<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 1998.
REGISTRATION NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
NATIONAL CITY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
Delaware 6712 34-1111088
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
1900 East Ninth Street
Cleveland, Ohio 44114
(216) 575-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
DAVID L. ZOELLER, ESQ.
Senior Vice President, General Counsel and Secretary
National City Corporation
1900 East Ninth Street
Cleveland, Ohio 44114
(216) 575-2978
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------
COPIES TO:
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<S> <C>
Timothy E. Kraepel, Esq. Edward D. Herlihy, Esq.
Howard & Howard Attorneys, P.C. Wachtell, Lipton, Rosen & Katz
The Pinehurst Office Center, Suite 101 51 West 52nd Street
1400 North Woodward Avenue New York, New York 10019
Bloomfield Hills, Michigan 48304-2856 (212) 403-1000
(248) 645-1483
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective
and all other conditions to the merger of First of America Bank Corporation with
the Registrant, pursuant to an Agreement and Plan of Merger dated as of November
30, 1997, described in the enclosed Prospectus and Joint Proxy Statement, have
been satisfied or waived.
------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(3)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Common Stock, par value
of $4.00 per share..... 108,121,561 $63.4917 $6,864,818,110 $627,331.70
=================================================================================================
</TABLE>
(1) Based upon the assumed number of shares that may be issued in the Merger
described herein. Such assumed number is based upon the maximum number of
shares of common stock of First of America Bank Corporation that may be
outstanding immediately prior to the Merger.
(2) Estimated solely for the purpose of computing the registration fee. Computed
in accordance with Rule 457(f)(1) on the basis of the average of the high
and low prices of a share of common stock of First of America Bank
Corporation on the New York Stock Exchange on February 11, 1998 divided by
1.20 times the number of shares of the Registrant's common stock to be
exchanged for each share of common stock of First of America Bank
Corporation in the proposed Merger to which this Registration Statement
relates.
(3) In accordance with Rule 457(b), the total registration fee of $2,025,121.34
has been reduced by $1,397,739.64, which amount has previously been paid
with respect to the Merger pursuant to Section 14(g) of the Securities Act
of 1934, as amended.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 2
NATIONAL CITY CORPORATION
CROSS REFERENCE SHEET PURSUANT TO RULE 404(a) OF THE SECURITIES ACT OF 1933
AND ITEM 501(b) OF REGULATION S-K, SHOWING THE LOCATION IN THE PROSPECTUS AND
JOINT PROXY STATEMENT OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROSPECTUS
ITEM OF FORM S-4 AND JOINT PROXY STATEMENT
--------------------------------------------- ------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus....... Facing Page of Registration Statement;
Cross Reference Sheet; Outside Front Cover
Page of Prospectus and Joint Proxy
Statement
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Available Information; Incorporation of
Certain Documents by Reference; Inside
Front Cover Page of Prospectus and Joint
Proxy Statement; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Summary
4. Terms of Transaction......................... Summary; Merger; Certain Regulatory
Considerations; Description of National
City Capital Stock; Description of FOA
Capital Stock; General Comparison of
National City and FOA Capital Stock
5. Pro Forma Financial Information.............. Pro Forma Combined Consolidated Financial
Information (Unaudited)
6. Material Contacts with the Company Being
Acquired..................................... Summary; Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
Be Underwriters.............................. Not Applicable
8. Interests of Named Experts and Counsel....... Selection of Independent Auditors-National
City; Experts; Legal Opinions
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
10. Information with Respect to S-3
Registrants.................................. Information about National City;
Incorporation of Certain Documents by
Reference
11. Incorporation of Certain Information by
Reference.................................... Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or S-3
Registrants.................................. Not Applicable
13. Incorporation of Certain Information by
Reference.................................... Incorporation of Certain Documents by
Reference
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants.................. Not Applicable
15. Information with Respect to S-3 Companies.... Information about FOA; Incorporation of
Certain Documents by Reference
16. Information with Respect to S-2 or S-3
Companies.................................... Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies.................... Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited........... Summary; The Meetings
19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or in
an Exchange Offer............................ Not Applicable
</TABLE>
<PAGE> 3
[National City Corporation Logo]
------------------
February 19, 1998
Dear Stockholder:
You are invited to attend the Annual Meeting of Stockholders of National
City Corporation, which will be held at the Pittsburgh Hilton and Towers,
Gateway Center, 600 Commonwealth Place, Pittsburgh, Pennsylvania 15222, on
Monday, March 30, 1998, commencing at 10:30 a.m., EASTERN STANDARD TIME.
The primary business of the meeting will be the election of directors for
the coming year, the approval of the selection of Ernst & Young LLP as
independent auditors for 1998, the adoption of the Agreement and Plan of Merger
dated as of November 30, 1997, providing for the merger of First of America Bank
Corporation into National City Corporation (the "Merger"), and to transact such
other business as may properly come before the meeting.
The formal Notice of Annual Meeting and Proxy Statement containing further
information pertinent to the business of the meeting are set forth on the
following pages. Our Annual Report, including financial statements, for the year
1997 was delivered to you previously. We shall report to you at the meeting on
the business and affairs of National City Corporation.
Your vote is important no matter how many shares you own. We hope you will
be able to attend the meeting in person, but, in any event, please sign and date
the enclosed proxy and return it in the accompanying envelope. If you wish to
communicate directly with National City Corporation, the mailing address of the
executive offices of the Corporation is: National City Corporation, 1900 East
Ninth Street, Cleveland, Ohio 44114.
Sincerely,
/s/ David A. Daberko
DAVID A. DABERKO
Chairman and Chief Executive Officer
<PAGE> 4
[National City Corporation Logo]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Stockholders of
NATIONAL CITY CORPORATION
The Annual Meeting of Stockholders of National City Corporation will be
held at the Pittsburgh Hilton and Towers, Gateway Center, 600 Commonwealth
Place, Pittsburgh, Pennsylvania 15222, on Monday, March 30, 1998, at 10:30 a.m.,
EASTERN STANDARD TIME, for the purpose of considering and voting upon the
following matters:
1. The election of directors;
2. The approval of the selection of independent auditors for 1998;
3. The adoption of the Agreement and Plan of Merger dated as of November
30, 1997, by and between National City Corporation and First of
America Bank Corporation; and
4. The transaction of such other business as may properly come before
the meeting.
Stockholders of record on February 2, 1998, are entitled to receive notice
of and to vote at the meeting. A list of the stockholders will be available at
the meeting and for the 10 days preceding the meeting at the offices of National
City Corporation, 1900 East Ninth Street, Cleveland, Ohio 44114 and at the
offices of National City Bank, Pennsylvania, National City Center, 20 Stanwix
Street, 15th Floor, Pittsburgh, Pennsylvania 15222-4802.
All shareholders who are entitled to vote, even if they now plan to attend
the meeting, are requested to execute the enclosed proxy card and return it
without delay in the enclosed postage-paid envelope. You may revoke your proxy
at any time before it is voted by giving written notice to National City. If you
attend the meeting and vote in person, your vote will supersede your proxy.
Please mark, date, and sign the enclosed proxy and return it in the
accompanying envelope.
By Order of the Board of Directors
/s/ David L. Zoeller
DAVID L. ZOELLER
Secretary
February 19, 1998
<PAGE> 5
RICHARD F. CHORMANN FIRST OF AMERICA BANK CORPORATION
Chairman, President and 211 South Rose Street
Chief Executive Officer Kalamazoo, Michigan 49007
Telephone 616-376-9000
[First of America Bank Corporation LOGO]
February 19, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
First of America Bank Corporation ("First of America") which will be held at the
Radisson Plaza Hotel, 100 West Michigan Avenue, Kalamazoo, Michigan, at 9:00
a.m., local time, on March 30, 1998 (the "Special Meeting").
At the Special Meeting, you will be asked only to consider and vote upon a
proposal to approve the Agreement and Plan of Merger dated as of November 30,
1997 (the "Agreement") pursuant to which First of America will merge (the
"Merger") into National City Corporation ("National City") and each outstanding
share of First of America Common Stock will be converted into 1.2 shares of the
common stock of National City. Approval of the Agreement is set forth as
Proposal 3 in the accompanying Prospectus and Joint Proxy Statement. The other
proposals included in the Prospectus and Joint Proxy Statement, which regard
election of National City directors and approval of its auditors, will not be
considered or voted on by First of America shareholders at the Special Meeting.
The combination of First of America and National City will result in the
nation's 13th largest bank holding company, with assets of approximately $75
billion and offices in Ohio, Michigan, Kentucky, Illinois, Pennsylvania and
Indiana. The Merger is intended to create a strong and profitable diversified
financial services company that will have enhanced capabilities to compete with
banks and non-banking financial service providers.
Enclosed are a Notice of the Special Meeting and a Prospectus and Joint
Proxy Statement which describes the Merger and its background. A copy of the
Agreement is attached to the Prospectus and Joint Proxy Statement. You are urged
to read all of these materials carefully. The affirmative vote of the holders of
a majority of the shares of First of America Common Stock outstanding and
entitled to vote is necessary to approve the Agreement. In the event that
proxies representing a sufficient number of shares voting to approve the
Agreement are not obtained prior to the Special Meeting, a proposal to adjourn
the Special Meeting in order to solicit additional proxies will be put to a vote
at the Special Meeting.
THE BOARD OF DIRECTORS OF FIRST OF AMERICA HAS UNANIMOUSLY APPROVED THE
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
THE AGREEMENT.
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD
AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE
SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY. DO NOT SEND YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD.
