into any transactions with affiliates, other than in the ordinary course of business consistent with past practices, nor has there been any change, or any event involving a prospective change, in the business, financial condition or results of operations of SNC and the SNC Subsidiaries which has had, or is reasonably likely to have, a Material Adverse Effect on SNC. 25 4.8 Legal Proceedings; Regulatory Approvals There are no actions, suits, claims, governmental investigations or proceedings instituted, pending or threatened against SNC or any SNC Subsidiary or against any asset, interest, or right of SNC or any SNC Subsidiary, or against any officer, director or employee of any of them that in any such case, if decided adversely, would reasonably be expected to have a Material Adverse Effect. There are no actions, suits or proceedings instituted, pending or threatened against any present or former director or officer of SNC or any SNC Subsidiary that would reasonably be expected to give rise to a claim against SNC or any SNC Subsidiary for indemnification. There are no actual or threatened actions, suits or proceedings which present a claim to restrain or prohibit the transactions contemplated herein, in the Plan of Merger or the UCB Option Agreement. To the best knowledge of SNC, no fact or condition relating to SNC or any SNC Subsidiary exists (including without limitation noncompliance with the CRA) that would prevent UCB or SNC from obtaining all of the federal and state regulatory approvals contemplated herein. 4.9 Absence of Undisclosed Liabilities Neither SNC nor any of the SNC Subsidiaries has any liability (contingent or otherwise) that is material to SNC on a consolidated basis or that, when combined with all similar liabilities, would be material to SNC on a consolidated basis, except as disclosed in the Financial Statements of SNC and except for liabilities made in the ordinary course of its business since the date of SNC's most recent Financial Statements. 4.10 Allowance for Loan Losses The allowance for loan losses reflected on the consolidated balance sheets included in the Financial Statements of SNC is or will be in the opinion of SNC's management adequate in all material respects as of their respective dates, under the requirements of generally accepted accounting principles and applicable regulatory requirements and guidelines as they apply to banks and bank holding companies, to provide for reasonably anticipated losses on outstanding loans net of recoveries. 4.11 Tax Matters (a) SNC and the SNC Subsidiaries, and each of their predecessors, has timely filed all federal, state and local (and, if applicable, foreign) tax returns required by applicable law to be filed by them (including, without limitation, estimated tax returns, income tax returns, information returns, and withholding and employment tax returns) and have paid, or have set up an adequate reserve or accrual for the payment of, all taxes required to be paid as shown on such returns and, as of the Effective Time, will have paid, or where payment is not required to have been made, will have set up an adequate reserve or accrual for the payment of, all taxes for any subsequent periods ending on or prior to the Effective Time. SNC will not, to SNC's knowledge, have any material liability for any such taxes in excess of the amounts so paid or reserves or accruals so established. 26 (b) All federal, state and local (and, if applicable, foreign) tax returns filed by SNC and the SNC Subsidiaries are complete and accurate in all material respects. Neither SNC nor any SNC Subsidiary is delinquent in the payment of any tax, assessment or governmental charge, and has not failed to file any tax return which is currently past due. No deficiencies for any tax, assessment or governmental charge have been proposed, asserted or assessed (tentatively or otherwise) against SNC or any SNC Subsidiary which have not been settled and paid. There currently are no agreements in effect with respect to SNC or any SNC Subsidiary to extend the period of limitations for the assessment or collection of any tax. 4.12 Compliance with Laws Each of SNC and the SNC Subsidiaries is in compliance with all statutes and regulations (including, but not limited to, the CRA, TILA and regulations promulgated thereunder and other consumer banking laws) applicable and material to the conduct of its business, and neither SNC nor any of the SNC Subsidiaries has received any notification that has not lapsed, been withdrawn or abandoned from any agency or department of federal, state or local government (i) asserting a violation or possible violation of any such statute or regulation, and which violation would reasonably likely have a Material Adverse Effect on SNC, (ii) threatening to revoke any license, franchise, permit or government authorization, or (iii) restricting or in any way limiting its operations. Neither SNC nor any of the SNC Subsidiaries is subject to any regulatory or supervisory cease and desist order, agreement, directive or memorandum of understanding, and none of them has received any communication requesting that they enter into any of the foregoing. 4.13 Certain Information When the Joint Proxy Statement/Prospectus is mailed, and at all times subsequent to such mailing up to and including the time of the meeting of shareholders of SNC to vote on the Merger, the Joint Proxy Statement/Prospectus and all amendments or supplements thereto, with respect to all information set forth therein relating to SNC, (i) shall comply in all material respects with the applicable provisions of the Securities Laws, and (ii) shall 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, in light of the circumstances in which they were made, not misleading. 4.14 Accounting, Tax and Regulatory Matters Neither SNC nor the SNC Subsidiaries have taken or agreed to take any action which would or could reasonably be expected to (i) cause the business combination contemplated hereby not to be accounted for as a pooling of interests or not to constitute a reorganization under Section 368 of the Code, or (ii) materially impede or delay receipt of any consents of regulatory authorities referred to in Section 5.4(b) or result in failure of the condition in Section 6.3(b). 27 4.15 Share Ownership As of the date of this Agreement, SNC does not own (except in a fiduciary capacity) any shares of UCB Common Stock. ARTICLE V COVENANTS 5.1 Shareholders' Meetings UCB shall submit this Reorganization Agreement and the Plan of Merger to its shareholders for approval at a meeting to be held as soon as practicable, and by approving execution of this Agreement the Board of Directors of UCB agrees that it shall, at the time the Joint Proxy Statement/Prospectus is mailed to the shareholders of UCB, recommend that UCB's shareholders vote for such approval; provided, that the Board of Directors of UCB may withdraw or refuse to make such recommendation only if the Board of Directors shall determine in good faith that such recommendation would violate its fiduciary duty to its shareholders following (i) the consideration of written advice of legal counsel that making such recommendation or the failure to withdraw or modify such recommendation would constitute a breach of the fiduciary duties of such Board to shareholders of UCB, and (ii) the withdrawal by Wheat First Butcher Singer in writing of its opinion referred to in Section 3.27 or delivering to the UCB Board of Directors of written advice from Wheat First Butcher Singer that the Exchange Ratio is not fair or is inadequate to the shareholders of UCB from a financial point of view. SNC shall call a meeting of its shareholders for the purpose of approving the issuance of shares of SNC Common Stock pursuant to the terms of this Agreement, and shall recommend approval of such matter to its shareholders. 5.2 Registration Statement; Joint Proxy Statement/Prospectus As promptly as practicable after the date hereof, SNC shall prepare and file the Registration Statement with the Commission. UCB will furnish to SNC the information required to be included in the Registration Statement with respect to its business and affairs before it is filed with the Commission and again before any amendments are filed, and shall have the right to review and consult with SNC on the form of, and any characterizations of such information included in, the Registration Statement prior to the filing with the Commission. SNC shall use its best efforts to cause such Registration Statement to be declared effective under the Securities Act. Such Registration Statement, at the time it becomes effective and on the Effective Time, shall in all material respects conform to the requirements of the Securities Act and the applicable rules and regulations of the Commission. SNC shall take all actions required to register or obtain exemptions from such registration for the SNC Common Stock to be issued in connection with the transactions contemplated by this Agreement and the Plan of Merger under applicable state "Blue Sky" securities laws, as appropriate. The Registration Statement shall include the form of Joint Proxy Statement/Prospectus. SNC and UCB shall use their best efforts to cause the Joint 28 Proxy Statement/Prospectus to be approved by the SEC for mailing to the UCB and SNC shareholders, and such Joint Proxy Statement/Prospectus shall, on the date of mailing, conform in all material respects to the requirements of the Securities Laws and the applicable rules and regulations of the SEC thereunder. SNC and UCB shall cause the Joint Proxy Statement/Prospectus to be mailed to shareholders in accordance with all applicable notice requirements under the Securities Laws and the NCBCA. 5.3 Plan of Merger; Reservation of Shares At the Effective Time, the Merger shall be effected in accordance with the Plan of Merger. In this connection, SNC undertakes and agrees to pay or cause to be paid when due the number of shares of SNC Common Stock to be distributed pursuant to Section 2.7 and any cash required to be paid for fractional shares. SNC has reserved for issuance such number of shares of SNC Common Stock as shall be necessary to pay the consideration to be distributed to the UCB shareholders as contemplated in Section 2.8, required in connection with the UCB Option Agreement, and as otherwise required herein. If at any time the aggregate number of shares of SNC Common Stock available for issuance hereunder shall not be sufficient to effect the Merger, SNC shall take all appropriate action as may be required to increase the amount of the authorized SNC Common Stock. 5.4 Additional Acts (a) UCB agrees to cooperate in taking such actions as may be reasonably necessary to modify the structure of, or to substitute parties to (so long as such substitute is SNC or a SNC Subsidiary) the transactions contemplated hereby, provided that such modifications do not adversely affect the economic benefits of such transactions or otherwise abrogate the covenants and other agreements contained in this Agreement. (b) As promptly as practicable after the date hereof, SNC and UCB shall submit notice or applications for prior approval of the transactions contemplated herein to the Federal Reserve Board, and any other federal, state or local government agency, department or body to which notice is required or from which approval is required for consummation of the Merger and the other transactions contemplated hereby. UCB and SNC each represents and warrants to the other that all information concerning it and its directors, officers and shareholders and concerning any SNC Subsidiary included (or submitted for inclusion) in any such application shall be true, correct and complete in all material respects as of the date presented. 5.5 Best Efforts SNC and UCB shall use, and shall cause each of their respective Subsidiaries to use, its best efforts in good faith to (i) furnish such information as may be required in connection with and otherwise cooperate in the preparation and filing of the documents referred to in Sections 5.2 and 5.4 or elsewhere herein, and (ii) take or cause to be taken all action necessary or desirable on its part to fulfill the conditions in Article VI and to consummate the transactions herein 29 contemplated at the earliest practicable date. Neither SNC nor UCB shall take, or cause, or to the best of its ability permit to be taken, any action that would substantially delay or impair the prospects of completing the Merger pursuant to this Agreement and the Plan of Merger. 5.6 Certain Accounting Matters UCB shall cooperate with SNC concerning accounting and financial matters necessary or appropriate to facilitate the Merger (taking into account SNC's policies, practices and procedures), including without limitation issues arising in connection with record keeping, loan classification, valuation adjustments, levels of loan loss reserves and other accounting practices. 5.7 Access to Information UCB and the UCB Subsidiaries will keep SNC advised, and SNC and the SNC Subsidiaries will keep UCB advised, of all material developments relevant to their business and to consummation of the Merger. Upon reasonable notice, UCB and the UCB Subsidiaries shall afford to representatives of SNC, and SNC and the SNC Subsidiaries shall afford to representatives of UCB, access, during normal business hours during the period prior to the Effective Time, to all of their respective properties, books, contracts, commitments and records and, during such period, shall make available all information concerning their business as may be reasonably requested. No investigation pursuant to this Section 5.7 shall affect or be deemed to modify any representation or warranty made by, or the conditions to the obligations hereunder of, either party hereto. As of the date hereof, UCB and SNC have entered into confidentiality agreements relating to the information to be provided pursuant to this Agreement. 5.8 Press Releases SNC and UCB shall agree with each other as to the form and substance of any press release related to this Agreement and the Plan of Merger or the transactions contemplated hereby and thereby, and consult with each other as to the form and substance of other public disclosures related thereto; provided, that nothing contained herein shall prohibit either party, following notification to the other party, from making any disclosure which in the opinion of its counsel is required by law. 5.9 Forbearances of UCB Except with the prior written consent of SNC, between the date hereof and the Effective Time, UCB shall not, and shall cause each of the UCB Subsidiaries not to: (a) carry on its business other than in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, or establish or acquire any new Subsidiary or engage in any new activity; 30 (b) declare, set aside, make or pay any dividend or other distribution in respect of its capital stock, other than regularly scheduled quarterly dividends of $.18 per share of UCB Common Stock payable on record dates and in amounts consistent with past practices; provided that any dividend declared or payable on the shares of UCB Common Stock for the quarterly period during which the Effective Time occurs shall, unless otherwise agreed upon in writing by SNC and UCB, be declared with a record date prior to the Effective Time only if the normal record date for payment of the corresponding quarterly dividend to holders of SNC Common Stock is before the Effective Time; (c) issue any shares of its capital stock, except pursuant to the Stock Option Plan and the SNC Option Agreement; (d) issue, grant or authorize any Rights or effect any recapitalization, reclassification, stock dividend, stock split or like change in capitalization; (e) amend its articles of incorporation or bylaws; impose or permit imposition, of any lien, charge or encumbrance on any share of stock held by it in any UCB Subsidiary, or permit any such lien, charge or encumbrance to exist; or waive or release any material right or cancel or compromise any debt or claim other than in the ordinary course of business; (f) merge with any other entity or permit any other entity to merge into it, or consolidate with any other entity; acquire control over any other entity; or liquidate, sell or otherwise dispose of any assets or acquire any assets, other than in the ordinary course of its business consistent with past practices; (g) fail to comply in any material respect with any laws, regulations, ordinances or governmental actions applicable to it and to the conduct of its business; (h) increase the rate of compensation of any of its directors, officers or employees, or pay or agree to pay any bonus to, or provide any other employee benefit or incentive to, any of its directors, officers or employees, except in the ordinary course of business consistent with past practices; (i) enter into or substantially modify (except as may be required by applicable law or regulation) any pension, retirement, stock option, stock purchase, stock appreciation right, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement related thereto, in respect of any of its directors, officers or other employees; provided, that this subparagraph shall not prevent renewals of any of the foregoing consistent with past practice, except for contemplated changes in UCB's Flexible Benefit Plan; 31 (j) solicit or encourage inquiries or proposals with respect to, furnish any information relating to, or participate in any negotiations or discussions concerning, any acquisition or purchase of all or a substantial portion of the assets of, or a substantial equity interest in, UCB or any UCB Subsidiary or any business combination with UCB or any UCB Subsidiary other than as contemplated by this Agreement; or authorize any officer, director, agent or affiliate of UCB or any UCB Subsidiary to do any of the above; or fail to notify SNC immediately if any such inquiries or proposals are received, any such information is requested or required, or any such negotiations or discussions are sought to be initiated; provided, that this paragraph (j) shall not apply to furnishing information, negotiations or discussions following an unsolicited offer if, as a result of such offer, UCB is advised in writing by legal counsel that the failure so to furnish information or negotiate would constitute a breach of the fiduciary duties of UCB's Board of Directors to its shareholders; (k) enter into (i) any material agreement, arrangement or commitment not made in the ordinary course of business, (ii) any agreement, indenture or other instrument not made in the ordinary course of business relating to the borrowing of money by UCB or a UCB Subsidiary or guarantee by UCB or a UCB Subsidiary of any obligation, (iii) any agreement, arrangement or commitment relating to the employment or severance of a consultant or the employment, severance, election or retention in office of any present or former director, officer or employee (this clause shall not apply to the election of directors by shareholders in the normal course, and the election of officers by directors in the normal course terminable at will except to the extent otherwise provided in an agreement, arrangement or commitment Disclosed); or (iv) any contract, agreement or understanding with a labor union; (1) change its lending, investment or asset liability management policies in any material respect, except as may be required by applicable law, regulation, or directives, and except that after approval of the Agreement and the Plan of Merger by its shareholders UCB shall cooperate in good faith with SNC to adopt policies, practices and procedures consistent with those utilized by SNC, effective on or before the Closing Date; (m) change its methods of accounting in effect at December 31, 1995, except as required by changes in generally accepted accounting principles concurred in by SNC's independent certified public accountants, which concurrence shall not be unreasonably withheld, or change any of its methods of reporting income and deductions for federal income tax purposes from those employed in the preparation of its federal income tax returns for the year ended December 31, 1995, except as required by changes in law or regulation; (n) incur any commitments for capital expenditures or obligation to make capital expenditures in excess of $250,000, for any one expenditure, or $2,000,000, in the aggregate; 32 (o) incur any indebtedness other than deposits from customers or otherwise in the ordinary course of business; (p) take any action which would or could reasonably be expected to (i) cause the business combination contemplated hereby not to be accounted for as a pooling of interests or not to constitute a reorganization under Section 368 of the Code, in either case as determined by SNC, (ii) result in any inaccuracy of a representation or warranty herein which would allow for a termination of this Agreement, or (iii) cause any of the conditions precedent to the transactions contemplated by this Agreement to fail to be satisfied; (q) dispose of any material assets other than in the ordinary course of business; or (r) agree to do any of the foregoing. 5.10 Employment Agreements SNC shall enter into employment agreements with those UCB employees and on the terms as agreed by SNC and UCB prior to the date hereof, which shall supersede presently existing employment agreements. 5.11 Affiliates UCB shall use reasonable efforts to cause all persons who are affiliates of UCB to deliver to SNC promptly following this Agreement a written agreement providing that such person will not dispose of SNC Common Stock received in the Merger except in compliance with the Securities Act and the rules and regulations promulgated thereunder and except as consistent with qualifying the transactions contemplated hereby for pooling of interests accounting treatment, and in any event shall cause such affiliates to deliver to SNC such written agreement prior to the Effective Time. 5.12 Employee Benefit Plans (a) Each employee of UCB and UCB Subsidiaries at the Effective Time (herein "Employee") shall become an employee of SNC or a SNC Subsidiary immediately following the Effective Time, upon substantially the same terms and conditions as in effect immediately preceding the Effective Time. Each Employee, as an employee of SNC or one of the SNC Subsidiaries shall be eligible to receive bonus or incentive, retirement, severance, group hospitalization, medical, life, disability and other benefits comparable to those provided to similarly situated employees of SNC or the SNC Subsidiary. For purposes of administering all plans and benefits of SNC or a SNC Subsidiary, service with UCB and the UCB Subsidiaries by each Employee shall be deemed to be service with SNC or the SNC Subsidiaries for participation and vesting purposes only (subject to paragraph (c) of this Section 5.12). 33 (b) SNC shall cause the 401(k) plan of UCB to be merged with the 401(k) plan maintained by SNC and the SNC Subsidiaries, and the account balances of the Employees who are participants in the UCB plan shall be transferred to the accounts of such Employees under the SNC 401(k) plan. Following such merger and transfer, such accounts shall be governed and controlled by the terms of the SNC 401(k) plan as in effect from time to time (and subject to SNC's right to terminate such plan). (c) The parties anticipate that SNC shall cause the tax qualified defined benefit pension plan of UCB to be merged with the tax qualified defined benefit plan of SNC. If such merger occurs, the SNC pension plan will provide future benefit accruals under the SNC pension plan for the Employees which will not be less than the benefits which would be accrued under the "fresh start formula without wear away" as described in Treasury Regulation ss. 1.401(a)(4)- 13(c)(4)(i) (that is, the accrued benefit of each Employee who becomes a participant in the SNC pension plan incident to such plan merger will equal the sum of the benefit accrued to the Effective Time under the UCB pension plan plus the future benefit accrued under the SNC pension plan). For purposes of applying the SNC pension plan following such merger, service with UCB of an Employee shall be deemed to be service with SNC for the purposes of determining eligibility and vesting, but not for the purpose of determining benefit accruals following the Effective Time. (d) UCB's Long Term Incentive Plan, Director Deferred Compensation Plan and Triad Bank Long Term Incentive Plan shall be frozen as of the Effective Time, and SNC shall assume as of the Effective Time all obligations under such plans as then accrued. SNC shall following the Effective Time administer such plans in accordance with their respective terms, except that no further rights or benefits shall accrue to participants and no further employees or directors shall be permitted to participate in either or both of such plans. SNC shall assume and continue in effect the UCB Supplemental Retirement Plan for the benefit of current participants therein. 5.13 Directors and Officers Protection (a) SNC shall indemnify, defend, and hold harmless the present and former directors, officers, employees, and agents of UCB and the UCB Subsidiaries (each, an "Indemnified Party") against all liabilities arising out of actions or omissions arising out of the Indemnified Party's service or services as directors, officers, employees, or agents of UCB or, at UCB's request, of another corporation, partnership, joint venture, trust, or other enterprise occurring at or prior to the Effective Time (including the transactions contemplated by this Agreement) to the fullest extent permitted under North Carolina Law and by UCB's Articles of Incorporation and Bylaws as in effect on the date hereof, whether or not SNC is insured against any such matter. Without limiting the foregoing, in any case in which approval by SNC is required to effectuate any indemnification, SNC shall direct, at the election of the Indemnified Party, that the determination of any such approval shall be made by independent counsel mutually agreed upon between SNC and the Indemnified Party. 34 (b) SNC shall use its reasonable efforts to (i) cause the directors and officers of UCB immediately prior to the Effective Time to be covered under its then existing directors' and officers' liability insurance policy providing full coverage for acts occurring prior to the Effective Time; or (ii) to maintain in effect for a period of three years after the Effective Time UCB's existing directors' and officers' liability insurance policy (provided that SNC may substitute therefor (A) policies of at least the same coverage and amounts containing terms and conditions which are substantially no less advantageous or (B) with the consent of UCB given prior to the Effective Time, any other policy) with respect to claims arising from facts or events which occurred prior to the Effective Time and covering persons who are currently covered by such insurance; provided, that neither SNC nor the Surviving Corporation shall be obligated to make annual premium payments for such three year period in respect of such policy (or coverage replacing such policy) which exceed, for the portion related to UCB's directors and officers, 150% of the annual premium payments on UCB's current policy in effect as of the date of this Agreement (the "Maximum Amount"). If the amount of the premiums necessary to maintain or procure such insurance coverage exceeds the Maximum Amount, SNC shall use its reasonable efforts to maintain the most advantageous policies of directors' and officers' liability insurance obtainable for a premium equal to the Maximum Amount. (c) If SNC or the Surviving Corporation or any successors or assigns shall consolidate with or merge into any other entity and shall not be the continuing or surviving person of such consolidation or merger or shall transfer all or substantially all of its assets to any entity, then and in each case, proper provision shall be made so that the successor and assigns of SNC or the Surviving Corporation shall assume the obligations set forth in this Section 5.13. (d) The provisions of this Section 5.13 are intended to be for the benefit of and shall be enforceable by, each indemnified director and officer and their respective heirs and representatives. 5.14 Forbearances of SNC Except with the prior written consent of UCB, which consent shall not be arbitrarily or unreasonably withheld, between the date hereof and the Effective Time, neither SNC nor any SNC Subsidiary shall: (a) exercise the UCB Option Agreement other than in accordance with its terms, or dispose of the shares of UCB Common Stock issuable upon exercise of the option rights conferred thereby other than as permitted or contemplated by the terms thereof; or (b) enter into a merger or other business combination transaction with any other corporation or person in which SNC would not be the surviving or continuing entity after the consummation thereof; (c) sell or lease all or substantially all of the assets and business of any SNC Subsidiary; 35 (d) carry on its business other than in the usual, regular and ordinary course in substantially the same manner as heretofore conducted; (e) fail to comply in any material respect with any laws, regulations, ordinances or governmental actions applicable to it and to the conduct of its business; or (f) take any action which would or might be expected to (i) cause the business combination contemplated hereby not to be accounted for as a pooling-of-interest or not to constitute a reorganization under Section 368 of the Code, (ii) result in any inaccuracy of a representation or warranty herein which would allow for termination of this Agreement, or (iii) cause any of the conditions precedent to the transactions contemplated by this agreement to fail to be satisfied. 5.15 Assumption of Agreement by Acquiror It shall be a condition precedent to SNC entering into any agreement whereby SNC shall (i) consolidate with or merge into any other entity and shall not be the continuing or surviving person of such consolidation or merger, or (ii) transfer all or substantially all of its assets to any entity, that proper provision shall be made so that the successor and assigns of SNC shall specifically agree to assume SNC's obligations under this Agreement. 5.16 Reports Each of UCB and SNC shall file (and shall cause the UCB Subsidiaries and the SNC Subsidiaries, respectively, to file), between the date of this Agreement and the Effective Time, all reports required to be filed by it with the Commission and any other regulatory authorities having jurisdiction over such party, and shall deliver to SNC or UCB, as the case may be, copies of all such reports promptly after the same are filed. If financial statements are contained in any such reports filed with the Commission, such financial statements will fairly present the consolidated financial position of the entity filing such statements as of the dates indicated and the consolidated results of operations, changes in shareholders' equity, and cash flows for the periods then ended in accordance with generally accepted accounting procedures (subject in the case of interim financial statements to normal recurring year-end adjustments that are not material). As of their respective dates, such reports filed with the Commission will comply in all material respects with the Securities Laws 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 in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Any financial statements contained in any other reports to a regulatory authority other than the Commission shall be prepared in accordance with requirements applicable to such reports. 36 5.17 Exchange Listing SNC shall use its reasonable efforts to list, prior to the Effective Time, on the NYSE, subject to official notice of issuance, the shares of SNC Common Stock to be issued to the holders of UCB Common Stock pursuant to the Merger, and SNC shall give all notices and make all filings with the NYSE required in connection with the transactions contemplated herein. ARTICLE VI CONDITIONS PRECEDENT 6.1 Conditions Precedent --SNC and UCB The respective obligations of SNC and UCB to effect the transactions contemplated by this Agreement shall be subject to satisfaction or waiver of the following conditions at or prior to the Effective Time: (a) All corporate action necessary to authorize the execution, delivery and performance of this Reorganization Agreement and the Plan of Merger, the UCB Option Agreement and the SNC Option Agreement, and consummation of the transactions contemplated hereby and thereby shall have been duly and validly taken, including without limitation the approval of the shareholders of UCB of the Agreement and the Plan of Merger and of the shareholders of SNC of the issuance of SNC Common Stock, in each case as set forth in Section 2.2; (b) The Registration Statement (including any post-effective amendments thereto) shall be effective under the Securities Act, and SNC shall have received all state securities or "Blue Sky" permits or other authorizations, or confirmations as to the availability of an exemption from registration requirements as may be necessary, and no proceedings shall be pending or to the knowledge of SNC threatened by the Commission or any state "Blue Sky" securities administration to suspend the effectiveness of such Registration Statement; and the SNC Common Stock to be issued as contemplated in the Plan of Merger shall have either been registered or be subject to exemption from registration under applicable state securities laws; (c) The parties shall have received all regulatory approvals required in connection with the transactions contemplated by this Reorganization Agreement, all notice periods and waiting periods required after the granting of any such approvals shall have passed, and all such approvals shall be in effect; (d) None of SNC, any of the SNC Subsidiaries, UCB or any of the UCB Subsidiaries shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits consummation of the transactions contemplated by this Reorganization Agreement; 37 (e) UCB and SNC shall have received an opinion of SNC's legal counsel, in form and substance satisfactory to UCB and SNC, substantially to the effect that the Merger will constitute one or more reorganizations under Section 368 of the Code and that the shareholders of UCB will not recognize any gain or loss to the extent that such shareholders exchange shares of UCB Common Stock for shares of SNC Common Stock; (f) SNC shall have received letters, dated as of the date of filing of the Registration Statement with the Commission and as of the Effective Time, addressed to SNC, in form and substance reasonably satisfactory to SNC, from Arthur Andersen, LLP to the effect that the transactions contemplated herein will qualify for pooling-of-interest accounting treatment; and (g) The shares of SNC Common Stock issuable pursuant to the Merger shall have been approved for listing on the NYSE, subject to official notice of issuance. 6.2 Conditions Precedent -- UCB The obligations of UCB to effect the transactions contemplated by this Agreement shall be subject to the satisfaction of the following additional conditions at or prior to the Effective Time, unless waived by UCB pursuant to Section 7.4: (a) All representations and warranties of SNC shall be assessed as of the date of this Agreement and as of the Effective Time as though made on and as of the Effective Time (or on the date designated in the case of any representation and warranty which specifically relates to an earlier date), except as otherwise contemplated by this Reorganization Agreement or consented to in writing by UCB. The representations and warranties of SNC set forth in Section 4.1 shall be true and correct (except for inaccuracies which are de minimis in amount). The representations and warranties of SNC set forth in Section 4.14 shall be true and correct in all material respects. There shall not exist inaccuracies in the representations and warranties of SNC set forth in this Agreement (including the representations and warranties set forth in Sections 4.1 and 4.14) such that the aggregate effect of such inaccuracies has, or is reasonably likely to have, a Material Adverse Effect on SNC; provided that, for purposes of this sentence only, those representations and warranties which are qualified by references to "material" or "Material Adverse Effect" shall be deemed not to include such qualifications; (b) SNC shall have performed in all material respects all obligations and complied in all material respects with all covenants required by this Agreement; (c) SNC shall have delivered to UCB a certificate, dated the Closing Date and signed by its Chairman or President or an Executive Vice President, to the effect that the conditions set forth in Sections 6.1(a), 6.1(b), 6.1(c), 6.2(a) and 6.2(b), to the extent applicable to SNC, have been satisfied and that there are no actions, suits, claims, governmental investigations or procedures instituted, pending or, to the best of such officer's knowledge, threatened that 38 reasonably may be expected to have a Material Adverse Effect on SNC or that present a claim to restrain or prohibit the transactions contemplated herein or in the Plan of Merger; (d) UCB shall have received opinions of counsel to SNC in the form reasonably acceptable to UCB's legal counsel; and (e) All approvals of the transactions contemplated herein from the Federal Reserve Board and any other state or federal government agency, department or body, the approval of which is required for the consummation of the Merger, shall have been received and all waiting periods with respect to such approvals shall have expired. 