Sincerely,
/s/ Richard F. Chormann
RICHARD F. CHORMANN
Chairman, President and Chief
Executive Officer
<PAGE> 6
First of America Bank Corporation [LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 30, 1998
To the Shareholders of
FIRST OF AMERICA BANK CORPORATION
A Special Meeting of Shareholders (the "Special Meeting") of First of
America Bank Corporation, a Michigan corporation ("First of America"), will be
held on March 30, 1998 at 9:00 a.m., local time, at the Radisson Plaza Hotel,
100 West Michigan Avenue, Kalamazoo, Michigan. The purpose of the Special
Meeting is to consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of November 30, 1997 (the "Agreement"), between
National City Corporation ("National City") and First of America, pursuant to
which First of America will be merged into National City upon the terms and
subject to the conditions set forth in the Agreement, as are more fully
described in the enclosed Prospectus and Joint Proxy Statement. A copy of the
Agreement is attached as Appendix A to the accompanying Prospectus and Joint
Proxy Statement. It is not anticipated that there will be any other business on
the agenda for this Special Meeting. There will not be a presentation of the
1997 financial results, an election of directors or a ratification of First of
America's selection of auditors, as would be expected if this were First of
America's annual meeting.
The Board of Directors has fixed the close of business on February 10, 1998
as the record date (the "Record Date") for determining holders of First of
America Common Stock entitled to notice of, and to vote at, the Special Meeting
and any adjournments or postponements thereof. In the event that proxies
representing a sufficient number of shares voting to approve the Agreement are
not obtained prior to the Special Meeting, a proposal to adjourn the Special
Meeting to solicit additional proxies will be put to a vote at the Special
Meeting.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AGREEMENT.
By Order of the Board of Directors,
/s/ Richard V. Washburn
RICHARD V. WASHBURN
Secretary
Kalamazoo, Michigan
February 19, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY.
<PAGE> 7
PROSPECTUS AND JOINT PROXY STATEMENT
[National City Corporation Logo]
108,121,561 Shares of Common Stock
This Prospectus and Joint Proxy Statement relates to the proposed merger of
FIRST OF AMERICA BANK CORPORATION, a Michigan corporation ("FOA"), with and into
NATIONAL CITY CORPORATION, a Delaware corporation ("National City"). If the
proposed merger is consummated, the outstanding shares of common stock, par
value $10.00 per share, of FOA ("FOA Common"), will be converted into shares of
common stock, par value $4.00 per share, of National City ("National City
Common") at a rate of 1.20 shares of National City Common for each share of FOA
Common. The transaction is subject to various conditions, including approval by
the stockholders of National City and the shareholders of FOA at their separate
meetings, described herein.
National City Common is traded on the New York Stock Exchange ("NYSE"). The
closing price of National City Common on the NYSE on February 17, 1998 was
$64.56. FOA Common is traded on the NYSE. The closing price of FOA Common on the
NYSE on February 17, 1998 was $76.56.
All information concerning National City contained in this Prospectus and
Joint Proxy Statement has been furnished by National City, and all information
concerning FOA has been furnished by FOA. National City has represented and
warranted to FOA, and FOA has represented and warranted to National City, that
the particular information so furnished is true and complete. See "EXPERTS" with
respect to the financial statements of National City and FOA.
------------------------
THE SHARES OF NATIONAL CITY COMMON TO BE ISSUED IN CONNECTION WITH THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS AND JOINT PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF NATIONAL CITY COMMON TO BE ISSUED IN CONNECTION WITH THE
MERGER ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR
SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
------------------------
JOINT PROXY STATEMENT
Annual Meeting
of Stockholders of
NATIONAL CITY CORPORATION
to be held on March 30, 1998
Special Meeting
of Shareholders of
FIRST OF AMERICA BANK CORPORATION
to be held on March 30, 1998
THIS PROSPECTUS SERVES AS THE JOINT PROXY STATEMENT OF NATIONAL CITY
CORPORATION AND FIRST OF AMERICA BANK CORPORATION IN CONNECTION WITH THE
SOLICITATION OF PROXIES TO BE USED AT THEIR RESPECTIVE MEETINGS TO BE HELD FOR
THE PURPOSES DESCRIBED HEREIN.
- --------------------------------------------------------------------------------
The date of this Prospectus and Joint Proxy Statement is February 19, 1998 and
is first being mailed to National City stockholders and FOA shareholders,
together with notices and forms of proxy, on or about February 19, 1998.
<PAGE> 8
AVAILABLE INFORMATION
Each of National City and FOA is subject to the information reporting
requirements of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and, accordingly, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy statements and other information may be inspected or copied at
the public reference facilities of the Commission located at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; at the
Commission's Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and at its New York
Regional Office, R.R. Donnelly Building, 75 Park Place, 14th Floor, New York,
New York 10007. Copies of such materials may also be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, reports, proxy statements and other
information concerning National City and FOA may be inspected at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and
are also available to the public from commercial document retrieval services and
at the website maintained by the SEC at "http://www.sec.gov".
This Prospectus and Joint Proxy Statement does not contain all of the
information set forth in the registration statement on Form S-4 and the exhibits
thereto filed by National City under the Securities Act of 1933, as amended (the
"1933 Act"), with the Commission relating to the shares of National City Common
offered hereby (the "Registration Statement"), certain portions of which have
been omitted pursuant to the rules and regulations of the Commission and to
which portions reference is hereby made for further information with respect to
National City, FOA and the securities offered hereby. The Registration Statement
and the exhibits thereto may be inspected without charge at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies may be
obtained from the Commission at prescribed rates and are also available to the
public from commercial document retrieval services and at the website maintained
by the SEC at "http://www.sec.gov".
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
National City hereby incorporates in this Prospectus and Joint Proxy
Statement by reference its Annual Report on Form 10-K for the year ended
December 31, 1997, and its Current Report on Form 8-K dated January 13, 1998,
the description of National City Common set forth in the Restated Certificate of
Incorporation of the Registrant, as amended (filed as Exhibit 3.1 to
Registration Statement No. 33-49823), each as filed with the Commission pursuant
to the Exchange Act. FOA hereby incorporates in this Prospectus and Joint Proxy
Statement by reference its Annual Report on Form 10-K for the year ended
December 31, 1997, and the description of FOA Common and FOA Preferred Stock
Purchase Rights contained in FOA's Registration Statements on Form 8-K under the
Exchange Act, dated April 30, 1990 (with respect to FOA Common) and July 18,
1990 and as amended December 12, 1997 (with respect to the FOA Preferred Stock
Purchase Rights) as filed with the Commission pursuant to the Exchange Act. Fort
Wayne National Corporation ("FWNC") hereby incorporates in this Prospectus and
Joint Proxy Statement by reference its Annual Report on Form 10-K for the year
ended December 31, 1997, its Current Report on Form 8-K dated January 23, 1998,
and the description of the FWNC common stock and FWNC preferred stock as filed
with the Commission pursuant to the Exchange Act.
All documents filed by National City, FOA and FWNC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and Joint Proxy Statement and prior to the respective Annual Meeting of
Stockholders of National City and the Special Meeting of Shareholders of FOA
shall be deemed to be incorporated by reference in this Prospectus and Joint
Proxy Statement and to be a part hereof from the respective dates of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus and Joint Proxy Statement to the extent that
such statement is modified or superseded by a statement contained herein or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus and Joint Proxy Statement.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND JOINT PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
2
<PAGE> 9
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NATIONAL CITY OR FOA. THIS
PROSPECTUS AND JOINT PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION WITHIN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION WITHIN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS AND JOINT PROXY STATEMENT NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF NATIONAL CITY OR FOA SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THIS PROSPECTUS AND JOINT PROXY STATEMENT INCORPORATES DOCUMENTS OF
NATIONAL CITY, FOA AND FWNC BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. THE NATIONAL CITY DOCUMENTS (OTHER THAN CERTAIN EXHIBITS TO
ANY SUCH DOCUMENTS) ARE AVAILABLE TO ANY PERSON TO WHOM A COPY OF THIS
PROSPECTUS AND JOINT PROXY STATEMENT HAS BEEN DELIVERED UPON WRITTEN OR ORAL
REQUEST TO NATIONAL CITY CORPORATION, 1900 EAST NINTH STREET, CLEVELAND, OHIO
44114, ATTENTION: THOMAS A. RICHLOVSKY, SENIOR VICE PRESIDENT AND TREASURER,
TELEPHONE NUMBER (216) 575-2126, AND WILL BE FURNISHED WITHOUT CHARGE. THE FOA
DOCUMENTS (OTHER THAN THE EXHIBITS TO ANY SUCH DOCUMENTS) ARE AVAILABLE TO ANY
PERSON TO WHOM A COPY OF THIS PROSPECTUS AND JOINT PROXY STATEMENT HAS BEEN
DELIVERED UPON WRITTEN OR ORAL REQUEST TO FIRST OF AMERICA BANK CORPORATION, 211
SOUTH ROSE STREET, KALAMAZOO, MICHIGAN 49007, ATTENTION: JENNIFER D. COX, SENIOR
VICE PRESIDENT-ACCOUNTING DIVISION, TELEPHONE NUMBER (616) 376-7115, AND WILL BE
FURNISHED WITHOUT CHARGE. THE FWNC DOCUMENTS (OTHER THAN CERTAIN EXHIBITS TO ANY
SUCH DOCUMENTS) ARE AVAILABLE TO ANY PERSON TO WHOM A COPY OF THIS PROSPECTUS
AND PROXY STATEMENT HAS BEEN DELIVERED UPON WRITTEN OR ORAL REQUEST TO FORT
WAYNE NATIONAL CORPORATION, 110 W. BERRY STREET, FORT WAYNE, INDIANA 46801,
ATTENTION: KAREN M. KASPER, EXECUTIVE VICE PRESIDENT, TELEPHONE NUMBER (219)
426-0555 AND WILL BE FURNISHED WITHOUT CHARGE. IN ORDER TO ENSURE TIMELY
DELIVERY OF ANY NATIONAL CITY DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH 23,
1998. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY FOA DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY MARCH 23, 1998. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY FWNC
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH 23, 1998.
3
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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AVAILABLE INFORMATION................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 2
SUMMARY............................................................................... 7
Parties to the Merger............................................................ 7
Reasons for the Merger........................................................... 7
Terms of the Merger.............................................................. 7
Conditions; Termination; Amendments.............................................. 8
Termination Fees and Expenses.................................................... 8
Current Developments............................................................. 9
Regulatory Approvals............................................................. 9
The Meetings..................................................................... 9
Votes Required................................................................... 9
Recommendation of the Boards of Directors........................................ 10
Opinions of Financial Advisors................................................... 10
Interests of Certain Parties..................................................... 10
Appraisal and Dissenters' Rights................................................. 11
Certain Federal Income Tax Consequences and Accounting Treatment................. 11
The National City and FOA Options................................................ 11
Comparative Rights of Holders of Shares of FOA Common After the Merger........... 12
Ownership of National City After the Merger...................................... 13
Market and Market Prices......................................................... 13
Selected Financial Data.......................................................... 13
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS............. 16
Comparative Per Share Data....................................................... 16
Listing of National City Common.................................................. 18
THE MEETINGS.......................................................................... 19
VOTING................................................................................ 19
National City.................................................................... 19
FOA.............................................................................. 19
Record Dates and Voting Rights................................................... 19
Voting and Revocation of Proxies................................................. 19
1. ELECTION OF DIRECTORS -- NATIONAL CITY............................................. 20
Board of Directors and Its Committees............................................ 20
Compensation of Directors........................................................ 22
Nominees for Election as Directors............................................... 22
Vote by Stockholders............................................................. 22
Beneficial Ownership............................................................. 26
Section 16(a) Beneficial Ownership Reporting Compliance.......................... 26
Ownership Guidelines............................................................. 26
REMUNERATION OF EXECUTIVE OFFICERS AND TRANSACTIONS WITH MANAGEMENT -- NATIONAL
CITY................................................................................ 28
Executive Compensation........................................................... 28
REPORT OF COMPENSATION AND ORGANIZATION COMMITTEE..................................... 32
Compensation Philosophy.......................................................... 32
Executive Compensation Principles................................................ 32
Commitment to Employee Equity Ownership.......................................... 33
Stock Ownership Guidelines....................................................... 33
Equity Based Rewards............................................................. 33
</TABLE>
4
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Cash-Based Rewards............................................................... 34
Peer Group Banks................................................................. 34
Summary.......................................................................... 35
THE COMPENSATION AND ORGANIZATION COMMITTEE'S REVIEW OF CEO COMPENSATION.............. 35
Compensation and Organization Committee.......................................... 36
STOCKHOLDER RETURN PERFORMANCE........................................................ 37
DESCRIPTION OF NATIONAL CITY'S COMPENSATION AND BENEFIT PLANS......................... 37
Grantor Trust.................................................................... 42
2. SELECTION OF INDEPENDENT AUDITORS -- NATIONAL CITY................................. 43
3. MERGER............................................................................. 44
Background of and Reasons for the Merger -- FOA.................................. 44
Background of and Reasons for the Merger -- National City........................ 46
Opinions of Financial Advisors................................................... 47
Terms of the Merger.............................................................. 59
Conversion of Shares of FOA Common............................................... 60
Treatment of Employee and Director Stock Options................................. 61
Conditions to the Merger......................................................... 61
Regulatory Approvals............................................................. 63
Waiver; Amendment; Termination................................................... 63
Effective Time................................................................... 64
Conduct of National City's Business Pending the Merger........................... 64
Conduct of FOA's Business Pending the Merger..................................... 64
Employee Matters................................................................. 66
Indemnification and Insurance.................................................... 66
Interests of Certain Persons in the Merger....................................... 66
Management After the Merger...................................................... 71
Certain Federal Income Tax Consequences.......................................... 71
Accounting Treatment............................................................. 72
Resales by Affiliates............................................................ 73
Appraisal and Dissenters' Rights................................................. 73
The Options...................................................................... 73
National City Option Agreement................................................... 73
FOA Option Agreement............................................................. 77
RECENT DEVELOPMENTS................................................................... 81
Fort Wayne National Corporation Acquisition...................................... 81
Year 2000........................................................................ 82
PRO FORMA COMBINED CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED)............................................................. 82
CERTAIN REGULATORY CONSIDERATIONS..................................................... 89
General.......................................................................... 89
Payment of Dividends............................................................. 89
Certain Transactions by Bank Holding Companies with Their Affiliates............. 90
Capital.......................................................................... 90
Holding Company Support of Subsidiary Banks...................................... 91
FDIC Insurance Assessments....................................................... 91
DESCRIPTION OF NATIONAL CITY CAPITAL STOCK............................................ 91
Common Stock..................................................................... 91
Preferred Stock.................................................................. 92
</TABLE>
5
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF FOA CAPITAL STOCK...................................................... 92
General.......................................................................... 92
FOA Common....................................................................... 92
FOA Preferred Stock.............................................................. 93
GENERAL COMPARISON OF NATIONAL CITY AND FOA CAPITAL STOCK............................. 94
General.......................................................................... 94
Directors........................................................................ 94
Limitation of Director Liability in Certain Circumstances........................ 95
Indemnification and Insurance.................................................... 95
Antitakeover Statutes............................................................ 97
Consideration of Factors; General Powers......................................... 98
Issuance of Preferred Stock...................................................... 98
Cumulative Voting................................................................ 98
Action Without a Meeting......................................................... 98
Special Meetings................................................................. 99
Voting, Appraisal Rights and Corporate Reorganizations........................... 99
Amendment of Articles and Bylaws................................................. 99
Preemptive Rights................................................................ 100
Dividends........................................................................ 100
FORWARD LOOKING STATEMENTS............................................................ 100
INFORMATION ABOUT NATIONAL CITY....................................................... 101
INFORMATION ABOUT FOA................................................................. 101
EXPERTS............................................................................... 102
LEGAL OPINIONS........................................................................ 102
NATIONAL CITY STOCKHOLDER PROPOSALS................................................... 102
TRANSACTIONS WITH MANAGEMENT.......................................................... 102
GENERAL............................................................................... 103
APPENDIX A -- AGREEMENT AND PLAN OF MERGER............................................ A-1
APPENDIX B -- OPINION OF MERRILL LYNCH & CO........................................... B-1
APPENDIX C -- OPINION OF UBS SECURITIES LLC........................................... C-1
APPENDIX D -- OPINION OF NATIONSBANC MONTGOMERY SECURITIES, INC....................... D-1
APPENDIX E -- NATIONAL CITY OPTION AGREEMENT.......................................... E-1
APPENDIX F -- FOA OPTION AGREEMENT.................................................... F-1
</TABLE>
6
<PAGE> 13
SUMMARY
The following is a summary of certain information with respect to matters
to be considered at the Annual Meeting of Stockholders of National City
Corporation ("National City") and at the Special Meeting of Shareholders of
First of America Bank Corporation ("FOA") and is not intended to be a complete
statement of all material facts regarding the matters to be considered at those
meetings. It is qualified in its entirety by reference to more detailed
information contained elsewhere in this Prospectus and Joint Proxy Statement
(the "Proxy Statement") or incorporated by reference in this Proxy Statement,
the accompanying appendices and the documents referred to herein.
PARTIES TO THE MERGER
FOA. FOA is a regional, multibank holding company registered under the Bank
Holding Company Act of 1956, as amended (the "BHCA") and is incorporated under
the laws of the state of Michigan. At December 31, 1997, FOA had consolidated
total assets of $21 billion and consolidated total deposits of $16 billion. FOA
is the second largest bank holding company in the state of Michigan, the fifth
largest in the state of Illinois and the twelfth largest in the state of
Indiana. First of America Bank N.A. and First of America Bank -- Illinois, N.A.
carry on general retail and commercial banking business through 545 banking
offices and facilities located in Michigan, Illinois and Indiana. FOA also has
divisions and non-banking subsidiaries which provide mortgage, trust, data
processing, pension consulting, revolving credit, insurance, securities
brokerage and underwriting, and investment advisory services. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE"; "SUMMARY -- Selected Financial Data";
"SUMMARY -- Comparative Per Share Data"; "PRO FORMA COMBINED CONSOLIDATED
FINANCIAL INFORMATION (UNAUDITED)" and "INFORMATION ABOUT FOA". The principal
office of FOA is located at 211 South Rose Street, Kalamazoo, Michigan 49007,
and its telephone number is (616) 376-9000.
National City. National City is a registered multi-bank holding company
under the BHCA and is incorporated under the laws of the state of Delaware. As
of December 31, 1997, National City owned substantially all of the outstanding
stock of 8 commercial banks in Ohio, Pennsylvania, Kentucky and Indiana and
through these financial institutions, operated 853 offices. National City
subsidiaries provide financial services that meet a wide range of customer
needs, including commercial and retail banking, brokerage, trust and investment
services, item processing, mortgage servicing and credit card processing. At
December 31, 1997, National City, its affiliate banks and other subsidiaries had
consolidated total assets of $55 billion and consolidated total deposits of $37
billion. See "SUMMARY -- Selected Financial Data"; "SUMMARY -- Comparative Per
Share Data"; "PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)"
and "INFORMATION ABOUT NATIONAL CITY". The principal office of National City is
located at 1900 East Ninth Street, Cleveland, Ohio 44114, and its telephone
number is (216) 575-2000.