6.3 Conditions Precedent -- SNC The obligations of SNC to effect the transactions contemplated by this Agreement shall be subject to satisfaction of the following additional conditions at or prior to the Effective Time, unless waived by SNC pursuant to Section 7.4: (a) All representations and warranties of UCB shall be assessed as of the date of this Agreement and as of the Effective Time as though made on and as of the Effective Time (or on the date designated in the case of any representation and warranty which specifically relates to an earlier date), except as otherwise contemplated by this Reorganization Agreement or consented to in writing by SNC. The representations and warranties of UCB set forth in Section 3.1 shall be true and correct (except for inaccuracies which are de minimis in amount). The representations and warranties of UCB set forth in Section 3.24 shall be true and correct in all material respects. There shall not exist inaccuracies in the representations and warranties of UCB set forth in this Agreement (including the representations and warranties set forth in Sections 3.1 and 3.24) such that the aggregate effect of such inaccuracies has, or is reasonably likely to have, a Material Adverse Effect on UCB; provided that, for purposes of this sentence only, those representations and warranties which are qualified by references to "material" or "Material Adverse Effect" shall be deemed not to include such qualifications; (b) No regulatory approval shall have imposed any condition or requirement which, in the reasonable opinion of the Board of Directors of SNC, would so materially adversely affect the business or economic benefits to SNC of the transactions contemplated by this Agreement as to render consummation of such transactions inadvisable or unduly burdensome; provided, that (i) SNC has used its reasonable efforts to cause such conditions or restrictions to be removed or modified as appropriate; (ii) notwithstanding the foregoing, in the event that such consent is conditioned or restricted as a result of a regulatory or legal issue resulting from other acquisitions by SNC, whether announced before or after the date of this Agreement, or otherwise unrelated to UCB, SNC shall not be entitled to refuse to consummate the Merger on the basis set forth in this sentence; and (iii) any required disposition of deposits shall be deemed acceptable if the dollar amount of deposits required to be divested does not exceed the upper range of estimates first disclosed to the public by SNC following the execution of this Agreement; 39 (c) UCB shall have performed in all material respects all obligations and complied in all material respects with all covenants required by this Agreement; (d) UCB shall have delivered to SNC a certificate, dated the Closing Date and signed by its Chairman or President, to the effect that the conditions set forth in Sections 6.1(a), 6.1(c), 6.3(a) and 6.3(c), to the extent applicable to UCB, have been satisfied and that there are no actions, suits, claims, governmental investigations or procedures instituted, pending or, to the best of such officer's knowledge, threatened that reasonably may be expected to have a Material Adverse Effect on UCB or that present a claim to restrain or prohibit the transactions contemplated herein or in the Plan of Merger; (e) SNC shall have received opinions of counsel to UCB in the form reasonably acceptable to SNC's legal counsel; (f) SNC shall have received the written agreements from affiliates as specified in Section 5.11; and (g) The holders of no more than 9.0% of the UCB Common Stock shall have given written notice of their intent to demand payment for their shares and shall not have voted for the Merger, pursuant to Article 13 of the NCBCA. ARTICLE VII TERMINATION, WAIVER AND AMENDMENT 7.1 Termination This Agreement may be terminated: (a) At any time prior to the Effective Time, by the mutual consent in writing of the parties hereto. (b) At any time prior to the Effective Time, by either party (i) in the event of a material breach by the other party of any covenant or agreement contained in this Agreement, or (ii) in the event of an inaccuracy of any representation or warranty of the other party contained in this Agreement, which inaccuracy would provide the nonbreaching party the ability to refuse to consummate the Merger under the applicable standard set forth in Section 6.2(a) in the case of UCB and Section 6.3(a) in the case of SNC; and, in the case of (i) or (ii), if such breach has not been cured by the earlier of 30 days following written notice of such breach to the party committing such breach or the Effective Time. (c) At any time prior to the Effective Time, by either party hereto in writing, if any of the conditions precedent to the obligations of the other party to consummate the transactions contemplated hereby cannot be satisfied or fulfilled prior to the Closing Date, and the party 40 giving the notice is not in breach of any of its representations, warranties, covenants or undertakings herein. (d) At any time, by either party hereto in writing, if any of the applications for prior approval referred to in Section 5.4 are denied, and the time period for appeals and requests for reconsideration has run. (e) At any time, by either party hereto in writing, if the shareholders of UCB do not approve the Agreement and the Plan of Merger or if the shareholders of SNC do not approve the issuance of shares of SNC Common Stock as provided herein. (f) At any time following September 30, 1997, by either party hereto in writing, if the Effective Time has not occurred by the close of business on such date, and the party giving the notice is not in breach of any of its representations, warranties, covenants or undertakings herein. (g) At any time prior to 11:59 p.m. on January 10, 1997 by SNC in writing, if SNC determines in its sole good faith judgment, through review of information Disclosed by UCB, the performance of its due diligence or otherwise, that the financial condition, results of operations, business or business prospects of UCB and of the UCB Subsidiaries, taken as a whole, are materially adversely different from SNC's reasonable expectations with respect thereto based on information that has been Disclosed in a Securities Document filed with the Commission since January 1, 1996 and its knowledge of the operations of banks; provided that SNC shall inform UCB upon such termination as to the reasons for SNC's determination; and, provided further, that this Section 7.1(g) shall not limit in any way the due diligence investigation of UCB and the UCB Subsidiaries which SNC may perform or otherwise affect any other rights which SNC has after the date hereof under the terms of this Agreement. (h) By UCB, if its board of directors determines by a vote of a majority of the members of its entire board, at any time during the ten-day period commencing two days after the Determination Date, if either: (A) both of the following conditions are satisfied: (1) the Average Closing Price shall be less than $28.50; and (2) (i) the quotient obtained by dividing the Average Closing Price by $33.50 (such number being referred to herein as the "SNC Ratio") shall be less than (ii) the quotient obtained by dividing the Index Price on the Determination Date by the Index Price on the Starting Date and subtracting 0.15 from the quotient in this clause (A)(2)(ii); or 41 (B) the Average Closing Price shall be less than $27.00; SUBJECT, HOWEVER, to the following four sentences. If UCB refuses to consummate the Merger pursuant to this Section 7.1(h), it shall give prompt written notice thereof to SNC, which notice shall specify which of clauses (A) or (B) is applicable (or if both would be applicable, which clause is being invoked); provided, that such notice of election to terminate may be withdrawn at any time within the aforementioned ten-day period. During the five-day period commencing with its receipt of such notice, SNC shall have the option, in the case of a failure to satisfy the condition in clause (A), to elect to increase the Exchange Ratio to equal the quotient obtained by dividing $32.35 by the Average Closing Price. During such five-day period, SNC shall have the option, in the case of a failure to satisfy the condition in clause (B), to elect to increase the Exchange Ratio to equal the quotient obtained by dividing $30.65 by the Average Closing Price. The election contemplated by either of the two preceding sentences shall be made by giving notice to UCB of such election and the revised Exchange Ratio, whereupon no termination shall have occurred pursuant to this Section 7.1(h) and this Agreement shall remain in effect in accordance with its terms (except as the Exchange Ratio shall have been so modified), and any references in this Agreement to "Exchange Ratio" shall thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant to this Section 7.1(h). For purposes of this Section 7.1(h), the following terms shall have the meanings indicated: "Average Closing Price" shall mean the average of the daily closing sales prices per share of SNC Common Stock as reported on the NYSE-Composite Transactions List (as reported by THE WALL STREET JOURNAL or, if not reported thereby, another authoritative source as chosen by SNC) for the ten consecutive full trading days in which such shares are traded on the NYSE ending at the close of trading on the Determination Date. "Determination Date" shall mean the date on which SNC shall receive consent to the Merger from the Federal Reserve Board. "Index Group" shall mean the 19 bank holding companies listed below, the common stocks of all of which shall be publicly traded and as to which there shall not have been, since the Starting Date and before the Determination Date, any public announcement of a proposal for such company to be acquired or for such company to acquire another company or companies in transactions with a value exceeding 25% of the acquiror's market capitalization. In the event that any such company or companies are removed from the Index Group, the weights (which have been determined based upon the number of shares of outstanding common stock) redistributed proportionately for purposes of determining the Index Price. The 19 bank holding companies and the weights attributed to them are as follows: 42 Bank Holding Companies % Weighting AmSouth Bancorporation 2.41 Barnett Banks, Inc. 8.12 CoreStates Financial Corp 9.38 Comerica Incorporated 4.56 First Bank System, Inc. 5.75 Fifth Third Bancorp 4.50 First of America Bank Corp. 2.57 Firstar Corporation 3.19 Huntington Bancshares Inc. 6.13 Mellon Bank Corporation 5.49 Mercantile Bancorporation, Inc. 2.55 National City Corporation 9.45 Northern Trust Corporation 2.37 Regions Financial Corporation 2.66 SouthTrust Corporation 4.08 SunTrust Banks, Inc. 9.48 Summit Bancorp. 3.89 U.S. Bancorp 6.41 Wachovia Corporation 7.01 Total 100.00% "Index Price" on a given date shall mean the weighted average (weighted in accordance with the factors listed above) of the closing sales prices of the companies composing the Index Group (reported as provided with respect to the Average Closing Price). "Starting Date" shall mean November 1, 1996. If any company belonging to the Index Group or SNC declares or effects a stock dividend, reclassification, recapitalization, split-up, combination, exchange of shares, or similar transaction between the Starting Date and the Determination Date, the prices for the common stock of such company or SNC shall be appropriately adjusted for the purposes of applying this Section 7.1(h). 7.2 Effect of Termination In the event this Agreement and the Plan of Merger is terminated pursuant to Section 7.1, both this Agreement and the Plan of Merger shall become void and have no effect, except that (i) the provisions hereof relating to confidentiality and expenses set forth in Sections 5.7 and 8.1, respectively, shall survive any such termination and (ii) a termination pursuant to Section 7.1(b) 43 shall not relieve the breaching party from liability for an uncured breach of the covenant, agreement, understanding, representation or warranty giving rise to such termination. The SNC Option Agreement and the UCB Option Agreement shall be governed by their own terms. 7.3 Survival of Representations, Warranties and Covenants All representations, warranties and covenants in this Agreement or the Plan of Merger or in any instrument delivered pursuant hereto or thereto shall expire on, and be terminated and extinguished at, the Effective Time, other than covenants that by their terms are to be performed after the Effective Time, provided that no such representations, warranties or covenants shall be deemed to be terminated or extinguished so as to deprive SNC or UCB (or any director, officer or controlling person thereof) of any defense at law or in equity which otherwise would be available against the claims of any person, including, without limitation, any shareholder or former shareholder of either SNC or UCB, the aforesaid representations, warranties and covenants being material inducements to consummation by SNC and UCB of the transactions contemplated herein. 7.4 Waiver Except with respect to any required regulatory approval, each party hereto, by written instrument signed by an executive officer of such party, may at any time (whether before or after approval of the Agreement and the Plan of Merger by the UCB shareholders) extend the time for the performance of any of the obligations or other acts of the other party hereto and may waive (i) any inaccuracies of the other party in the representations or warranties contained in this Agreement, the Plan of Merger or any document delivered pursuant hereto or thereto, (ii) compliance with any of the covenants, undertakings or agreements of the other party, or satisfaction of any of the conditions precedent to its obligations, contained herein or in the Plan of Merger, or (iii) the performance by the other party of any of its obligations set out herein or therein; provided that no such extension or waiver, or amendment or supplement pursuant to Section 7.5, executed after approval by the UCB shareholders of this Agreement and the Plan of Merger shall reduce either the number of shares of SNC Common Stock into which each share of UCB Common Stock shall be converted in the Merger or the payment terms for fractional interests. 7.5 Amendment or Supplement This Agreement or the Plan of Merger may be amended or supplemented at any time in writing by mutual agreement of SNC and UCB, subject to the proviso to Section 7.4. 44 ARTICLE VIII MISCELLANEOUS 8.1 Expenses Each party hereto shall bear and pay all costs and expenses incurred by it in connection with the transactions contemplated by this Reorganization Agreement, including fees and expenses of its own financial consultants, accountants and counsel; provided, however, that the filing fees and the printing costs incurred in connection with the Registration Statement and the Joint Proxy Statement/Prospectus shall be borne 70% by SNC and 30% by UCB. 8.2 Entire Agreement This Agreement, the SNC Option Agreement and the UCB Option Agreement contain the entire agreement between the parties with respect to the transactions contemplated hereunder and thereunder and supersede all prior arrangements or understandings with respect thereto, written or oral, other than documents referred to herein or therein, and a certain letter agreement dated the date hereof between the parties. The terms and conditions of this Agreement and said Option Agreements shall inure to the benefit of and be binding upon the parties hereto and thereto and their respective successors. Nothing in this Agreement or said Option Agreements, expressed or implied, is intended to confer upon any party, other than the parties hereto and thereto, and their respective successors, any rights, remedies, obligations or liabilities. 8.3 No Assignment Neither of the parties hereto may assign any of its rights or obligations under this Reorganization Agreement to any other person, except upon the prior written consent of the other party. 8.4 Notices All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally or sent by nationally recognized overnight express courier or by facsimile transmission, addressed or directed as follows: 45 If to UCB: Ronald C. Monger Executive Vice President Chief Financial Officer United Carolina Bancshares 127 West Webster Street Post Office Box 632 Whiteville, North Carolina 28472 Fax No.: 910-642-1330 With a required copy to: Howard V. Hudson, Jr. General Counsel and Secretary United Carolina Bancshares 127 West Webster Street Post Office Box 632 Whiteville, North Carolina 28472 Fax No.: 910-642-1276 and Frank M. Conner, III Alston & Bird 601 Pennsylvania Avenue, N.W. North Building, Suite 250 Washington, D.C. 20004 Fax No.: 202-508-3333 If to SNC: Southern National Corporation 200 West Second Street Winston-Salem, North Carolina 27101 Attention: Scott E. Reed Fax No.: 910-733-0340 46 With a required copy to: Womble Carlyle Sandridge & Rice 200 West Second Street Winston-Salem, North Carolina 27101 Attention: Mr. William A. Davis, II Fax No.: 910-733-8364 Any party may by notice change the address to which notice or other communications to it are to be delivered. 8.5 Captions The captions contained in this Agreement are for reference only and are not part of this Agreement. 8.6 Counterparts This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 8.7 Governing Law This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina applicable to agreements made and entirely to be performed within such jurisdiction, except to the extent federal law may be applicable. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Agreement to be executed in counterparts by their duly authorized officers, all as of the day and year first above written. SOUTHERN NATIONAL CORPORATION By Title:_________________________________ 47 UNITED CAROLINA BANCSHARES CORPORATION By Title:_________________________________ 48 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into as of November 1, 1996, by and between UNITED CAROLINA BANCSHARES CORPORATION, a North Carolina corporation ("Issuer"), and SOUTHERN NATIONAL CORPORATION, a North Carolina corporation ("Grantee"). WHEREAS, Grantee and Issuer have entered into that certain Agreement and Plan of Reorganization, dated this date (the "Merger Agreement"), providing for, among other things, the merger of a wholly owned Subsidiary of Grantee with and into Issuer, with Issuer as the surviving entity; and WHEREAS, as a condition and inducement to Grantee's execution of the Merger Agreement, Grantee has required that Issuer agree, and Issuer has agreed, to grant Grantee the Option (as defined below); NOW, THEREFORE, in consideration of the respective representations, warranties, covenants and agreements set forth herein and in the Merger Agreement, and intending to be legally bound hereby, Issuer and Grantee agree as follows: 1. DEFINED TERMS. Capitalized terms which are used but not defined herein shall have the meanings ascribed to such terms in the Merger Agreement. 