REASONS FOR THE MERGER
National City's acquisition strategy includes the expansion into major,
contiguous markets where a significant presence can be established. Michigan and
Illinois are logical extensions of National City's current midwest markets and
the acquisition of FOA will provide National City with a meaningful presence in
Michigan and Illinois, will expand its presence in the state of Indiana and will
expand National City's customer base and assets. After exploring various other
strategic alternatives, including the possibility of remaining independent, FOA
believes that a sale of the company to a larger financial institution offers the
greatest potential for achieving long term value for FOA shareholders. See
"MERGER -- Background of and Reasons for the Merger -- FOA" and "-- Background
of and Reasons for the Merger -- National City".
TERMS OF THE MERGER
Pursuant to the Agreement and Plan of Merger dated as of November 30, 1997
(the "Agreement"), FOA will merge into National City (the "Merger"). Upon
consummation of the Merger, the surviving entity will be known as National City
Corporation. At the Effective Time (as hereinafter defined See
"MERGER -- Effective Time"), each outstanding share of FOA Common Stock, par
value $10.00 per share, ("FOA Common") (except shares held by FOA, National City
or any of their direct or indirect wholly owned subsidiaries (other than shares
7
<PAGE> 14
of FOA Common held in trust accounts, managed accounts or in any similar manner
as trustee or in a fiduciary capacity or acquired in satisfaction of debts
previously contracted) will be converted into the right to receive 1.20 shares
of National City Common Stock, par value $4.00 per share ("National City
Common") (the "Exchange Rate"). A copy of the Agreement is attached hereto as
Appendix A.
No fractional shares of National City Common will be issued in the Merger.
In lieu thereof, each holder of FOA Common who otherwise would have been
entitled to a fractional share of National City Common will receive cash in an
amount determined by the average of the per share closing price on the New York
Stock Exchange ("NYSE") of National City Common for the 20 consecutive trading
days ending at the end of the third day immediately preceding the Effective
Time.
The closing price of National City Common on the NYSE on February 17, 1998
was $64.56 (which is the equivalent of $77.47 for 1.20 shares of National City
Common).
Following the Merger, the directors and officers of National City at the
Effective Time will continue as the directors and officers of National City.
Promptly after the Effective Time, (a) the Board of Directors of National City
shall increase its size to such number as is necessary to create five vacancies,
and it is anticipated that Jon E. Barfield, John W. Brown, Richard F. Chormann,
Clifford L. Greenwalt, and Dorothy A. Johnson, who now serve as directors of
FOA, will become directors of National City. See "MERGER -- Management after the
Merger".
CONDITIONS; TERMINATION; AMENDMENTS
Consummation of the Merger is subject to satisfaction of a number of
conditions, including (a) approval by the stockholders of National City and
approval by the shareholders of FOA of the Agreement, (b) approval by certain
federal and state banking authorities, (c) authorization for listing on the NYSE
of the National City Common issuable in the Merger, (d) the issuance by the SEC
of an order declaring the Registration Statement effective, (e) the receipt by
National City and FOA of a letter from Ernst & Young LLP, National City's
independent auditors, to the effect that, for financial accounting purposes, the
Merger qualifies for pooling-of-interests accounting treatment under generally
accepted accounting principles if consummated in accordance with the Agreement,
(f) the receipt by National City and FOA of the opinion of Wachtell, Lipton,
Rosen & Katz, special counsel to FOA, substantially to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and (g) the non-existence of a restraining order,
preliminary or permanent injunction or other order by any federal or state court
in the United States preventing the consummation of the Merger. Substantially
all of the conditions to consummation of the Merger (other than required
stockholder, shareholder or regulatory approvals) may be waived, in whole or in
part, by the party for whose benefit they have been created, without the
approval of the stockholders or shareholders, as the case may be, of that party.
The stockholders and the shareholders will be resolicited by FOA and National
City respectively prior to the waiving of either of the receipt of the tax
opinion from Wachtell, Lipton, Rosen & Katz or the receipt of the pooling letter
from Ernst & Young LLP as a condition to closing. In addition, the Agreement may
be terminated under certain circumstances, and such termination would not
require stockholder or shareholder approval. The Agreement may be amended or
supplemented upon the written agreement of National City and FOA at any time,
provided that no amendment may be made after any stockholder or shareholder
approval, as applicable, of the Agreement which changes the form or amount of
the merger consideration without further stockholder or shareholder approval, as
applicable. See "MERGER -- Conditions to the Merger" and "MERGER -- Waiver;
Amendment; Termination".
TERMINATION FEES AND EXPENSES
Each party will bear all expenses incurred by it in connection with the
Agreement and the transactions contemplated thereby, except the printing
expenses and SEC filing and registration fees shall be shared equally between
FOA and National City.
CURRENT DEVELOPMENTS
The boards of directors of FOA and National City have rescinded their
respective outstanding share repurchase authorizations. Further, National City
has not agreed directly or indirectly nor does it plan to retire or reacquire
all or part of the stock to be issued to effect the Merger. In order for the
Merger to qualify for the
8
<PAGE> 15
pooling-of-interests method of accounting, National City will need to issue
approximately 11.1 million shares of National City Common, prior to the
Effective Time to cure tainted shares. See "MERGER -- Accounting Treatment."
National City entered into an Agreement and Plan of Merger with Fort Wayne
National Corporation ("FWNC") on January 12, 1998 pursuant to which FWNC will
merge into National City. In connection with this merger National City will
issue approximately 12.8 million shares of National City Common. National City
expects to consummate the merger with FWNC prior to the Effective Time and,
therefore, cure the tainted shares. See "CURRENT DEVELOPMENTS."
REGULATORY APPROVALS
In order for the Merger to be consummated, approvals must be obtained from
the Board of Governors of the Federal Reserve System (the "FRB") and applicable
state regulators. The FRB approved the Merger on February 11, 1998. In
accordance with the terms of the FRB approval, the Merger may not be consummated
until the 15th day after FRB approval is received. The Office of Banks and Real
Estate, state of Illinois approved the change of control for the First of
America Trust Company on February 10, 1998. See "MERGER -- Regulatory
Approvals."
THE MEETINGS
National City. The Annual Meeting of Stockholders of National City will be
held on March 30, 1998, at the Pittsburgh Hilton and Towers, Gateway Center, 600
Commonwealth Place, Pittsburgh, Pennsylvania 15222 commencing at 10:30 a.m.,
Eastern Standard Time (the "Annual Meeting"). The Board of Directors of National
City has fixed the close of business on February 2, 1998 as the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting. There were 211,467,780 shares of National City Common outstanding on
the record date. The purpose of the Annual Meeting is (a) to elect directors of
National City, (b) to consider and vote on a proposal to adopt the Agreement,
(c) to approve the selection of Ernst & Young LLP as independent auditors, and
(d) to transact such other business as may properly come before the meeting.
FOA. The Special Meeting of Shareholders of FOA will be held on March 30,
1998, at the Radisson Plaza Hotel, 100 West Michigan Avenue, Kalamazoo,
Michigan, commencing at 9:00 a.m., Eastern Standard Time (the "Special Meeting"
and together with the Annual Meeting, the "Meetings"). The Board of Directors of
FOA has fixed the close of business on February 10, 1998 as the record date for
determination of shareholders entitled to notice of and to vote at the Special
Meeting. There were 87,354,800 shares of FOA Common outstanding on the record
date. The purpose of the Special Meeting is to consider and vote on a proposal
to approve the Agreement. See "MERGER." At the Special Meeting, FOA shareholders
will not consider or vote on the other proposals set forth in this Prospectus
and Joint Proxy Statement (see "ELECTION OF DIRECTORS -- NATIONAL CITY" and
"SELECTION OF INDEPENDENT AUDITORS").
For additional information with respect to the Meetings, see "THE
MEETINGS;" "ELECTION OF DIRECTORS -- NATIONAL CITY;" "REMUNERATION OF EXECUTIVE
OFFICERS AND TRANSACTIONS WITH MANAGEMENT -- NATIONAL CITY;" and "SELECTION OF
INDEPENDENT AUDITORS -- NATIONAL CITY;" AND "MERGER."
VOTES REQUIRED
The proposal to adopt the Agreement to be considered at the Annual Meeting
must be adopted by the affirmative vote of the holders of a majority of the
outstanding shares of National City Common entitled to vote at the Annual
Meeting. The adoption of the Agreement by the stockholders of National City is
required under the Delaware General Corporation Law (the "DGCL") and such
adoption is included in the Agreement as a condition to the parties' obligations
to close. As of December 31, 1997, the directors and executive officers of
National City and their affiliates are entitled to vote approximately 1.7% of
the outstanding shares of National City Common entitled to vote at the Annual
Meeting. See "THE MEETINGS -- Record Dates and Voting Rights" and "ELECTION OF
DIRECTORS -- National City -- Beneficial Ownership."
9
<PAGE> 16
The proposal to approve the Agreement to be considered at the Special
Meeting must be adopted by the affirmative vote of holders of a majority of the
outstanding shares of FOA Common entitled to vote at the Special Meeting. The
approval of the Agreement by the shareholders of FOA is required under Section
703a of the Michigan Business Corporation Act ("MBCA") and is included in the
Agreement as a condition to the parties' obligations to close. As of December
31, 1997, the directors and executive officers of FOA and their affiliates are
entitled to vote approximately 2.1% of the outstanding shares of FOA Common
eligible to vote at the Special Meeting. See "THE MEETINGS -- Record Dates and
Voting Rights."
National City and FOA have been advised that their respective directors and
executive officers intend to vote their shares (including shares held in a
fiduciary capacity) in favor of the Agreement. The Agreement provides that,
absent certain circumstances (none of which has occurred), the respective Boards
of Directors of National City and FOA shall recommend that their stockholders or
shareholders, as the case may be, vote in favor of and approve the Merger and
adopt or approve, as applicable, the Agreement at their respective Meetings.
RECOMMENDATION OF THE BOARDS OF DIRECTORS
The Boards of Directors of National City and FOA (a) have unanimously
approved the Agreement, (b) believe that the proposed Merger is in the best
interests of their respective corporations and stockholders or shareholders, as
the case may be, and (c) unanimously recommend that their stockholders or
shareholders, as the case may be, vote FOR the adoption or approval, as
applicable, of the Agreement. See "MERGER -- Background of and Reasons for the
Merger -- FOA" and "MERGER -- Background of and Reasons for the
Merger -- National City."
OPINIONS OF FINANCIAL ADVISORS
Merrill Lynch & Co. ("Merrill Lynch"), FOA's financial advisor, delivered
its oral opinion to the Board of Directors of FOA on November 30, 1997, which
was subsequently confirmed in writing on November 30, 1997 and the date of this
Proxy Statement, that as of such dates and based on the matters discussed with
the Board of Directors of FOA and set forth in such opinions, the Exchange Rate
was fair from a financial point of view to the shareholders of FOA (other than
National City and its affiliates). UBS Securities LLC ("UBS") and NationsBanc
Montgomery Securities, Inc. ("Montgomery"), National City's financial advisors,
delivered their oral opinions to the National City Board of Directors on
November 28, 1997, confirmed by their written opinions dated November 30, 1997
and December 1, 1997, respectively, and as of the date of this Proxy Statement,
stating that as of the date of such opinions and based on the matters set forth
in such opinions, the Exchange Rate was fair (in the case of UBS), or the
consideration to be paid by National City pursuant to the Merger is fair (in the
case of Montgomery), from a financial point of view, to National City. Copies of
the opinions of Merrill Lynch, UBS and Montgomery dated the date of this Proxy
Statement, which are attached hereto as Appendices B, C and D, respectively,
describe the assumptions made, matters considered, qualifications and
limitations on the reviews undertaken by Merrill Lynch, UBS and Montgomery in
rendering their respective opinions. Holders of National City Common and FOA
Common are urged to read carefully the opinions in their entirety. For a further
description of the opinions of Merrill Lynch, UBS and Montgomery, see
"MERGER -- Opinions of Financial Advisors."
INTERESTS OF CERTAIN PARTIES
Certain members of FOA's management and the Board of Directors of FOA may
be deemed to have certain interests in the Merger that are in addition to their
interests generally as shareholders of FOA. The approximate value of the
aggregate of such benefits is estimated by FOA to be $26.9 million.
FOA's executive officers, Messrs. Chormann, Cole, Kenney, Lambert, Rapp,
Spears, Washburn, and Wirt, are parties to Employment Agreements (as hereinafter
defined) with FOA which provide for certain benefits and payments upon a change
in control of FOA. See "MERGER -- Interests of Certain Persons in the Merger."
National City has entered into an employment agreement with Mr. Chormann
and has agreed to enter into agreements with each of Messrs. Cole, Kenney,
Lambert and Spears. (See "MERGER -- Interests of Certain Persons in the
Merger").
10
<PAGE> 17
Under certain of FOA's stock options, the date on which the options held by
directors and executive officers of FOA become exercisable is automatically
accelerated upon a Change in Control of FOA (as hereinafter defined). See
"MERGER -- Interests of Certain Persons in the Merger" and "-- Treatment of
Employee and Director Stock Options." FOA estimates the aggregate benefits to
Mr. Chormann resulting from the Merger to be $9,343,000. FOA estimates the
aggregate benefits to Messrs. Cole, Kenney, Lambert, Rapp, Spears, Washburn and
Wirt to be $2,519,200, $2,354,700, $2,552,400, $2,432,500, $2,418,900,
$2,933,700 and $2,350,500, respectively.
APPRAISAL AND DISSENTERS' RIGHTS
Neither holders of National City Common nor holders of FOA Common will be
entitled to any statutory appraisal and dissenters' rights in connection with
the Merger. See Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES AND ACCOUNTING TREATMENT
The Merger is structured to qualify as a tax-free reorganization under
Section 368 of the Code. The Agreement provides as a condition to the parties'
obligations to consummate the Merger that National City and FOA shall have
received the opinion of Wachtell, Lipton, Rosen & Katz substantially to the
effect, among other things, that for United States federal income tax purposes
no gain or loss will be recognized by the shareholders of FOA who exchange their
shares of FOA Common solely for shares of National City Common pursuant to the
Merger (except with respect to cash received in lieu of a fractional interest in
National City Common). See "MERGER -- Certain Federal Income Tax Consequences."
The Merger, if completed as proposed, will qualify as a
pooling-of-interests for financial accounting purposes. The Agreement provides
as a condition to the parties' obligations to consummate the Merger that
National City and FOA shall have received a letter from Ernst & Young LLP, dated
the day of the Effective Time, to the effect that, for financial reporting
purposes, the Merger qualifies for pooling-of-interests accounting treatment
under generally accepted accounting principles if consummated in accordance with
the Agreement. See "MERGER -- Accounting Treatment."
THE NATIONAL CITY AND FOA OPTIONS
National City Option. As a condition to National City's entering into the
Agreement, and in consideration therefor, FOA and National City entered into a
Stock Option Agreement dated as of November 30, 1997 (the "National City Option
Agreement"). The National City Option Agreement is intended to increase the
likelihood that the Merger will be consummated by making it more difficult and
more expensive for another party to obtain control of or acquire FOA. See
"MERGER -- The National City Option Agreement." A copy of the National City
Option Agreement is attached hereto as Appendix E.
Pursuant to the National City Option Agreement, FOA granted National City
an option (the "National City Option") to purchase up to 16,813,611 fully paid
and nonassessable shares of FOA Common at a price of $58.75 per share. In the
event that any additional shares of FOA Common are issued or otherwise become
outstanding after the date of the National City Option Agreement (other than
pursuant to the National City Option Agreement), the number of shares of FOA
Common subject to the National City Option will be increased so that, after such
issuance, it together with shares owned by National City equals 19.9% of the
number of shares of FOA Common then issued and outstanding without giving effect
to any shares subject or issued pursuant to the National City Option. National
City may exercise the National City Option only upon the occurrence of certain
events (none of which has occurred) and upon obtaining any regulatory approvals
necessary for the acquisition of shares of FOA subject to the National City
Option. In lieu of exercising the National City Option, National City can
require FOA to repurchase for a formula price the National City Option and any
shares of FOA Common purchased upon exercise of the National City Option and
owned by National City at that time. See "MERGER -- The National City Option."
In addition to other Exercise Termination Events (as such term is defined
in "MERGER -- The National City Option"), the National City Option Agreement
provides that the National City Option shall terminate upon the termination of
the Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event (as such term is
defined in "MERGER -- The National City Option").
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<PAGE> 18
The Agreement may be terminated at any time prior to the Effective Time by
either National City or FOA if the Merger is not approved at either the Annual
Meeting or the Special Meeting (provided that the terminating party is not
otherwise in material breach of its obligations under the Agreement).
Accordingly, if no Initial Triggering Event has occurred, in the event that
either the National City stockholders do not adopt the Agreement at the Annual
Meeting or the FOA shareholders do not approve the Agreement at the Special
Meeting and either National City or FOA terminates the Agreement as a result
thereof, the National City Option shall terminate. See "MERGER -- The National
City Option."
FOA Option. As a condition to FOA's entering into the Agreement and the
Plan of Merger, and in consideration therefor, FOA and National City entered
into a Stock Option Agreement dated as of November 30, 1997 (the "FOA Option
Agreement"). The FOA Option Agreement is intended to provide assurance to FOA
shareholders that they will receive National City Common in exchange for their
FOA Common at the consummation of the Merger by making the acquisition of
National City by a third party prior to the consummation of the Merger more
expensive. See "MERGER -- The FOA Option." A copy of the FOA Option Agreement is
attached hereto as Appendix F.
Pursuant to the FOA Option Agreement, National City granted FOA an option
(the "FOA Option") to purchase up to 21,110,884 fully paid and nonassessable
shares of National City Common at a price of $66.75 per share. In the event that
any additional shares of National City Common are issued or otherwise become
outstanding after the date of the FOA Option Agreement (other than pursuant to
the FOA Option), the number of shares of National City Common subject to the FOA
Option will be increased so that, after such issuance, it equals 10% of the
number of shares of National City Common then issued and outstanding without
giving effect to any shares subject or issued pursuant to the FOA Option. FOA
may exercise the FOA Option only upon the occurrence of certain events (none of
which has occurred) and upon obtaining any regulatory approvals necessary for
the acquisition of shares of National City subject to the FOA Option. In lieu of
exercising the FOA Option, FOA can require National City to repurchase for a
formula price the FOA Option and any shares of National City Common purchased
upon exercise of the FOA Option and owned by FOA at that time. See "MERGER --
The FOA Option."
In addition to other Exercise Termination Events (as such term is defined
in "MERGER -- The FOA Option"), the FOA Option Agreement provides that the FOA
Option shall terminate upon the termination of the Agreement in accordance with
the provisions thereof if such termination occurs prior to the occurrence of an
Initial Triggering Event (as such term is defined in "MERGER -- The FOA
Option"). The Agreement may be terminated at any time prior to the Effective
Time by either FOA or National City if the Merger is not approved at either the
Annual Meeting or the Special Meeting (provided that the terminating party is
not otherwise in material breach of its obligations under the Agreement).
Accordingly, if no Initial Triggering Event has occurred, in the event that
either the National City stockholders do not adopt the Agreement at the Annual
Meeting or the FOA shareholders do not approve the Agreement at the Special
Meeting and either FOA or National City terminates the Agreement as a result
thereof, the FOA Option shall terminate. See "MERGER -- The FOA Option."