2. GRANT OF OPTION. Subject to the terms and conditions set forth herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase up to 4,828,960 shares (as adjusted as set forth herein, the "Option Shares," which shall include the Option Shares before and after any transfer of such Option Shares) of common stock of Issuer, $4.00 par value per share ("Issuer Common Stock"), at a purchase price per Option Share (subject to adjustment as set forth herein, the "Purchase Price") equal to $30.50. 3. EXERCISE OF OPTION. (a) Provided that (i) Grantee or Holder (as hereinafter defined), as applicable, shall not be in material breach of its agreements or covenants contained in this Agreement or the Merger Agreement, and (ii) no preliminary or permanent injunction or other order against the delivery of shares covered by the Option issued by any court of competent jurisdiction in the United States shall be in effect, Holder may exercise the Option, in whole or in part, at any time and from time to time following the occurrence of a Purchase Event; PROVIDED that the Option shall terminate and be of no further force and effect upon the earliest to occur of (A) the Effective Time, (B) subject to clause (E) below, termination of the Merger Agreement in accordance with the terms thereof prior to the occurrence of a Purchase Event or a Preliminary Purchase Event (other than a termination of the Merger Agreement by Grantee pursuant to Section 7.1(b) thereof (but only if such termination was a result of a willful breach by Issuer) (a "Default Termination")), (C) 12 months after a Default Termination, (D) 12 months after any termination of the Merger Agreement (other than a Default Termination) following the occurrence - 1 - of a Purchase Event or a Preliminary Purchase Event, and (E) subject to clause (D) above, six months after termination of the Merger Agreement pursuant to Section 7.1(e) thereof (but only in the event the shareholders of Issuer do not approve the matter required to be aapproved thereunder); PROVIDED FURTHER, that any purchase of shares upon exercise of the Option shall be subject to compliance with applicable law, including, without limitation, the Bank Holding Company Act of 1956, as amended (the "BHC Act"). The term "Holder" shall mean the holder or holders of the Option from time to time, including initially Grantee. The rights set forth in Section 8 shall terminate when the right to exercise the Option terminates (other than as a result of a complete exercise of the Option) as set forth herein. (b) As used herein, a "Purchase Event" means any of the following events subsequent to the date of this Agreement: (i) without Grantee's prior written consent, Issuer shall have authorized, recommended, publicly proposed or publicly announced an intention to authorize, recommend or propose, or entered into an agreement with any person (other than Grantee or any Subsidiary of Grantee) to effect an Acquisition Transaction (as defined below). As used herein, the term Subsidiary when used with respect to Issuer shall have the meaning given that term in the Merger Agreement. As used herein, the term Acquisition Transaction shall mean (A) a merger, consolidation or similar transaction involving Issuer or any of its Subsidiaries (other than transactions solely between Issuer's Subsidiaries and other subsidiaries of Issuer), (B) the disposition, by sale, lease, exchange or otherwise, of assets of Issuer or any of its Subsidiaries representing in either case 15% or more of the consolidated assets of Issuer and its Subsidiaries (other than a sale of loan receivables in a financing transaction in the normal course of business consistent with past practices), or (C) the issuance, sale or other disposition of (including by way of merger, consolidation, share exchange or any similar transaction) securities representing 15% or more of the voting power of Issuer or any of its Subsidiaries (any of the foregoing, an "Acquisition Transaction"); or (ii) any person (other than Grantee or any Subsidiary of Grantee) shall have acquired beneficial ownership (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) of or the right to acquire beneficial ownership of, or any "group" (as such term is defined under the Exchange Act), other than a group of which Grantee or any of the Subsidiaries of Grantee is a member, shall have been formed which beneficially owns or has the right to acquire beneficial ownership of, 15% or more of the then-outstanding shares of Issuer Common Stock. (c) As used herein, a "Preliminary Purchase Event" means any of the following events: (i) any person (other than Grantee or any Subsidiary of Grantee) shall have commenced (as such term is defined in Rule 14d-2 under the Exchange Act), or shall have - 2 - filed a registration statement under the Securities Act with respect to, a tender offer or exchange offer to purchase any shares of Issuer Common Stock such that, upon consummation of such offer, such person would own or control 15% or more of the then-outstanding shares of Issuer Common Stock (such an offer being referred to herein as a "Tender Offer" or an "Exchange Offer," respectively); or (ii) the holders of Issuer Common Stock shall not have approved the Merger Agreement at the meeting of such shareholders held for the purpose of voting on the Merger Agreement, such meeting shall not have been held or shall have been canceled prior to termination of the Merger Agreement, or Issuer's Board of Directors shall have withdrawn or modified in a manner adverse to Grantee the recommendation of Issuer's Board of Directors with respect to the Merger Agreement, in each case after any person (other than Grantee or any Subsidiary of Grantee) shall have (A) made, or disclosed an intention to make, a proposal to engage in an Acquisition Transaction, (B) commenced a Tender Offer or filed a registration statement under the Securities Act with respect to an Exchange Offer, or (C) filed an application (or given a notice), whether in draft or final form, under any federal or state statute or regulation (including a notice filed under the HSR Act and an application or notice filed under the BHC Act, the Bank Merger Act, or the Change in Bank Control Act of 1978) seeking the Consent to an Acquisition Transaction from any federal or state governmental or regulatory authority or agency. As used in this Agreement, "person" shall have the meaning specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act. (d) In the event Holder wishes to exercise the Option, it shall send to Issuer a written notice (the date of which being herein referred to as the "Notice Date") specifying (i) the total number of Option Shares it intends to purchase pursuant to such exercise and (ii) a place and date not earlier than three business days nor later than 15 business days from the Notice Date for the closing (the "Closing") of such purchase (the "Closing Date"). If prior Consent of any governmental or regulatory agency or authority is required in connection with such purchase, Issuer shall cooperate with Holder in the filing of the required notice or application for such Consent and the obtaining of such Consent and the Closing shall occur immediately following receipt of such Consents (and expiration of any mandatory waiting periods). 4. PAYMENT AND DELIVERY OF CERTIFICATES. (a) On each Closing Date, Holder shall (i) pay to Issuer, in immediately available funds by wire transfer to a bank account designated by Issuer, an amount equal to the Purchase Price multiplied by the number of Option Shares to be purchased on such Closing Date, and (ii) present and surrender this Agreement to the Issuer at the address of the Issuer specified in Section 13(f) hereof. - 3 - (b) At each Closing, simultaneously with the delivery of immediately available funds and surrender of this Agreement as provided in Section 4(a), (i) Issuer shall deliver to Holder (A) a certificate or certificates representing the Option Shares to be purchased at such Closing, which Option Shares shall be free and clear of all liens, claims, charges and encumbrances of any kind whatsoever and subject to no pre-emptive rights, and (B) if the Option is exercised in part only, an executed new agreement with the same terms as this Agreement evidencing the right to purchase the balance of the shares of Issuer Common Stock purchasable hereunder, and (ii) Holder shall deliver to Issuer a letter agreeing that Holder shall not offer to sell or otherwise dispose of such Option Shares in violation of applicable federal and state law or of the provisions of this Agreement. (c) In addition to any other legend that is required by applicable law, certificates for the Option Shares delivered at each Closing shall be endorsed with a restrictive legend which shall read substantially as follows: THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF NOVEMBER 1, 1996. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR. It is understood and agreed that the above legend shall be removed by delivery of substitute certificate(s) without such legend if Holder shall have delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel in form and substance reasonably satisfactory to Issuer and its counsel, to the effect that such legend is not required for purposes of the Securities Act. 5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and warrants to Grantee as follows: (a) Issuer has all requisite corporate power and authority to enter into this Agreement and, subject to any approvals referred to herein, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Issuer. This Agreement has been duly executed and delivered by Issuer. (b) Issuer has taken all necessary corporate and other action to authorize and reserve and to permit it to issue, and, at all times from the date hereof until the obligation to deliver Issuer Common Stock upon the exercise of the Option terminates, will have reserved for issuance, upon exercise of the Option, the number of shares of Issuer Common Stock - 4 - necessary for Holder to exercise the Option, and Issuer will take all necessary corporate action to authorize and reserve for issuance all additional shares of Issuer Common Stock or other securities which may be issued pursuant to Section 7 upon exercise of the Option. The shares of Issuer Common Stock to be issued upon due exercise of the Option, including all additional shares of Issuer Common Stock or other securities which may be issuable pursuant to Section 7, upon issuance pursuant hereto, shall be duly and validly issued, fully paid, and nonassessable, and shall be delivered free and clear of all liens, claims, charges, and encumbrances of any kind or nature whatsoever, including any preemptive rights of any shareholder of Issuer. 6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents and warrants to Issuer that: (a) Grantee has all requisite corporate power and authority to enter into this Agreement and, subject to any approvals or consents referred to herein, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Grantee. This Agreement has been duly executed and delivered by Grantee. (b) This Option is not being, and any Option Shares or other securities acquired by Grantee upon exercise of the Option will not be, acquired with a view to the public distribution thereof and will not be transferred or otherwise disposed of except in a transaction registered or exempt from registration under the Securities Laws. 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in Issuer Common Stock by reason of a stock dividend, stock split, split-up, recapitalization, combination, exchange of shares or similar transaction, the type and number of shares or securities subject to the Option, and the Purchase Price therefor, shall be adjusted appropriately, and proper provision shall be made in the agreements governing such transaction so that Holder shall receive, upon exercise of the Option, the number and class of shares or other securities or property that Holder would have received in respect of Issuer Common Stock if the Option had been exercised immediately prior to such event, or the record date therefor, as applicable. If any additional shares of Issuer Common Stock are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 7(a)), the number of shares of Issuer Common Stock subject to the Option shall be adjusted so that, after such issuance, it, together with any shares of Issuer Common Stock previously issued pursuant hereto, equals 19.9% of the number of shares of Issuer Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to the Option. - 5 - (b) In the event that Issuer shall enter into an agreement: (i) to consolidate with or merge into any person, other than Grantee or one of its Subsidiaries, and shall not be the continuing or surviving corporation of such consolidation or merger; (ii) to permit any person, other than Grantee or one of its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or surviving corporation, but, in connection with such merger, the then outstanding shares of Issuer Common Stock shall be changed into or exchanged for stock or other securities of Issuer or any other person or cash or any other property or the outstanding shares of Issuer Common Stock immediately prior to such merger shall after such merger represent less than 50% of the outstanding shares and share equivalents of the merged company; (iii) to permit any person, other than Grantee or one of the Subsidiaries, to acquire all of the outstanding shares of Issuer Common Stock pursuant to a statutory share exchange; or (iv) to sell or otherwise transfer all or substantially all of its assets to any person, other than Grantee or one of its Subsidiaries, then, and in each such case, the agreement governing such transaction shall make proper provisions so that the Option shall, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option (the "Substitute Option"), at the election of Grantee, of either (x) the Acquiring Corporation (as defined below), (y) any person that controls the Acquiring Corporation, or (z) in the case of a merger described in clause (ii), the Issuer (in each case, such person being referred to as the "Substitute Option Issuer"). (c) The Substitute Option shall have the same terms as the Option, provided that, if the terms of the Substitute Option cannot, for legal reasons, be the same as the Option, such terms shall be as similar as possible and in no event less advantageous to Grantee. The Substitute Option Issuer shall also enter into an agreement with the then-holder or holders of the Substitute Option in substantially the same form as this Agreement, which shall be applicable to the Substitute Option. (d) The Substitute Option shall be exercisable for such number of shares of the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned Value (as hereinafter defined) multiplied by the number of shares of the Issuer Common Stock for which the Option was theretofore exercisable, divided by the Average Price (as hereinafter defined). The exercise price of the Substitute Option per share of the Substitute Common Stock (the "Substitute Purchase Price") shall then be equal to the Purchase Price multiplied by a fraction in which the numerator is the number of shares of the Issuer Common Stock for which the Option was theretofore exercisable and the denominator is the number of shares for which the Substitute Option is exercisable. (e) The following terms have the meanings indicated: (i) "Acquiring Corporation" shall mean the continuing or surviving corporation of a consolidation or merger with Issuer (if other than Issuer), Issuer in a merger in which Issuer is the continuing or surviving person, the corporation that shall acquire all of the outstanding shares of Issuer Common Stock pursuant to a statutory share exchange, - 6 - the transferee of all or any substantial part of the Issuer's assets (or the assets of its Subsidiaries). (ii) "Substitute Common Stock" shall mean the common stock issued by the Substitute Option Issuer upon exercise of the Substitute Option. (iii) "Assigned Value" shall mean the highest of (x) the price per share of the Issuer Common Stock at which a Tender Offer or Exchange Offer therefor has been made by any person (other than Grantee), (y) the price per share of the Issuer Common Stock to be paid by any person (other than the Grantee) pursuant to an agreement with Issuer, and (z) the highest closing sales price per share of Issuer Common Stock quoted on the Nasdaq Stock Market within the six-month period immediately preceding the agreement; provided, that in the event of a sale of less than all of Issuer's assets, the Assigned Value shall be the sum of the price paid in such sale for such assets and the current market value of the remaining assets of Issuer as determined by a nationally recognized investment banking firm selected by Grantee (or by a majority in interest of the Grantees if there shall be more than one Grantee (a "Grantee Majority")), divided by the number of shares of the Issuer Common Stock outstanding at the time of such sale. In the event that an exchange offer is made for the Issuer Common Stock or an agreement is entered into for a merger or consolidation involving consideration other than cash, the value of the securities or other property issuable or deliverable in exchange for the Issuer Common Stock shall be determined by a nationally recognized investment banking firm mutually selected by Grantee and Issuer (or if applicable, Acquiring Corporation). (If there shall be more than one Grantee, any such selection shall be made by a Grantee Majority.) (iv) "Average Price" shall mean the average closing price of a share of the Substitute Common Stock for the one year immediately preceding the consolidation, merger, share exchange or sale in question, but in no event higher than the closing price of the shares of the Substitute Common Stock on the day preceding such consolidation, merger, share exchange or sale; provided that if Issuer is the issuer of the Substitute Option, the Average Price shall be computed with respect to a share of common stock issued by Issuer, the person merging into Issuer or by any company which controls or is controlled by such merger person, as Grantee may elect. (f) In no event pursuant to any of the foregoing paragraphs shall the Substitute Option be exercisable for more than 19.9% of the aggregate of the shares of the Substitute Common Stock outstanding prior to exercise of the Substitute Option. In the event that the Substitute Option would be exercisable for more than 19.9% of the aggregate of the shares of Substitute Common Stock but for this clause (f), the Substitute Option Issuer shall make a cash payment to Grantee equal to the excess of (i) the value of the Substitute Option without giving effect to the limitation in this clause (f) over (ii) the value of the Substitute Option after giving effect to the limitation in this clause (f). This difference in value shall be determined by a nationally recognized investment banking firm selected by Grantee (or a Grantee Majority). - 7 - (g) Issuer shall not enter into any transaction described in subsection (b) of this Section 7 unless the Acquiring Corporation and any person that controls the Acquiring Corporation assume in writing all the obligations of Issuer hereunder and take all other actions that may be necessary so that the provisions of this Section 7 are given full force and effect (including, without limitation, any action that may be necessary so that the shares of Substitute Common Stock are in no way distinguishable from or have lesser economic value than other shares of common stock issued by the Substitute Option Issuer). (h) The provisions of Sections 8, 9, 10 and 11 shall apply, with appropriate adjustments, to any securities for which the Option becomes exercisable pursuant to this Section 7 and, as applicable, references in such sections to "Issuer," "Option," "Purchase Price" and "Issuer Common Stock" shall be deemed to be references to "Substitute Option Issuer," "Substitute Option," "Substitute Purchase Price" and "Substitute Common Stock," respectively. 