COMPARATIVE RIGHTS OF HOLDERS OF SHARES OF FOA COMMON AFTER THE MERGER
The rights of holders of shares of FOA Common currently are governed by the
MBCA, FOA's Restated Articles of Incorporation, as amended ("FOA's Articles"),
and FOA's Bylaws, as amended ("FOA's Bylaws"). At the Effective Time, FOA's
shareholders will become National City stockholders, and their rights will be
governed by the DGCL, National City's Restated Certificate of Incorporation, as
amended ("National City's Certificate"), and National City's First Restatement
of By-laws dated April 27, 1987 (as amended through October 24, 1994) ("National
City's By-laws"). See "GENERAL COMPARISON OF NATIONAL CITY AND FOA CAPITAL
STOCK."
OWNERSHIP OF NATIONAL CITY AFTER THE MERGER
National City will issue approximately 108,147,000 shares of National City
Common to FOA shareholders in the Merger. Based on that number and the issuance
of approximately 12.8 million additional shares of National City Common that
National City anticipates issuing in the FWNC merger, following the Merger, FOA
shareholders will own approximately 33% of the outstanding National City Common
(assuming all National City
12
<PAGE> 19
and FOA stock options are exercised). This number is based on the number of
shares of FOA, National City Common, and FWNC outstanding on December 31, 1997.
MARKET AND MARKET PRICES
National City Common and FOA Common are traded on the NYSE. Receipt of
authorization for listing on the NYSE of the shares of National City Common
issuable in connection with the Merger is a condition to consummation of the
Merger. See "MERGER -- Conditions to the Merger." The information set forth in
the table below presents (a) the closing prices for National City Common and FOA
Common on the NYSE on November 28, 1997, the last trading day preceding the
public announcement of the Merger, and on February 17, 1998, (b) the high and
low sale prices for National City Common and FOA Common on such dates, and (c)
the FOA equivalent per share price as of November 28, 1997 and February 17,
1998, calculated by multiplying the closing price of National City Common on the
NYSE on such dates by the Exchange Rate.
<TABLE>
<CAPTION>
EQUIVALENT
NATIONAL CITY FOA VALUE
COMMON COMMON PER SHARE
------------- -------- ----------
<S> <C> <C> <C>
November 28, 1997
Closing Price...................... $ 66.75 $58.375 $80.10
High............................... 67.00 58.6875
Low................................ 66.6875 57.6875
February 17, 1998
Closing Price...................... $ 64.56 $76.56 $77.47
High............................... 65.38 77.63
Low................................ 64.19 76.13
</TABLE>
No assurance can be given as to what the market price of National City
Common will be if and when the Merger is consummated or when the shares of
National City Common are actually issued in the Merger. If the Merger had been
consummated on February 17, 1998, the estimated total value of the Merger would
have been $6,980 million.
SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data for (a)
National City on a historical basis, (b) FOA on a historical basis, (c) National
City and FOA on an unaudited pro forma basis, (d) FWNC on a historical basis,
and (e) National City, FOA, and FWNC on an unaudited pro forma basis. The pro
forma data in the table assumes that the acquisition of FOA is accounted for as
a pooling-of-interests and that the acquisition of FWNC is accounted for as a
purchase. See "MERGER -- Accounting Treatment" and "SUMMARY -- Current
Developments." This table should be read in conjunction with the financial
statements and other financial information of National City, FOA and FWNC,
respectively, incorporated herein by reference and the unaudited pro forma
combined consolidated financial information giving effect to the mergers of FOA
and FWNC included elsewhere in this Proxy Statement. See "AVAILABLE
INFORMATION"; "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "PRO FORMA
COMBINED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)." The unaudited pro
forma data presented below is not necessarily indicative of the results which
actually would have been attained if the mergers of FOA and FWNC had been
consummated in the past or which may be attained in the future.
13
<PAGE> 20
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
HISTORICAL NATIONAL CITY CORPORATION:
Earnings (In thousands, except per
share data)
Net interest income............... $1,942,828 $1,942,576 $1,828,345 $1,765,628 $1,742,353
Provision for loan losses......... 139,660 146,480 113,482 109,356 143,089
Income before cumulative effect of
accounting changes.............. 807,433 736,630 591,460 598,467 556,817
Net income........................ 807,433 736,630 591,460 598,467 616,817
Net income applicable to common
stock........................... 807,433 732,602 576,630 583,267 600,318
Earnings per common share before
cumulative effect of accounting
changes:
Basic........................ 3.73 3.34 2.71 2.67 2.65
Diluted...................... 3.66 3.27 2.64 2.60 2.59
Cash dividends declared per common
share........................... 1.72 1.88 1.30 1.18 1.06
Average Balances (In millions)
(unaudited)
Assets............................ 50,834 48,730 48,080 44,211 42,395
Earning assets.................... 46,184 44,227 43,844 40,197 38,640
Deposits.......................... 35,230 34,907 34,715 32,832 31,850
Other borrowings.................. 6,195 5,469 6,310 5,254 5,162
Long-term debt.................... 4,068 3,166 2,435 1,892 1,332
Stockholders' equity.............. 4,358 4,198 3,749 3,561 3,437
HISTORICAL FIRST OF AMERICA BANK CORPORATION:
Earnings (In thousands, except per
share data)
Net interest income............... 871,922 902,488 923,996 938,735 902,017
Provision for loan losses......... 85,707 93,456 91,488 86,571 84,714
Net income........................ 314,761 256,886 236,708 220,503 247,385
Net income applicable to common
stock........................... 314,761 256,886 236,708 220,503 241,232
Earnings per common share(1):
Basic........................ 3.57 2.79 2.50 2.47 2.82
Diluted...................... 3.53 2.77 2.49 2.46 2.76
Cash dividends declared per common
share(1)........................ 1.33 1.21 1.15 1.09 1.03
Average Balances (In millions)
(unaudited)
Assets............................ 21,117 22,194 23,752 22,551 20,545
Earning assets.................... 19,196 20,314 21,967 20,872 19,037
Deposits.......................... 16,524 18,272 19,515 19,015 18,092
Other borrowings.................. 1,563 1,443 1,648 1,326 575
Long-term debt.................... 903 445 616 485 272
Shareholders' equity.............. 1,808 1,785 1,704 1,528 1,339
(1) Prior periods have been adjusted for the 3 for 2 stock split effected in the form of a dividend,
distributed May 30, 1997.
PRO FORMA NATIONAL CITY CORPORATION:
NATIONAL CITY AND FOA
(UNAUDITED)
Earnings (In thousands, except per
share data)
Net interest income............... 2,814,750 2,845,064 2,752,341 2,704,363 2,644,370
Provision for loan losses......... 225,367 239,936 204,970 195,927 227,803
Income before cumulative effect of
accounting changes.............. 1,122,194 993,516 828,168 818,970 804,202
Net income........................ 1,122,194 993,516 828,168 818,970 864,202
Net income applicable to common
stock........................... 1,122,194 989,488 813,338 803,770 841,550
Earnings per common share before
cumulative effect of accounting
changes
Basic........................... 3.48 3.00 2.49 2.47 2.38
Diluted......................... 3.42 2.95 2.45 2.43 2.33
</TABLE>
14
<PAGE> 21
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Average common shares outstanding
Basic........................... 322,234 329,548 326,190 325,521 328,945
Diluted......................... 327,733 336,549 338,238 337,425 345,840
Average Balances (In millions)
Assets............................ $ 71,951 $ 70,924 $ 71,832 $ 66,762 $ 62,940
Earning assets.................... 65,380 64,541 65,811 61,069 57,677
Deposits.......................... 51,754 53,179 54,230 51,847 49,942
Other borrowings.................. 7,758 6,912 7,958 6,580 5,737
Long-term debt.................... 4,971 3,611 3,051 2,377 1,604
Stockholders' equity.............. 6,166 5,983 5,453 5,089 4,776
HISTORICAL FORT WAYNE NATIONAL
CORPORATION:
Earnings (In thousands, except per
share data)
Net interest income............... 117,547 99,796 79,356 78,815 78,465
Provision for loan losses......... 4,587 3,953 2,445 2,623 6,060
Net income........................ 36,846 32,502 26,707 26,212 24,133
Net income applicable to common
stock........................... 34,626 31,207 26,707 26,212 24,133
Earnings per common share:
Basic........................... 1.98 1.79 1.56 1.52 1.41
Diluted......................... 1.92 1.74 1.53 1.51 1.38
Cash dividends declared per common
share........................... 0.79 0.68 0.63 0.58 0.54
Average Balances (In millions)
(unaudited)
Assets............................ 3,205 2,766 2,173 2,093 2,066
Earning assets.................... 2,933 2,531 2,000 1,922 1,892
Deposits.......................... 2,410 2,091 1,658 1,622 1,613
Other borrowings.................. 386 347 268 239 240
Long-term debt.................... 84 38 7 7 8
Shareholders' equity.............. 296 264 217 203 183
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1997
------------
<S> <C>
PRO FORMA NATIONAL CITY CORPORATION:
NATIONAL CITY, FOA, AND FWNC
(UNAUDITED)
Earnings (In thousands, except per share data)
Net interest income......................................................... $2,932,297
Provision for loan losses................................................... 229,954
Net income.................................................................. 1,130,934
Net income applicable to common stock....................................... 1,128,714
Earnings per common share
Basic..................................................................... 3.37
Diluted................................................................... 3.31
Average common shares outstanding
Basic..................................................................... 335,326
Diluted................................................................... 342,143
Average Balances (in millions)
Assets...................................................................... 75,156
Earning assets.............................................................. 68,313
Deposits.................................................................... 54,164
Other borrowings............................................................ 8,144
Long-term debt.............................................................. 5,055
Stockholders' equity........................................................ 6,462
</TABLE>
15
<PAGE> 22
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following are the National City consolidated ratios of earnings to
combined fixed charges and preferred stock dividends for each of the years in
the five-year period ended December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends:
Excluding Interest on Deposits..................... 2.94x 3.01x 2.45x 3.28x 3.72x
Including Interest on Deposits..................... 1.63 1.61 1.45 1.65 1.66
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges
and preferred stock dividends, income before income taxes plus fixed charges has
been divided by fixed charges in 1997 and by the total of fixed charges and
pre-tax earnings required to cover preferred stock dividends in 1996, 1995, 1994
and 1993. Fixed charges, excluding interest on deposits, consist of interest on
short-term borrowings and long-term debt, amortization of debt expense, and that
portion of rental expense which is deemed representative of the interest factor.