8. REPURCHASE AT THE OPTION OF HOLDER. (a) Subject to the last sentence of Section 3(a), at the request of Holder at any time commencing upon the first occurrence of a Repurchase Event (as defined in Section 8(d)) and ending 12 months immediately thereafter, Issuer shall repurchase from Holder the Option and all shares of Issuer Common Stock purchased by Holder pursuant hereto with respect to which Holder then has beneficial ownership. The date on which Holder exercises its rights under this Section 8 is referred to as the "Request Date." Such repurchase shall be at an aggregate price (the "Section 8 Repurchase Consideration") equal to the sum of: (i) the aggregate Purchase Price paid by Holder for any shares of Issuer Common Stock acquired by Holder pursuant to the Option with respect to which Holder then has beneficial ownership; (ii) the excess, if any, of (x) the Applicable Price (as defined below) for each share of Issuer Common Stock over (y) the Purchase Price (subject to adjustment pursuant to Section 7), multiplied by the number of shares of Issuer Common Stock with respect to which the Option has not been exercised; and (iii) the excess, if any, of the Applicable Price over the Purchase Price (subject to adjustment pursuant to Section 7) paid (or, in the case of Option Shares with respect to which the Option has been exercised but the Closing Date has not occurred, payable) by Holder for each share of Issuer Common Stock with respect to which the Option has been exercised and with respect to which Holder then has beneficial ownership, multiplied by the number of such shares. (b) If Holder exercises its rights under this Section 8, Issuer shall, within ten business days after the Request Date, pay the Section 8 Repurchase Consideration to Holder in immediately available funds, and contemporaneously with such payment Holder shall surrender - 8 - to Issuer the Option and the certificates evidencing the shares of Issuer Common Stock purchased thereunder with respect to which Holder then has beneficial ownership, and Holder shall warrant that it has sole record and beneficial ownership of such shares and that the same are then free and clear of all liens, claims, charges and encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the extent that prior notification to or Consent of any governmental or regulatory agency or authority is required in connection with the payment of all or any portion of the Section 8 Repurchase Consideration, Holder shall have the ongoing option to revoke its request for repurchase pursuant to Section 8, in whole or in part, or to require that Issuer deliver from time to time that portion of the Section 8 Repurchase Consideration that it is not then so prohibited from paying and promptly file the required notice or Application for Consent and expeditiously process the same (and each party shall cooperate with the other in the filing of any such notice or application and the obtaining of any such Consent). If any governmental or regulatory agency or authority disapproves of any part of Issuer's proposed repurchase pursuant to this Section 8, Issuer shall promptly give notice of such fact to Holder. If any governmental or regulatory agency or authority prohibits the repurchase in part but not in whole, then Holder shall have the right (i) to revoke the repurchase request or (ii) to the extent permitted by such agency or authority, determine whether the repurchase should apply to the Option and/or Option Shares and to what extent to each, and Holder shall thereupon have the right to exercise the Option as to the number of Option Shares for which the Option was exercisable at the Request Date less the sum of the number of shares covered by the Option in respect of which payment has been made pursuant to Section 8(a)(ii) and the number of shares covered by the portion of the Option (if any) that has been repurchased. Holder shall notify Issuer of its determination under the preceding sentence within five business days of receipt of notice of disapproval of the repurchase. Notwithstanding anything herein to the contrary, all of Holder's rights under this Section 8 shall terminate on the date of termination of this Option pursuant to Section 3(a). (c) For purposes of this Agreement, the "Applicable Price" means the highest of (i) the highest price per share of Issuer Common Stock paid for any such share by the person or groups described in Section 8(d)(i), (ii) the price per share of Issuer Common Stock received by holders of Issuer Common Stock in connection with any merger or other business combination transaction described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (iii) the highest closing sales price per share of Issuer Common Stock quoted on the Nasdaq National Market (or if Issuer Common Stock is not quoted on the Nasdaq National Market, the highest bid price per share as quoted on the principal trading market or securities exchange on which such shares are traded as reported by a recognized source chosen by Holder) during the 60 business days preceding the Request Date; PROVIDED, HOWEVER, that in the event of a sale of less than all of Issuer's Assets, the Applicable Price shall be the sum of the price paid in such sale for such assets and the current market value of the remaining assets of Issuer as determined by an independent nationally recognized investment banking firm selected by Holder and reasonably acceptable to Issuer (which determination shall be conclusive for all purposes of this Agreement), divided by the number of shares of the Issuer Common Stock outstanding at the time of such sale. If the - 9 - consideration to be offered, paid or received pursuant to either of the foregoing clauses (i) or (ii) shall be other than in cash, the value of such consideration shall be determined in good faith by an independent nationally recognized investment banking firm selected by Holder and reasonably acceptable to Issuer, which determination shall be conclusive for all purposes of this Agreement. (d) As used herein, "Repurchase Event" shall occur if (i) any person (other than Grantee or any Subsidiary of Grantee) shall have acquired actual ownership or control, or any "group" (as such term is defined under the Exchange Act) shall have been formed which shall have acquired actual ownership or control, of 50% or more of the then-outstanding shares of Issuer Common Stock, or (ii) any of the transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) shall be consummated. 9. REGISTRATION RIGHTS. (a) Following termination of the Merger Agreement, Issuer shall, subject to the conditions of subparagraph (c) below, if requested by any Holder, including Grantee and any permitted transferee ("Selling Holder"), as expeditiously as possible prepare and file a registration statement under the Securities Laws if necessary in order to permit the sale or other disposition of any or all shares of Issuer Common Stock or other securities that have been acquired by or are issuable to Selling Holder upon exercise of the Option in accordance with the intended method of sale or other disposition stated by Holder in such request, including, without limitation, a "shelf" registration statement under Rule 415 under the Securities Act or any successor provision, and Issuer shall use its best efforts to qualify such shares or other securities for sale under any applicable state securities laws. (b) If Issuer at any time after the exercise of the Option proposes to register any shares of Issuer Common Stock under the Securities Laws in connection with an underwritten public offering of such Issuer Common Stock, Issuer will promptly give written notice to Holder of its intention to do so and, upon the written request of Holder given within 30 days after receipt of any such notice (which request shall specify the number of shares of Issuer Common Stock intended to be included in such underwritten public offering by Selling Holder), Issuer will cause all such shares, the holders of which shall have requested participation in such registration, to be so registered and included in such underwritten public offering; PROVIDED, that Issuer may elect to cause any such shares not to be so registered (i) if the underwriters in good faith object for a valid business reason, or (ii) in the case of a registration solely to implement a dividend reinvestment or similar plan, an employee benefit plan or a registration filed on Form S-4 or any successor form, or a registration filed on a form which does not permit registration of resales; PROVIDED, FURTHER, that such election pursuant to clause (i) may be made only one time. If some but not all the shares of Issuer Common Stock, with respect to which Issuer shall have received requests for registration pursuant to this subparagraph (b), shall be excluded from such - 10 - registration, Issuer shall make appropriate allocation of shares to be registered among Selling Holders and any other person (other than Issuer or any person exercising demand registration rights in connection with such registration) who or which is permitted to register their shares of Issuer Common Stock in connection with such registration PRO RATA in the proportion that the number of shares requested to be registered by each Selling Holder bears to the total number of shares requested to be registered by all persons then desiring to have Issuer Common Stock registered for sale. (c) Issuer shall use all reasonable efforts to cause each registration statement referred to in subparagraph (a) above to become effective and to obtain all consents or waivers of other parties which are required therefor and to keep such registration statement effective, PROVIDED, that Issuer may delay any registration of Option Shares required pursuant to subparagraph (a) above for a period not exceeding 90 days PROVIDED Issuer shall in good faith determine that any such registration would adversely affect an offering or contemplated offering of other securities by Issuer, and Issuer shall not be required to register Option Shares under the Securities Laws pursuant to subparagraph (a) above: (i) prior to the earliest of (A) termination of the Merger Agreement pursuant to Section 7.1 thereof, (B) failure to obtain the requisite shareholder approval of the holders of Issuer Common Stock pursuant to Section 5.1 of the Merger Agreement, and (C) a Purchase Event or a Preliminary Purchase Event; (ii) on more than two occasions; (iii) more than once during any calendar year; (iv) within 90 days after the effective date of a registration referred to in subparagraph (b) above pursuant to which the Selling Holders concerned were afforded the opportunity to register such shares under the Securities Laws and such shares were registered as requested; and (v) unless a request therefor is made to Issuer by Selling Holders holding at least 25% or more of the aggregate number of Option Shares then outstanding. In addition to the foregoing, Issuer shall not be required to maintain the effectiveness of any registration statement after the expiration of nine months from the effective date of such registration statement. Issuer shall use all reasonable efforts to make any filings, and take all steps, under all applicable state securities laws to the extent necessary to permit the sale or other disposition of the Option Shares so registered in accordance with the intended method of distribution for such shares, PROVIDED, that Issuer shall not be required to consent to general jurisdiction or qualify to do business in any state where it is not otherwise required to so consent to such jurisdiction or to so qualify to do business. - 11 - (d) Except where applicable state law prohibits such payments, Issuer will pay all expenses (including without limitation registration fees, qualification fees, blue sky fees and expenses (including the fees and expenses of counsel), accounting expenses, legal expenses, including reasonable fees and expenses of one counsel to the Holders whose Option Shares are being registered, printing expenses, expenses of underwriters, excluding discounts and commissions but including liability insurance if Issuer so desires or the underwriters so require, and the reasonable fees and expenses of any necessary special experts) in connection with each registration pursuant to subparagraph (a) or (b) above (including the related offerings and sales by Selling Holders) and all other qualifications, notifications or exemptions pursuant to subparagraph (a) or (b) above. Underwriting discounts and commissions relating to Option Shares and any other expenses incurred by such Selling Holders in connection with any such registration shall be borne by such Selling Holders. (e) In connection with any registration under subparagraph (a) or (b) above Issuer hereby indemnifies the Selling Holders, and each underwriter thereof, including each person, if any, who controls such holder or underwriter within the meaning of Section 15 of the Securities Act, against all expenses, losses, claims, damages and liabilities caused by any untrue statement of a material fact contained in any registration statement or prospectus or notification or offering circular (including any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such expenses, losses, claims, damages or liabilities of such indemnified party are caused by any untrue statement or alleged untrue statement that was included by Issuer in any such registration statement or prospectus or notification or offering circular (including any amendments or supplements thereto) in reliance upon and in conformity with, information furnished in writing to Issuer by such indemnified party expressly for use therein, and Issuer and each officer, director and controlling person of Issuer shall be indemnified by such Selling Holder, or by such underwriter, as the case may be, for all such expenses, losses, claims, damages and liabilities caused by any untrue, or alleged untrue, statement, that was included by Issuer in any such registration statement or prospectus or notification or offering circular (including any amendments or supplements thereto) in reliance upon, and in conformity with, information furnished in writing to Issuer by such holder or such underwriter, as the case may be, expressly for such use. Promptly upon receipt by a party indemnified under this subparagraph (e) of notice of the commencement of any action against such indemnified party in respect of which indemnity or reimbursement may be sought against any indemnifying party under this subparagraph (e), such indemnified party shall notify the indemnifying party in writing of the commencement of such action, but the failure so to notify the indemnifying party shall not relieve it of any liability which it may otherwise have to any indemnified party under this subparagraph (e). In case notice of commencement of any such action shall be given to the indemnifying party as above provided, the indemnifying party shall be entitled to participate in and, to the extent it may wish, jointly with any other indemnifying party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and satisfactory to such indemnified - 12 - party. The indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be paid by the indemnified party unless (i) the indemnifying party agrees to pay them, (ii) the indemnifying party fails to assume the defense of such action with counsel satisfactory to the indemnified party, or (iii) the indemnified party has been advised by counsel that one or more legal defenses may be available to the indemnifying party that may be contrary to the interest of the indemnified party, in which case the indemnifying party shall be entitled to assume the defense of such action notwithstanding its obligation to bear fees and expenses of such counsel. No indemnifying party shall be liable for any settlement entered into without its consent, which consent may not be unreasonably withheld. If the indemnification provided for in this subparagraph (e) is unavailable to a party otherwise entitled to be indemnified in respect of any expenses, losses, claims, damages or liabilities referred to herein, then the indemnifying party, in lieu of indemnifying such party otherwise entitled to be indemnified, shall contribute to the amount paid or payable by such party to be indemnified as a result of such expenses, losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative benefits received by Issuer, all Selling Holders and the underwriters from the offering of the securities and also the relative fault of Issuer, all Selling Holders and the underwriters in connection with the statements or omissions which resulted in such expenses, losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The amount paid or payable by a party as a result of the expenses, losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim; PROVIDED, that in no case shall any Selling Holder be responsible, in the aggregate, for any amount in excess of the net offering proceeds attributable to its Option Shares included in the offering. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Any obligation by any holder to indemnify shall be several and not joint with other holders. In connection with any registration pursuant to subparagraph (a) or (b) above, Issuer and each Selling Holder (other than Grantee) shall enter into an agreement containing the indemnification provisions of this subparagraph (e). (f) Issuer shall comply with all reporting requirements and will do all such other things as may be necessary to permit the expeditious sale at any time of any Option Shares by Holder in accordance with and to the extent permitted by any rule or regulation promulgated by the Commission from time to time, including, without limitation, Rules 144 and 144A. Issuer shall at its expense provide Holder with any information necessary in connection with the completion and filing of any reports or forms required to be filed by them under the Securities Laws, or required pursuant to any state securities laws or the rules of any stock exchange. - 13 - (g) Issuer will pay all stamp taxes in connection with the issuance and the sale of the Option Shares and in connection with the exercise of the Option, and will save Holder harmless, without limitation as to time, against any and all liabilities, with respect to all such taxes. 10. QUOTATION; LISTING. If Issuer Common Stock or any other securities to be acquired upon exercise of the Option are then authorized for quotation or trading or listing on the Nasdaq National Market or any other securities exchange or any automated quotations system maintained by a self-regulatory organization, Issuer will promptly file an application, if required, to authorize for quotation or trading or listing the shares of Issuer Common Stock or other securities to be acquired upon exercise of the Option on the Nasdaq National Market or any other securities exchange or any automated quotations system maintained by a self-regulatory organization and will use its best efforts to obtain approval, if required, of such quotation or listing as soon as practicable. 11. DIVISION OF OPTION. This Agreement (and the Option granted hereby) is exchangeable, without expense, at the option of Holder, upon presentation and surrender of this Agreement at the principal office of Issuer for other Agreements providing for Options of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Issuer Common Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein include any other Agreements and related Options for which this Agreement (and the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Agreement, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like tenor and date. Any such new Agreement executed and delivered shall constitute an additional contractual obligation on the part of Issuer, whether or not the Agreement so lost, stolen, destroyed or mutilated shall at any time be enforceable by anyone. 12. MISCELLANEOUS. (A) EXPENSES. Except as otherwise provided in Section 9, each of the parties hereto shall bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including fees and expenses of its own financial consultants, investment bankers, accountants and counsel. (B) WAIVER AND AMENDMENT. Any provision of this Agreement may be waived at any time by the party that is entitled to the benefits of such provision. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. (C) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARY; SEVERABILITY. This Agreement, together with the Merger Agreement and the other documents and instruments referred to herein - 14 - and therein, between Grantee and Issuer (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and (b) is not intended to confer upon any person other than the parties hereto (other than any transferees of the Option Shares or any permitted transferee of this Agreement pursuant to Section 12(h)) any rights or remedies hereunder. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or a federal or state governmental or regulatory agency or authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If for any reason such court or regulatory agency determines that the Option does not permit Holder to acquire, or does not require Issuer to repurchase, the full number of shares of Issuer Common Stock as provided in Sections 3 and 8 (as adjusted pursuant to Section 7), it is the express intention of Issuer to allow Holder to acquire or to require Issuer to repurchase such lesser number of shares as may be permissible without any amendment or modification hereof. (D) GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina without regard to any applicable conflicts of law rules, except to the extent that the federal laws of the United States shall govern. (E) DESCRIPTIVE HEADINGS. The descriptive headings contained herein are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. (F) 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 addresses set forth in the Merger Agreement(or at such other address for a party as shall be specified by like notice). (G) COUNTERPARTS. This Agreement and any amendments hereto may be executed in two counterparts, each of which shall be considered one and the same agreement and shall become effective when both counterparts have been signed, it being understood that both parties need not sign the same counterpart. (H) ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder or under the Option shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party, except that Grantee may assign this Agreement to a wholly owned subsidiary of Grantee and Grantee may assign its rights hereunder in whole or in part after the occurrence of a Purchase Event. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. - 15 - (I) FURTHER ASSURANCES. In the event of any exercise of the Option by Holder, Issuer and Holder shall execute and deliver all other documents and instruments and take all other action that may be reasonably necessary in order to consummate the transactions provided for by such exercise. (J) SPECIFIC PERFORMANCE. The parties hereto agree that this Agreement may be enforced by either party through specific performance, injunctive relief and other equitable relief. Both parties further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such equitable relief and that this provision is without prejudice to any other rights that the parties hereto may have for any failure to perform this Agreement. IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option Agreement to be signed by their respective officers thereunto duly authorized, all as of the day and year first written above. ATTEST: UNITED CAROLINA BANCSHARES CORPORATION By:____________________ By: ___________________________ Secretary E. Rhone Sasser Chairman of the Board and [CORPORATE SEAL] Chief Executive Officer ATTEST: SOUTHERN NATIONAL CORPORATION By:____________________ By: ___________________________ Secretary John A. Allison IV Chairman of the Board and [CORPORATE SEAL] Chief Executive Officer - 16 - STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into as of November 1, 1996, by and between SOUTHERN NATIONAL CORPORATION, a North Carolina corporation ("Issuer"), and UNITED CAROLINA BANCSHARES CORPORATION, a North Carolina corporation ("Grantee"). WHEREAS, Grantee and Issuer have entered into that certain Agreement and Plan of Reorganization, dated this date (the "Merger Agreement"), providing for, among other things, the merger of a wholly owned Subsidiary of Issuer with and into Grantee, with Grantee as the surviving entity; and WHEREAS, as a condition and inducement to Grantee's execution of the Merger Agreement, Grantee has required that Issuer agree, and Issuer has agreed, to grant Grantee the Option (as defined below); NOW, THEREFORE, in consideration of the respective representations, warranties, covenants and agreements set forth herein and in the Merger Agreement, and intending to be legally bound hereby, Issuer and Grantee agree as follows: (A) DEFINED TERMS. Capitalized terms which are used but not defined herein shall have the meanings ascribed to such terms in the Merger Agreement. (B) GRANT OF OPTION. Subject to the terms and conditions set forth herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase up to 10,806,121 shares (as adjusted as set forth herein, the "Option Shares," which shall include the Option Shares before and after any transfer of such Option Shares) of common stock of Issuer, $5.00 par value per share ("Issuer Common Stock"), at a purchase price per Option Share (subject to adjustment as set forth herein, the "Purchase Price") equal to $34.625 per share. 1. EXERCISE OF OPTION (a) Provided that (i) Grantee or Holder (as hereinafter defined), as applicable, shall not be in material breach of its agreements or covenants contained in this Agreement or the Merger Agreement, and (ii) no preliminary or permanent injunction or other order against the delivery of shares covered by the Option issued by any court of competent jurisdiction in the United States shall be in effect, Holder may exercise the Option, in whole or in part, at any time and from time to time following the occurrence of a Purchase Event; PROVIDED that the Option shall terminate and be of no further force and effect upon the earliest to occur of (A) the Effective Time, (B) subject to clause (E) below, termination of the Merger Agreement in accordance with the terms thereof prior to the occurrence of a Purchase Event or a Preliminary Purchase Event (other than a termination of the Merger Agreement by Grantee pursuant to Section 7.1(b) thereof (but only if such termination was a result of a willful breach by Issuer) a "Default Termination")), (C) 12 months after a Default Termination, (D) 12 months after any termination of the Merger Agreement (other than a Default Termination) following the occurrence of a Purchase Event or a Preliminary Purchase Event, and -1- (E) subject to clause (D) above, six months after termination of the Merger Agreement pursuant to Section 7.1(e) thereof (but only in the event the shareholders of Issuer do not approve the matter required to be approved thereunder); PROVIDED FURTHER, that any purchase of shares upon exercise of the Option shall be subject to compliance with applicable law, including, without limitation, the Bank Holding Company Act of 1956, as amended (the "BHC Act"). The term "Holder" shall mean the holder or holders of the Option from time to time, including initially Grantee. The rights set forth in Section 8 shall terminate when the right to exercise the Option terminates (other than as a result of a complete exercise of the Option) as set forth herein. (b) As used herein, a "Purchase Event" means any of the following events subsequent to the date of this Agreement: (i) without Grantee's prior written consent, Issuer shall have authorized, recommended, publicly proposed or publicly announced an intention to authorize, recommend or propose, or entered into an agreement with any person (other than Grantee or any Subsidiary of Grantee) to effect an Acquisition Transaction (as defined below). As used herein, the term Subsidiary when used with respect to Issuer shall mean Branch Banking and Trust Company and Branch Banking and Trust Company of South Carolina. As used herein, the term Acquisition Transaction shall mean (A) a merger, consolidation or similar transaction involving Issuer or either of its Subsidiaries (other than transactions solely between Issuer's Subsidiaries and other subsidiaries of Issuer), (B) the disposition, by sale, lease, exchange or otherwise, of assets of Issuer or any of its Subsidiaries representing in either case 15% or more of the assets of Issuer or of either Subsidiary (other than a sale of loan receivables in a financing transaction in the normal course of business consistent with past practices), or (C) the issuance, sale or other disposition of (including by way of merger, consolidation, share exchange or any similar transaction) securities representing 15% or more of the voting power of Issuer or any of its Subsidiaries (any of the foregoing, an "Acquisition Transaction"); or (ii) any person (other than Grantee or any Subsidiary of Grantee) shall have acquired beneficial ownership (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) of or the right to acquire beneficial ownership of, or any "group" (as such term is defined under Exchange Act), other than a group of which Grantee or either of the Subsidiaries of Grantee is a member, shall have been formed which beneficially owns or has the right to acquire beneficial ownership of 15% or more of the then-outstanding shares of Issuer Common Stock. (c) As used herein, a "Preliminary Purchase Event" means any of the following events: (i) any person (other than Grantee or any Subsidiary of Grantee) shall have commenced (as such term is defined in Rule 14d-2 under the Exchange Act), or shall have filed a registration statement under the Securities Act with respect to, a tender offer or exchange offer to purchase any shares of Issuer Common Stock such that, upon consummation of such offer, such -2- person would own or control 15% or more of the then-outstanding shares of Issuer Common Stock (such an offer being referred to herein as a "Tender Offer" or an "Exchange Offer," respectively); or (ii) the holders of Issuer Common Stock shall not have approved the Merger Agreement at the meeting of such shareholders held for the purpose of voting on the Merger Agreement, such meeting shall not have been held or shall have been canceled prior to termination of the Merger Agreement, or Issuer's Board of Directors shall have withdrawn or modified in a manner adverse to Grantee the recommendation of Issuer's Board of Directors with respect to the Merger Agreement, in each case after any person (other than Grantee or any Subsidiary of Grantee) shall have (A) made, or disclosed an intention to make, a proposal to engage in an Acquisition Transaction, (B) commenced a Tender Offer or filed a registration statement under the Securities Act with respect to an Exchange Offer, or (C) filed an application (or given a notice), whether in draft or final form, under any federal or state statute or regulation (including a notice filed under the HSR Act and an application or notice filed under the BHC Act, the Bank Merger Act, or the Change in Bank Control Act of 1978) seeking the Consent to an Acquisition Transaction from any federal or state governmental or regulatory authority or agency. As used in this Agreement, "person" shall have the meaning specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act. (d) In the event Holder wishes to exercise the Option, it shall send to Issuer a written notice (the date of which being herein referred to as the "Notice Date") specifying (i) the total number of Option Shares it intends to purchase pursuant to such exercise and (ii) a place and date not earlier than three business days nor later than 15 business days from the Notice Date for the closing (the "Closing") of such purchase (the "Closing Date"). If prior Consent of any governmental or regulatory agency or authority is required in connection with such purchase, Issuer shall cooperate with Holder in the filing of the required notice or application for such Consent and the obtaining of such Consent and the Closing shall occur immediately following receipt of such Consents (and expiration of any mandatory waiting periods). (e) Notwithstanding any other provision of this Agreement to the contrary, in no event shall: (i) Holder's (taking into account all other Holders) Total Profit (as defined below) exceed $25 million and, if it otherwise would exceed such amount, Holder, at its sole election, shall either (A) reduce the number of shares of Issuer Common Stock subject to the Option, (B) deliver to Issuer for cancellation Option Shares previously purchased by Holder, (C) pay cash to Issuer, or (D) any combination of the foregoing, so that Holder's actually realized Total Profit shall not exceed $25 million after taking into account the foregoing actions; and -3- (ii) the Option be exercised for a number of shares of Issuer Common Stock as would, as of the date of exercise, result in a Notional Total Profit (as defined below) of more than $25 million; provided, that nothing in this clause (ii) shall restrict any exercise of the Option permitted hereby on any subsequent date. As used in this Agreement, the term "Total Profit" shall mean the aggregate sum (prior to the payment of taxes) of the following: (i) the amount received by Holder pursuant to Issuer's repurchase of the Option (or any portion thereof) pursuant to Section 8; (ii) (x) the amount received by Holder pursuant to Issuer's repurchase of Option Shares pursuant to Section 8, less (y) Holder's purchase price for such Option Shares; (iii) (x) the net cash amounts received by Holder pursuant to the sale of Option Shares (or any other securities into which such Option Shares shall be converted or exchanged) to any unaffiliated person, less (y) Holder's purchase price of such Option Shares; (iv) any amounts received by Grantee on the transfer of the Option (or any portion thereof) to any unaffiliated person; and (v) any equivalent amount with respect to the Substitute Option. As used in this Agreement, the term "Notional Total Profit" with respect to any number of shares of Issuer Common Stock as to which Holder may propose to exercise the Option shall be the Total Profit determined as of the date of such proposed exercise, assuming that the Option were exercised on such date for such number of shares and assuming that such shares, together with all other Option Shares held by Holder and its affiliates as of such date, were sold for cash at the last sale price per share of Issuer Common Stock as listed on the New York Stock Exchange ("NYSE") (or, if Issuer Common Stock is not then listed on the NYSE, the highest bid price per share as quoted on the principal trading market or securities exchange on which such shares are traded as reported by a recognized source chosen by Holder) as of the close of business on the preceding trading day (less customary brokerage commissions). 2. PAYMENT AND DELIVERY OF CERTIFICATES. (a) On each Closing Date, Holder shall (i) pay to Issuer, in immediately available funds by wire transfer to a bank account designated by Issuer, an amount equal to the Purchase Price multiplied by the number of Option Shares to be purchased on such Closing Date, and (ii) present and surrender this Agreement to the Issuer at the address of the Issuer specified in Section 12(f) hereof. (b) At each Closing, simultaneously with the delivery of immediately available funds and surrender of this Agreement as provided in Section 4(a), (i) Issuer shall deliver to Holder (A) a certificate or certificates representing the Option Shares to be purchased at such Closing, which Option Shares shall be free and clear of all liens, claims, charges and encumbrances of any kind whatsoever and subject to no pre-emptive rights, and (B) if the Option is exercised in part only, an executed new agreement with the same terms as this Agreement evidencing the right to purchase the balance of the shares of Issuer Common Stock purchasable hereunder, and (ii) Holder shall -4- deliver to Issuer a letter agreeing that Holder shall not offer to sell or otherwise dispose of such Option Shares in violation of applicable federal and state law or of the provisions of this Agreement. (c) In addition to any other legend that is required by applicable law, certificates for the Option Shares delivered at each Closing shall be endorsed with a restrictive legend which shall read substantially as follows: THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF NOVEMBER 1, 1996. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR. It is understood and agreed that the above legend shall be removed by delivery of substitute certificate(s) without such legend if Holder shall have delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel in form and substance reasonably satisfactory to Issuer and its counsel, to the effect that such legend is not required for purposes of the Securities Act. 3. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and warrants to Grantee as follows: (a) Issuer has all requisite corporate power and authority to enter into this Agreement and, subject to any approvals referred to herein, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Issuer. This Agreement has been duly executed and delivered by Issuer. (b) Issuer has taken all necessary corporate and other action to authorize and reserve and to permit it to issue, and, at all times from the date hereof until the obligation to deliver Issuer Common Stock upon the exercise of the Option terminates, will have reserved for issuance, upon exercise of the Option, the number of shares of Issuer Common Stock necessary for Holder to exercise the Option, and Issuer will take all necessary corporate action to authorize and reserve for issuance all additional shares of Issuer Common Stock or other securities which may be issued pursuant to Section 7 upon exercise of the Option. The shares of Issuer Common Stock to be issued upon due exercise of the Option, including all additional shares of Issuer Common Stock or other securities which may be issuable pursuant to Section 7, upon issuance pursuant thereto, shall be duly and validly issued, fully paid, and nonassessable, and shall be delivered free and clear of all liens, -5- claims, charges, and encumbrances of any kind or nature whatsoever, including any preemptive rights of any shareholder of Issuer. 4. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents and warrants to Issuer that: (a) Grantee has all requisite corporate power and authority to enter into this Agreement and, subject to any approvals or consents referred to herein, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Grantee. This Agreement has been duly executed and delivered by Grantee. (b) This Option is not being, and any Option Shares or other securities acquired by Grantee upon exercise of the Option will not be, acquired with a view to the public distribution thereof and will not be transferred or otherwise disposed of except in a transaction registered or exempt from registration under the Securities Laws. 5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in Issuer Common Stock by reason of a stock dividend, stock split, split-up, recapitalization, combination, exchange of shares or similar transaction, the type and number of shares or securities subject to the Option, and the Purchase Price therefor, shall be adjusted appropriately, and proper provision shall be made in the agreements governing such transaction so that Holder shall receive, upon exercise of the Option, the number and class of shares or other securities or property that Holder would have received in respect of Issuer Common Stock if the Option had been exercised immediately prior to such event, or the record date therefor, as applicable. If any additional shares of Issuer Common Stock are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 7(a)), the number of shares of Issuer Common Stock subject to the Option shall be adjusted so that, after such issuance, it, together with any shares of Issuer Common Stock previously issued pursuant hereto, equals 9.9% of the number of shares of Issuer Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to the Option. (b) In the event that Issuer shall enter into an agreement: (i) to consolidate with or merge into any person, other than Grantee or one of its Subsidiaries, and shall not be the continuing or surviving corporation of such consolidation or merger; (ii) to permit any person, other than Grantee or one of its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or surviving corporation, but, in connection with such merger, the then outstanding shares of Issuer Common Stock shall be changed into or exchanged for stock or other securities of Issuer or any other person or cash or any other property or the outstanding shares of Issuer -6- Common Stock immediately prior to such merger shall after such merger represent less than 50% of the outstanding shares and share equivalents of the merged company; (iii) to permit any person, other than Grantee or one of the Subsidiaries, to acquire all of the outstanding shares of Issuer Common Stock pursuant to a statutory share exchange; or (iv) to sell or otherwise transfer all or substantially all of its assets to any person, other than Grantee or one of its Subsidiaries, then, and in each such case, the agreement governing such transaction shall make proper provisions so that the Option shall, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option (the "Substitute Option"), at the election of Grantee, of either (x) the Acquiring Corporation (as defined below), (y) any person that controls the Acquiring Corporation, or (z) in the case of a merger described in clause (ii), the Issuer (in each case, such person being referred to as the "Substitute Option Issuer"). (c) The Substitute Option shall have the same terms as the Option, provided that, if the terms of the Substitute Option cannot, for legal reasons, be the same as the Option, such terms shall be as similar as possible and in no event less advantageous to Grantee. The Substitute Option Issuer shall also enter into an agreement with the then-holder or holders of the Substitute Option in substantially the same form as this Agreement, which shall be applicable to the Substitute Option. (d) The Substitute Option shall be exercisable for such number of shares of the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned Value (as hereinafter defined) multiplied by the number of shares of the Issuer Common Stock for which the Option was theretofore exercisable, divided by the Average Price (as hereinafter defined). The exercise price of the Substitute Option per share of the Substitute Common Stock (the "Substitute Purchase Price") shall then be equal to the Purchase Price multiplied by a fraction in which the numerator is the number of shares of the Issuer Common Stock for which the Option was theretofore exercisable and the denominator is the number of shares for which the Substitute Option is exercisable. (e) The following terms have the meanings indicated: (i) "Acquiring Corporation" shall mean the continuing or surviving corporation of a consolidation or merger with Issuer (if other than Issuer), Issuer in a merger in which Issuer is the continuing or surviving person, the corporation that shall acquire all of the outstanding shares of Issuer Common Stock pursuant to a statutory share exchange, the transferee of all or any substantial part of the Issuer's assets (or the assets of its Subsidiaries). (ii) "Substitute Common Stock" shall mean the common stock issued by the Substitute Option Issuer upon exercise of the Substitute Option. -7- (iii) "Assigned Value" shall mean the highest of (x) the price per share of the Issuer Common Stock at which a Tender Offer or Exchange Offer therefor has been made by any person (other than Grantee), (y) the price per share of the Issuer Common Stock to be paid by any person (other than the Grantee) pursuant to an agreement with Issuer, and (z) the highest closing sales price per share of Issuer Common Stock quoted on the NYSE within the six-month period immediately preceding the agreement; provided, that in the event of a sale of less than all of Issuer's assets, the Assigned Value shall be the sum of the price paid in such sale for such assets and the current market value of the remaining assets of Issuer as determined by a nationally recognized investment banking firm selected by Grantee (or by a majority in interest of the Grantees if there shall be more than one Grantee (a "Grantee Majority")), divided by the number of shares of the Issuer Common Stock outstanding at the time of such sale. In the event that an exchange offer is made for the Issuer Common Stock or an agreement is entered into for a merger or consolidation involving consideration other than cash, the value of the securities or other property issuable or deliverable in exchange for the Issuer Common Stock shall be determined by a nationally recognized investment banking firm mutually selected by Grantee and Issuer (or if applicable, Acquiring Corporation). (If there shall be more than one Grantee, any such selection shall be made by a Grantee Majority.) (iv) "Average Price" shall mean the average closing price of a share of the Substitute Common Stock for the one year immediately preceding the consolidation, merger, share exchange or sale in question, but in no event higher than the closing price of the shares of the Substitute Common Stock on the day preceding such consolidation, merger, share exchange or sale; provided that if Issuer is the issuer of the Substitute Option, the Average Price shall be computed with respect to a share of common stock issued by Issuer, the person merging into Issuer or by any company which controls or is controlled by such merger person, as Grantee may elect. (f) In no event pursuant to any of the foregoing paragraphs shall the Substitute Option be exercisable for more than 9.9% of the aggregate of the shares of the Substitute Common Stock outstanding prior to exercise of the Substitute Option. In the event that the Substitute Option would be exercisable for more than 9.9% of the aggregate of the shares of Substitute Common Stock but for this clause (f), the Substitute Option Issuer shall make a cash payment to Grantee equal to the excess of (i) the value of the Substitute Option without giving effect to the limitation in this clause (f) over (ii) the value of the Substitute Option after giving effect to the limitation in this clause (f). This difference in value shall be determined by a nationally recognized investment banking firm selected by Grantee (or a Grantee Majority). (g) Issuer shall not enter into any transaction described in subsection (b) of this Section 7 unless the Acquiring Corporation and any person that controls the Acquiring -8- Corporation assume in writing all the obligations of Issuer hereunder and take all other actions that may be necessary so that the provisions of this Section 7 are given full force and effect (including, without limitation, any action that may be necessary so that the shares of Substitute Common Stock are in no way distinguishable from or have lesser economic value than other shares of common stock issued by the Substitute Option Issuer). (h) The provisions of Sections 8, 9, 10 and 11 shall apply, with appropriate adjustments, to any securities for which the Option becomes exercisable pursuant to this Section 7 and, as applicable, references in such sections to "Issuer," "Option," "Purchase Price" and "Issuer Common Stock" shall be deemed to be references to "Substitute Option Issuer," "Substitute Option," "Substitute Purchase Price" and "Substitute Common Stock," respectively. 6. REPURCHASE AT THE OPTION OF HOLDER. (a) Subject to the last sentence of Section 3(a), at the request of Holder at any time commencing upon the first occurrence of a Repurchase Event (as defined in Section 8(d)) and ending 12 months immediately thereafter, Issuer shall repurchase from Holder the Option and all shares of Issuer Common Stock purchased by Holder pursuant hereto with respect to which Holder then has beneficial ownership. The date on which Holder exercises its rights under this Section 8 is referred to as the "Request Date." Such repurchase shall be at an aggregate price (the "Section 8 Repurchase Consideration") equal to the sum of: (i) the aggregate Purchase Price paid by Holder for any shares of Issuer Common Stock acquired by Holder pursuant to the Option with respect to which Holder then has beneficial ownership; (ii) the excess, if any, of (x) the Applicable Price (as defined below) for each share of Issuer Common Stock over (y) the Purchase Price (subject to adjustment pursuant to Section 7), multiplied by the number of shares of Issuer Common Stock with respect to which the Option has not been exercised; and (iii) the excess, if any, of the Applicable Price over the Purchase Price (subject to adjustment pursuant to Section 7) paid (or, in the case of Option Shares with respect to which the Option has been exercised but the Closing Date has not occurred, payable) by Holder for each share of Issuer Common Stock with respect to which the Option has been exercised and with respect to which Holder then has beneficial ownership, multiplied by the number of such shares. (b) If Holder exercises its rights under this Section 8, Issuer shall, within ten business days after the Request Date, pay the Section 8 Repurchase Consideration to Holder in immediately available funds, and contemporaneously with such payment Holder shall surrender to -9- Issuer the Option and the certificates evidencing the shares of Issuer Common Stock purchased thereunder with respect to which Holder then has beneficial ownership, and Holder shall warrant that it has sole record and beneficial ownership of such shares and that the same are then free and clear of all liens, claims, charges and encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the extent that prior notification to or Consent of any governmental or regulatory agency or authority is required in connection with the payment of all or any portion of the Section 8 Repurchase Consideration, Holder shall have the ongoing option to revoke its request for repurchase pursuant to Section 8, in whole or in part, or to require that Issuer deliver from time to time that portion of the Section 8 Repurchase Consideration that it is not then so prohibited from paying and promptly file the required notice or Application for Consent and expeditiously process the same (and each party shall cooperate with the other in the filing of any such notice or application and the obtaining of any such Consent). If any governmental or regulatory agency or authority disapproves of any part of Issuer's proposed repurchase pursuant to this Section 8, Issuer shall promptly give notice of such fact to Holder. If any governmental or regulatory agency or authority prohibits the repurchase in part but not in whole, then Holder shall have the right (i) to revoke the repurchase request or (ii) to the extent permitted by such agency or authority, determine whether the repurchase should apply to the Option and/or Option Shares and to what extent to each, and Holder shall thereupon have the right to exercise the Option as to the number of Option Shares for which the Option was exercisable at the Request Date less the sum of the number of shares covered by the Option in respect of which payment has been made pursuant to Section 8(a)(ii) and the number of shares covered by the portion of the Option (if any) that has been repurchased. Holder shall notify Issuer of its determination under the preceding sentence within five business days of receipt of notice of disapproval of the repurchase. Notwithstanding anything herein to the contrary, all of Holder's rights under this Section 8 shall terminate on the date of termination of this Option pursuant to Section 3(a). (c) For purposes of this Agreement, the "Applicable Price" means the highest of (i) the highest price per share of Issuer Common Stock paid for any such share by the person or groups described in Section 8(d)(i), (ii) the price per share of Issuer Common Stock received by holders of Issuer Common Stock in connection with any merger or other business combination transaction described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (iii) the highest closing sales price per share of Issuer Common Stock quoted on the NYSE (or if Issuer Common Stock is not listed on the NYSE, the highest bid price per share as quoted on the principal trading market or securities exchange on which such shares are traded as reported by a recognized source chosen by Holder) during the 60 business days preceding the Request Date; PROVIDED, HOWEVER, that in the event of a sale of less than all of Issuer's Assets, the Applicable Price shall be the sum of the price paid in such sale for such assets and the current market value of the remaining assets of Issuer as determined by an independent nationally recognized investment banking firm selected by Holder and reasonably acceptable to Issuer (which determination shall be conclusive for all purposes of this Agreement), divided by the number of shares of the Issuer Common Stock outstanding at the time of such sale. -10- If the consideration to be offered, paid or received pursuant to either of the foregoing clauses (i) or (ii) shall be other than in cash, the value of such consideration shall be determined in good faith by an independent nationally recognized investment banking firm selected by Holder and reasonably acceptable to Issuer, which determination shall be conclusive for all purposes of this Agreement. (d) As used herein, "Repurchase Event" shall occur if (i) any person (other than Grantee or any Subsidiary of Grantee) shall have acquired actual ownership or control, or any "group" (as such term is defined under the Exchange Act) shall have been formed which shall have acquired actual ownership or control, of 50% or more of the then-outstanding shares of Issuer Common Stock, or (ii) any of the transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) shall be consummated. 