Fixed charges, including interest on deposits, consist of the foregoing items
plus interest on deposits. Pre-tax earnings required to cover preferred stock
dividends have been computed by dividing preferred stock dividends by one minus
National City's income tax rate.
COMPARATIVE PER SHARE DATA
The following table sets forth certain comparative per share data, adjusted
for all applicable stock splits, related to net income, cash dividends declared
and book value: (i) on a historical basis for National City, FOA and FWNC, (ii)
on an unaudited pro forma combined basis per share of National City Common,
reflecting National City's consummation of (a) the merger with FOA and (b) the
merger with FOA and FWNC, (iii) on an unaudited pro forma equivalent basis per
share of FOA Common, reflecting National City's consummation of (a) the merger
with FOA and (b) the merger with FOA and FWNC, and (iv) on an unaudited pro
forma equivalent basis per share of FWNC Common, reflecting National City's
consummation of the merger with FOA and FWNC. Such unaudited pro forma
information has been prepared (i) assuming an Exchange Rate of 1.20 shares and
.75 shares of National City Common for each share of FOA Common and FWNC Common,
respectively, outstanding immediately prior to each merger, and (ii) giving
effect to the FOA merger on a pooling-of-interests accounting basis and the FWNC
merger on a purchase accounting basis. The unaudited pro forma income statement
information assumes that the FOA merger was consummated as of the beginning of
each of the periods indicated and the FWNC merger was consummated on January 1,
1997 and reflects FWNC information only for the year ended December 31, 1997.
The unaudited pro forma balance sheet information assumes the mergers with FOA
and FWNC occurred on December 31, 1997. National City expects to issue
approximately 13 million shares of National City Common to consummate the FWNC
merger. This issuance is expected to allow National City to account for the FOA
merger on a pooling-of-interests basis.
The following information should be read in conjunction with the historical
financial statements of National City, FOA and FWNC incorporated by reference in
the Proxy Statement and the unaudited pro forma combined consolidated financial
information giving effect to the FOA and FWNC mergers included elsewhere in the
Proxy Statement - see "AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "PRO FORMA COMBINED CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED)."
The earnings data presented below does not include merger-related charges
and/or anticipated cost savings from the consolidation of the operations of
National City, FOA and FWNC, and is not necessarily indicative of the results
which actually would have been attained had the mergers been consummated in the
past or which may be attained in the future.
16
<PAGE> 23
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
NATIONAL CITY COMMON STOCK
Earnings per common share before cumulative effect of accounting
changes:
Historical
Basic.................................................... $ 3.73 $3.34 $2.71
Diluted.................................................. 3.66 3.27 2.64
Pro forma National City and FOA
Basic.................................................... 3.48 3.00 2.49
Diluted.................................................. 3.42 2.95 2.45
Pro Forma National City, FOA and FWNC(1)
Basic.................................................... 3.37
Diluted.................................................. 3.31
Cash dividends declared per common share(2)
Historical................................................. 1.72 1.88 1.30
Book value per common share at period-end(1)
Historical................................................. 20.28
Pro forma National City and FOA............................ 18.75
Pro forma National City, FOA and FWNC...................... 20.59
FIRST OF AMERICA COMMON STOCK
Earnings per common share before cumulative effect of accounting
changes:
Historical
Basic.................................................... $ 3.57 $2.79 $2.50
Diluted.................................................. 3.53 2.77 2.49
Pro forma equivalent National City and FOA(3)
Basic.................................................... 4.18 3.60 2.99
Diluted.................................................. 4.10 3.54 2.94
Pro forma equivalent National City, FOA and FWNC(1)(3)
Basic.................................................... 4.04
Diluted.................................................. 3.97
Cash dividends declared per common share(2)
Historical................................................. 1.33 1.21 1.15
Pro forma equivalent(3).................................... 2.064 2.256 1.560
Book value per common share at period-end(1)
Historical................................................. 21.52
Pro forma equivalent National City and FOA(3).............. 22.50
Pro forma equivalent National City, FOA and FWNC(3)........ 24.83
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
FORT WAYNE NATIONAL COMMON STOCK
Earnings per common share before cumulative effect of accounting changes:
Historical
Basic................................................................ $ 1.98
Diluted.............................................................. 1.92
Pro forma equivalent National City, FOA and FWNC(4)
Basic................................................................ 2.53
Diluted.............................................................. 2.48
Cash dividends declared per common share(2)
Historical............................................................. 0.79
Pro forma equivalent(4)................................................ 1.29
Book value per common share at period-end(1)
Historical............................................................. 15.25
Pro forma National City, FOA and FWNC.................................. 15.44
</TABLE>
- ---------------
(1) Included for specified periods only in accordance with SEC rules.
17
<PAGE> 24
(2) No assurance can be given that equivalent dividends will be declared in the
future. The amount of future dividends payable by National City will depend
upon the earnings and financial condition of National City, and other
factors, including applicable regulations and policies.
(3) The equivalent pro forma combined per share data for FOA Common represents,
in the case of book value and earnings per common share, the pro forma per
share data for National City Common multiplied by the Exchange Rate (i.e.,
1.2), and in the case of dividends declared, the historical per share data
of National City Common multiplied by the Exchange Rate (i.e., 1.2).
(4) The equivalent pro forma combined per share data for FWNC Common represents,
in the case of book value and earnings per common share, the pro forma per
share data for National City Common multiplied by the Exchange Rate (i.e.,
.75), and in the case of dividends declared, the historical per share data
of National City Common multiplied by the Exchange Rate (i.e., .75).
LISTING OF NATIONAL CITY COMMON
National City will list the shares of National City Common to be issued in
the Merger on the New York Stock Exchange.
18
<PAGE> 25
THE MEETINGS
This Proxy Statement is being furnished to the stockholders of National
City and the shareholders of FOA in connection with the solicitation of proxies
by the Boards of Directors of National City and FOA for use at their respective
Annual Meeting and Special Meeting and at any adjournment or adjournments
thereof. The Annual Meeting of National City will be held on March 30, 1998, at
the Pittsburgh Hilton and Towers, Gateway Center, 600 Commonwealth Place,
Pittsburgh, Pennsylvania, commencing at 10:30 a.m., Eastern Standard Time. The
Special Meeting will be held on March 30, 1998, at the Radisson Plaza Hotel at
Kalamazoo Center, Kalamazoo, Michigan, commencing at 9:00 a.m., Eastern Standard
Time.
VOTING
NATIONAL CITY
A quorum is required for the transaction of business by stockholders at the
Annual Meeting. The holders of not less than a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy shall constitute a quorum. The election of directors requires the
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. The approval
of the selection of Ernst and Young LLP as independent auditors for 1998
requires the affirmative vote of the holders of the majority of shares present
in person or represented by proxy and entitled to vote at the Annual Meeting.
The proposal to adopt the Agreement requires the affirmative vote of the holders
of a majority of the shares outstanding and entitled to vote. Shares represented
by proxies which are marked "abstain" on any of the proposals will be counted
for the purposes of determining the number of shares represented by proxy at the
meeting and not in support of the proposal. Such proxies will thus have the
effect as if the shares represented thereby were voted against those proposals
marked "abstain" (except for the election of directors which is by a plurality
of the votes). Shares not voted on proxies returned by brokers will be treated
as not represented at the meeting and will therefor have no impact on the
adoption of all the proposals set forth in this proxy except for the adoption of
the Agreement. Any action or inaction other than a vote for the adoption of the
Agreement or the returning of the proxy signed but not marked is the equivalent
to a no vote.
FOA
A quorum is required for the transaction of business by shareholders at the
Special Meeting. The presence in person or by proxy of at least a majority of
the shares of FOA Common outstanding and entitled to vote at the meeting
constitutes a quorum. Under Michigan law abstentions are counted for purposes of
determining whether a quorum is present. Approval of the Agreement requires the
affirmative vote of the holders of a majority of the shares outstanding and
entitled to vote. Shares represented by proxies which are marked "abstain" will
thus have the effect as if the shares represented thereby were voted against the
proposal to approve the Agreement. Given that approval of the Agreement is the
only matter to be considered at the Special Meeting, there should not be any
broker nonvotes. Nevertheless, like abstentions, broker nonvotes have the effect
as votes against the Agreement.
RECORD DATES AND VOTING RIGHTS
National City. The Board of Directors of National City has fixed the close
of business on February 2, 1998 as the record date for determination of
stockholders entitled to receive notice of and to vote at the Annual Meeting. On
the record date, National City had 211,467,780 shares of National City Common
outstanding, each of which is entitled to one vote on all matters to be acted
upon at the meeting. The affirmative vote of the holders of a majority of the
outstanding shares of National City Common entitled to vote at the Annual
Meeting is required to adopt the Agreement and to satisfy the NYSE listing
requirements to which National City is subject.
FOA. The Board of Directors of FOA has fixed the close of business on
February 10, 1998 as the record date for determination of shareholders entitled
to notice of and to vote at the Special Meeting. As of the record date, FOA had
outstanding and entitled to vote 87,354,800 shares of FOA Common, each of which
is entitled to one vote. The affirmative vote of the holders of a majority of
outstanding shares of FOA Common entitled to vote at the Special Meeting is
required to approve the Agreement under the MBCA.