7. REGISTRATION RIGHTS. (a) Following termination of the Merger Agreement, Issuer shall, subject to the conditions of subparagraph (c) below, if requested by any Holder, including Grantee and any permitted transferee ("Selling Holder"), as expeditiously as possible prepare and file a registration statement under the Securities Laws if necessary in order to permit the sale or other disposition of any or all shares of Issuer Common Stock or other securities that have been acquired by or are issu able to Selling Holder upon exercise of the Option in accordance with the intended method of sale or other disposition stated by Holder in such request, including, without limitation, a "shelf" registration statement under Rule 415 under the Securities Act or any successor provision, and Issuer shall use its best efforts to qualify such shares or other securities for sale under any applicable state securities laws. (b) If Issuer at any time after the exercise of the Option proposes to register any shares of Issuer Common Stock under the Securities Laws in connection with an underwritten public offering of such Issuer Common Stock, Issuer will promptly give written notice to Holder of its intention to do so and, upon the written request of Holder given within 30 days after receipt of any such notice (which request shall specify the number of shares of Issuer Common Stock intended to be included in such underwritten public offering by Selling Holder), Issuer will cause all such shares, the holders of which shall have requested participation in such registration, to be so registered and included in such underwritten public offering; PROVIDED, that Issuer may elect to cause any such shares not to be so registered (i) if the underwriters in good faith object for a valid business reason, or (ii) in the case of a registration solely to implement a dividend reinvestment or similar plan, an employee benefit plan or a registration filed on Form S-4 or any successor form, or a registration filed on a form which does not permit registration of resales; PROVIDED, FURTHER, that such election pursuant to clause (i) may be made only one time. If some but not all the shares of Issuer Common Stock, with respect to which Issuer shall have received requests for registration pursuant to this subparagraph (b), shall be excluded from such registration, Issuer shall make appropriate allocation of shares to be registered among Selling Holders and any other person (other than Issuer -11- or any person exercising demand registration rights in connection with such registration) who or which is permitted to register their shares of Issuer Common Stock in connection with such registration PRO RATA in the proportion that the number of shares requested to be registered by each Selling Holder bears to the total number of shares requested to be registered by all persons then desiring to have Issuer Common Stock registered for sale. (c) Issuer shall use all reasonable efforts to cause each registration statement referred to in subparagraph (a) above to become effective and to obtain all consents or waivers of other parties which are required therefor and to keep such registration statement effective, PROVIDED, that Issuer may delay any registration of Option Shares required pursuant to subparagraph (a) above for a period not exceeding 90 days PROVIDED Issuer shall in good faith determine that any such reg istration would adversely affect an offering or contemplated offering of other securities by Issuer, and Issuer shall be required to register Option Shares under the Securities Laws pursuant to subparagraph (a) above: (i) prior to the earliest of (A) termination of the Merger Agreement pursuant to Section 7.1 thereof, (B) failure to obtain the requisite shareholder approval of the holders of Issuer Common Stock pursuant to Section 5.1 of the Merger Agreement, and (C) a Purchase Event or a Preliminary Purchase Event; (ii) on more than two occasions; (iii) more than once during any calendar year; (iv) within 90 days after the effective date of a registration referred to in subparagraph (b) above pursuant to which the Selling Holders concerned were afforded the opportunity to register such shares under the Securities Laws and such shares were registered as requested; and (v) unless a request therefor is made to Issuer by Selling Holders holding at least 25% or more of the aggregate number of Option Shares then outstanding. In addition to the foregoing, Issuer shall not be required to maintain the effectiveness of any registration statement after the expiration of nine months from the effective date of such registration statement. Issuer shall use all reasonable efforts to make any filings, and take all steps, under all applicable state securities laws to the extent necessary to permit the sale or other disposition of the Option Shares so registered in accordance with the intended method of distribution for such shares, PROVIDED, that Issuer shall not be required to consent to general jurisdiction or qualify to do business in any state where it is not otherwise required to so consent to such jurisdiction or to so qualify to do business. -12- (d) Except where applicable state law prohibits such payments, Issuer will pay all expenses (including without limitation registration fees, qualification fees, blue sky fees and expenses (including the fees and expenses of counsel), accounting expenses, legal expenses, including reasonable fees and expenses of one counsel to the Holders whose Option Shares are being registered, printing expenses, expenses of underwriters, excluding discounts and commissions but including liability insurance if Issuer so desires or the underwriters so require, and the reasonable fees and expenses of any necessary special experts) in connection with each registration pursuant to subparagraph (a) or (b) above (including the related offerings and sales by Selling Holders) and all other qualifications, notifications or exemptions pursuant to subparagraph (a) or (b) above. Underwriting discounts and commissions relating to Option Shares and any other expenses incurred by such Selling Holders in connection with any such registration shall be borne by such Selling Holders. (e) In connection with any registration under subparagraph (a) or (b) above Issuer hereby indemnifies the Selling Holders, and each underwriter thereof, including each person, if any, who controls such holder or underwriter within the meaning of Section 15 of the Securities Act against all expenses, losses, claims, damages and liabilities caused by any untrue statement of a material fact contained in any registration statement or prospectus or notification or offering circular (including any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such expenses, losses, claims, damages or liabilities of such indemnified party are caused by any untrue statement or alleged untrue statement that was included by Issuer in any such registration statement or prospectus or notification or offering circular (including any amendments or supplements thereto) in reliance upon and in conformity with, information furnished in writing to Issuer by such indemnified party expressly for use therein, and Issuer and each officer, director and controlling person of Issuer shall be indemnified by such Selling Holder, or by such underwriter, as the case may be, for all such expenses, losses, claims, damages and liabilities caused by any untrue, or alleged untrue, statement, that was included by Issuer in any such registration statement or prospectus or notification or offering circular (including any amendments or supplements thereto in reliance upon, and in conformity with, information furnished in writing to Issuer by such holder or such underwriter, as the case may be, expressly for such use. Promptly upon receipt by a party indemnified under this subparagraph (e) of notice of the commencement of any action against such indemnified party in respect of which indemnity or reimbursement may be sought against any indemnifying party under this subparagraph (e), such indemnified party shall notify the indemnifying party in writing of the commencement of such action, but the failure so to notify the indemnifying party shall not relieve it of any liability which it may otherwise have to any indemnified party under this subparagraph (e). In case notice of commencement of any such action shall be given to the indemnifying party as above provided, the indemnifying party shall be entitled to participate in and, to the extent it may wish, jointly with any -13- other indemnifying party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and satisfactory to such indemnified party. The indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel (other than reasonable cost of investigation) shall be paid by the indemnified party unless (i) the indemnifying party agrees to pay them, (ii) the indemnifying party fails to assume the defense of such action with counsel satisfactory to the indemnified party, or (iii) the indemnified party has been advised by counsel that one or more legal defenses may be available to the indemnifying party that may be contrary to the interest of the indemnified party, in which case the indemnifying party shall be entitled to assume the defense of such action notwithstanding its obligation to bear fees and expenses of such counsel. No indemnifying party shall be liable for any settlement entered into without its consent, which consent may not be unreasonably withheld. If the indemnification provided for in this subparagraph (e) is unavailable to a party otherwise entitled to be indemnified in respect of any expenses, losses, claims, damages or liabilities referred to herein, then the indemnifying party, in lieu of indemnifying such party otherwise entitled to be indemnified, shall contribute to the amount paid or payable by such party to be indemnified as a result of such expenses, losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative benefits received by Issuer, all Selling Holders and the underwriters from the offering of the securities and also the relative fault of Issuer, all Selling Holders and the underwriters in connection with the statements or omissions which resulted in such expenses, losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The amount paid or payable by a party as a result of the expenses, losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim; provided, that in no case shall any Selling Holder be responsible, in the aggregate, for any amount in excess of the net offering proceeds attributable to its Option Shares included in the offering. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Any obligation by any holder to indemnify shall be several and not joint with other holders. In connection with any registration pursuant to subparagraph (a) or (b) above, Issuer and each Selling Holder (other than Grantee) shall enter into an agreement containing the indemnification provisions of this subparagraph (e). (f) Issuer shall comply with all reporting requirements and will do all such other things as may be necessary to permit the expeditious sale at any time of any Option Shares by Holder in accordance with and to the extent permitted by any rule or regulation promulgated by the Commission from time to time, including, without limitation, Rules 144 and 144A. Issuer shall at its expense provide Holder with any information necessary in connection with the completion and -14- filing of any reports or forms required to be filed by them under the Securities Laws, or required pursuant to any state securities laws or the rules of any stock exchange. (g) Issuer will pay all stamp taxes in connection with the issuance and the sale of the Option Shares and in connection with the exercise of the Option, and will save Holder harmless, without limitation as to time, against any and all liabilities, with respect to all such taxes. 8. QUOTATION; LISTING. If Issuer Common Stock or any other securities to be acquired upon exercise of the Option are then authorized for listing on the NYSE or any other securities exchange or any automated quotations system maintained by a self-regulatory organization, Issuer will promptly file an application, if required, to authorize for listing or trading or quotation of the shares of Issuer Common Stock or other securities to be acquired upon exercise of the Option on the NYSE or any other securities exchange or any automated quotations system maintained by a self-regulatory organization and will use its best efforts to obtain approval, if required, of such quotation or listing as soon as practicable. 9. DIVISION OF OPTION. This Agreement (and the Option granted hereby) is exchangeable, without expense, at the option of Holder, upon presentation and surrender of this Agreement at the principal office of Issuer for other Agreements providing for Options of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Issuer Common Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein include any other Agreements and related Options for which this Agreement (and the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Agreement, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like tenor and date. Any such new Agreement executed and delivered shall constitute an additional contractual obligation on the part of Issuer, whether or not the Agreement so lost, stolen, destroyed or mutilated shall at any time be enforceable by anyone. 10. MISCELLANEOUS. (a) EXPENSES. Except as otherwise provided in Section 8, each of the parties hereto shall bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including fees and expenses of its own financial consultants, investment bankers, accountants and counsel. (b) WAIVER AND AMENDMENT. Any provision of this Agreement may be waived at any time by the party that is entitled to the benefits of such provision. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. -15- (c) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARY; SEVERABILITY. This Agreement, together with the Merger Agreement and the other documents and instruments referred to herein and therein, between Grantee and Issuer (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and (b) is not intended to confer upon any person other than the parties hereto (other than any transferees of the Option Shares or any permitted transferee of this Agreement pursuant to Section 12(h)) any rights or remedies hereunder. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or a federal or state governmental or regulatory agency or authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If for any reason such court or regulatory agency determines that the Option does not permit Holder to acquire the full number of shares of Issuer Common Stock as provided in Sections 3 and 8 (as adjusted pursuant to Section 7), it is the express intention of Issuer to allow Holder to acquire or to require Issuer to repurchase such lesser number of shares as may be permissible without any amendment or modification hereof. (d) GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina without regard to any applicable conflicts of law rules, except to the extent that the federal laws of the United States shall govern. (e) DESCRIPTIVE HEADINGS. The descriptive headings contained herein are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. (f) 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 addresses set forth in the Merger Agreement (or at such other address for a party as shall be specified by like notice). (g) COUNTERPARTS. This Agreement and any amendments hereto may be executed in two counterparts, each of which shall be considered one and the same agreement and shall become effective when both counterparts have been signed, it being understood that both parties need not sign the same counterpart. (h) ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder or under the Option shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party, except that Grantee may assign this Agreement to a wholly owned Subsidiary of Grantee (as the term Subsidiary is defined in the Merger Agreement) and Grantee may assign its rights hereunder in whole or in part after the occurrence of a Purchase Event. Subject to the preceding sentence, this Agreement shall -16- be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. (i) FURTHER ASSURANCES. In the event of any exercise of the Option by Holder, Issuer and Holder shall execute and deliver all other documents and instruments and take all other action that may be reasonably necessary in order to consummate the transactions provided for by such exercise. (j) SPECIFIC PERFORMANCE. The parties hereto agree that this Agreement may be enforced by either party through specific performance, injunctive relief and other equitable relief. Both parties further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such equitable relief and that this provision is without prejudice to any other rights that the parties hereto may have for any failure to perform this Agreement. IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option Agreement to be signed by their respective officers thereunto duly authorized, all as of the day and year first written above. ATTEST: SOUTHERN NATIONAL CORPORATION By:_______________________ By:_____________________________ Secretary John A. Allison IV Chairman of the Board and Chief Executive Officer ATTEST: UNITED CAROLINA BANCSHARES CORPORATION By:_______________________ By:_____________________________ Secretary E. Rhone Sasser Chairman of the Board and Chief Executive Officer -17- EX-11 3 EXHIBIT 11 EXHIBIT 11 SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE FOR THE PERIODS AS INDICATED
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 1996 1995 1996 1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) PRIMARY EARNINGS PER SHARE: Weighted average number of common shares outstanding during the period..................................... 109,030,948 108,770,788 108,334,582 108,355,522 Add -- Dilutive effect of outstanding options (as determined by application of treasury stock method)............ 1,789,156 1,391,384 1,612,604 1,133,969 Issuance of additional shares under share repurchase agreement, contingent upon market price............. 21,117 -- 124,789 -- Weighted average number of common shares, as adjusted........................................... 110,841,221 110,162,172 110,071,975 109,489,491 Net income............................................... $ 55,966 $ 64,586 $ 203,984 $ 114,060 Less -- Preferred dividend requirement................... -- 1,255 610 3,843 Income available for common shares....................... $ 55,966 $ 63,331 $ 203,374 $ 110,217 Primary earnings per share............................... $ .50 $ .57 $ 1.85 $ 1.01 FULLY DILUTED EARNINGS PER SHARE: Weighted average number of common shares outstanding during the period..................................... 109,030,948 108,770,788 108,334,582 108,355,522 Add -- Shares issuable assuming conversion of convertible preferred stock..................................... -- 4,420,713 1,253,820 4,497,757 Dilutive effect of outstanding options (as determined by application of treasury stock method)............ 1,960,987 1,476,997 2,009,643 1,492,719 Issuance of additional shares under share repurchase agreement, contingent upon market price............. 21,117 -- 124,789 -- Shares assuming conversion of convertible debentures.......................................... -- 327,895 -- 436,864 Weighted average number of common shares, as adjusted........................................... 111,013,052 114,996,393 111,722,834 114,782,862 Net income............................................... $ 55,966 $ 64,586 $ 203,984 $ 114,060 Add -- After tax interest expense and amortization of issue costs applicable to convertible debentures...... -- 52 -- 214 Net income, as adjusted.................................. $ 55,966 $ 64,638 $ 203,984 $ 114,274 Fully diluted earnings per share......................... $ .50 $ .56 $ 1.83 $ 1.00
EX-27 4 EXHIBIT 27
9 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 656,632 429 7,433 0 5,489,878 126,858 130,291 14,110,996 184,203 21,096,557 15,018,412 2,095,282 275,846 2,050,211 0 0 545,560 1,111,246 21,096,557 957,961 236,117 584 1,194,662 421,847 580,127 615,535 38,161 543 490,849 302,520 302,520 0 0 203,984 1.85 1.83 4.43 63,088 28,222 0 0 175,588 40,325 10,779 184,203 184,203 0 29,472
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