VOTING AND REVOCATION OF PROXIES
Forms of proxy for use at the Annual Meeting and the Special Meeting
accompany this Proxy Statement. A National City stockholder or a FOA shareholder
may use a different form of proxy. A National City stockholder or a FOA
shareholder should complete, sign, date and return a proxy if he or she is
unable to attend the applicable
19
<PAGE> 26
meeting in person or wishes to have his or her shares voted by proxy even if he
or she does attend the meeting. The proxy may be revoked in writing by the
person giving it at any time before it is exercised by providing notice of such
revocation to the Secretary of National City or of FOA, as the case may be, or
by submitting a proxy having a later date, or by such person appearing at the
meeting and electing to vote in person. All proxies validly submitted and not
revoked will be voted in the manner specified therein by the stockholder or
shareholder. If no specification is made, shares of FOA Common represented by
proxy will be voted FOR the approval of the Agreement and FOR approval of a
proposal to adjourn the meeting, if made to permit the solicitation of
additional proxies for approval of the Agreement. If no specification is made,
shares of National City Common represented by proxy will be voted FOR the
election of directors, FOR the approval of the selection of Ernst & Young LLP as
independent auditors for 1998, FOR the adoption of the Agreement, and FOR
approval of a proposal to adjourn the meeting, to permit the solicitation of
additional votes and in their discretion to vote and act upon such other
business as may properly come before the meeting. A specification to vote
against or to abstain from approval or adoption, as applicable, of the Agreement
will constitute a withdrawal of authority of those proxies to vote for an
adjournment of the Annual Meeting or the Special Meeting, as applicable, for the
purpose of soliciting additional proxies.
National City and FOA will each bear its own cost of solicitation of
proxies from its stockholders and shareholders, respectively. In addition to
using the mails, proxies may be solicited by personal interview, telephone and
wire. It is anticipated that banks, brokerage houses and other institutions,
nominees or fiduciaries will be requested to forward their proxy soliciting
material to their principals and to obtain authorizations for the executions of
proxies. Officers and regular employees of National City or its subsidiaries and
of FOA or its subsidiaries, acting on behalf of National City or FOA, as the
case may be, may solicit proxies personally or by telephone or wire. National
City has retained Corporate Investor Communications, Inc. to assist in its
solicitations. The fees of Corporate Investor Communications, Inc. are estimated
to be $10,000. FOA has retained Georgeson & Company to assist in its
solicitations. The fees of Georgeson & Company are estimated to be $7,500.
Corporate Investor Communications, Inc. and Georgeson & Company will be
reimbursed by the respective parties for their reasonable out-of-pocket costs
and expenses. Neither National City nor FOA expects to pay any other
compensation for the solicitation of proxies, but may, upon request, pay the
standard charges and expenses of banks, brokerage houses, and other
institutions, nominees and fiduciaries for forwarding proxy materials to and
obtaining proxies from their principals. However, no such payment will be made
to any of National City's or FOA's subsidiaries acting through their nominees or
acting as fiduciaries.
Neither the Board of Directors of National City nor the Board of Directors
of FOA is aware of any matter other than the matters set forth in this Proxy
Statement that may be presented for action at the respective meetings, but if
other matters do properly come before the respective meetings or any
adjournments thereof then it is intended that the shares represented by
execution of the accompanying forms of proxy will be voted by the persons named
therein in accordance with their best judgment pursuant to the discretionary
authority granted therein.
1. ELECTION OF DIRECTORS -- NATIONAL CITY
BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of National City has responsibility for establishing
broad corporate policies and overall performance of National City. However, it
is not involved in the day to day operating details of National City's business.
Members of the Board are kept informed of National City's business through
various documents and reports provided by the Chairman and other officers of
National City and by participating in Board and committee meetings. Each
director has access to all books, records and reports of National City, and
members of management are available at all times to answer their questions.
In 1997, the Board of Directors of National City held eight meetings.
Average attendance by directors at those meetings was 92% and, except for
Messrs. Lemieux, Lunsford and Weiss, all directors attended 75% or more of the
meetings of the Board and the Board Committees they were scheduled to attend.
Except for Mr. Lemieux, all of the persons nominated and elected as directors of
National City at National City's 1997 Annual Meeting of Stockholders attended
that Annual Meeting.
The Board of Directors of National City has established several permanent
committees comprised of directors who are appointed to those committees
annually. The principal committees are the Audit Committee, the Compensation and
Organization Committee, the Executive Committee, the Investment Committee, the
Nominating Committee and the Public Policy Committee, each of which is described
below. The members of
20
<PAGE> 27
each of those Committees are identified below and in the biographical material
of the nominees for election of Directors beginning at page 23.
The Audit Committee. Mr. Evans is the Chairman of the Audit Committee and
Messrs. Bowman, Broadhurst, Lunsford, Schuler and Weiss are members of the Audit
Committee. The Audit Committee is required to meet at least semiannually and met
three times during 1997. The Audit Committee is composed of directors who are
independent of the management of National City and are free of any relationship
that would interfere with their exercise of independent judgment as committee
members. The responsibility for effective auditing of National City and any
subsidiary is carried out by the Audit Committee through the general auditor and
the independent auditors. The Audit Committee provides assistance to the Board
of Directors of National City in fulfilling its responsibility to stockholders,
potential stockholders, and the investment community relating to corporate
accounting and reporting practices of National City, effectiveness of its
internal control structure and procedures for financial reporting, and
compliance with designated laws and regulations. In so doing, the Audit
Committee maintains free and open communications between the directors, the
independent auditors, the general auditor and the management of National City.
The Compensation and Organization Committee. Mr. Breen is the Chairman of
the Compensation and Organization Committee and Messrs. Broadhurst, Collins,
Evans and Lemieux are members of the Compensation and Organization Committee.
The Compensation and Organization Committee meets on the call of the Chairman of
the Board of Directors and met six times during 1997. The Compensation and
Organization Committee considers matters relating to compensation policy and
compensation of senior officers of National City and its subsidiaries and makes
recommendations to the Board of Directors of National City on matters relating
to succession and organization of senior executive management. Under the terms
of each of National City's Amended and Restated 1973 Stock Option Plan, as
amended, 1984 Stock Option Plan, as amended, the 1989 Stock Option Plan, the
1993 Stock Option Plan and the 1997 Stock Option Plan the Compensation and
Organization Committee is authorized to grant stock option rights and stock
appreciation rights to officers and employees of National City and its
subsidiaries. The Compensation and Organization Committee also determines
participants and establishes the peer group for the Long Term Incentive
Compensation Plan and the Annual Corporate Performance Incentive Plan and sets
the awards granted pursuant to the Short Term Incentive Plan. The Compensation
and Organization Committee also determines those employees who are eligible to
receive awards of restricted stock under the National City Corporation Amended
and Second Restated 1991 Restricted Stock Plan and the 1997 Restricted Stock
Plan.
The Executive Committee. Mr. Daberko is the Chairman of the Executive
Committee and Ms. Austin and Messrs. Bowman, Brandon, Breen, Frenzel, Lemieux,
Lunsford, Paul, Roemer and Weiss are members of the Executive Committee. The
Executive Committee meets on the call of the Chairman of the Board of Directors
of National City and met twice during 1997. The Executive Committee is empowered
to exercise all powers and perform all duties of the Board of Directors of
National City as permitted by applicable law when the Board is not in session.
The Investment Committee. Ms. Austin is the Chairperson of the Investment
Committee and Ms. Healy and Messrs. Bowman, Paul, Robertson and Stitle are
members of the Investment Committee. The Investment Committee meets on the call
of the Chairman of the Board of Directors and met three times during 1997. The
Investment Committee is empowered to oversee investments and interest rate risk
management.
The Nominating Committee. Mr. Daberko is Chairman of the Nominating
Committee and Messrs. Brandon, Breen, Frenzel, Roemer, Stitle and Weiss are
members of the Nominating Committee. The Nominating Committee meets on the call
of the Chairman of the Board of Directors of National City and met twice during
1997. The Committee confers, advises and recommends with respect to nominations
to fill vacancies on the Board of Directors of National City. Stockholders may
submit the name of a possible nominee to the Chairman, and he will arrange for
that person to be given consideration by the Committee. Further, stockholders
may make nominations from the floor at the Annual Meeting.
The Public Policy Committee. Mr. Bowman is Chairman of the Public Policy
Committee and Ms. Healy and Messrs. Lunsford, Robertson, Schuler and Stitle are
members of the Public Policy Committee. The Public Policy Committee meets on the
call of the Chairman of the Committee and met twice during 1997. The Public
Policy
21
<PAGE> 28
Committee has responsibility to oversee the various policies and programs of
National City as they relate to its relationships with employees, regulatory
agencies, governments, charitable organizations and the general public.
COMPENSATION OF DIRECTORS
Members of the Board of Directors of National City who are not officers of
National City, or any of its subsidiaries, receive a yearly retainer, payable in
quarterly installments, and a fee for each meeting of the Board, and of each
committee thereof, which they attend. The yearly retainer is $22,000*. The fee
for attendance at any Board meeting or any committee meeting that is scheduled
for a day other than a day on which there is scheduled a meeting of the full
Board of Directors of National City is $2,000. The fee for attendance at any
committee meeting where such meeting is scheduled on the same day as a scheduled
meeting of the Board of Directors of National City is $1,000. Each of the
non-officer chairpersons of committees of the Board of Directors of National
City receives an additional annual retainer of $2,500 paid in quarterly
installments. Under a plan for the deferred payment of director's fees, a
director may elect to have the payment of fees deferred until later years.
In addition, currently each non-officer incumbent member of the Board on
the date when the National City Corporation Amended and Second Restated 1991
Restricted Stock Plan became effective was, and each individual who is first
elected or appointed as a member of the Board thereafter will be, awarded 1,000
shares of National City Common subject to transfer restrictions. Furthermore,
each year in which an individual is re-elected or re-appointed as a member of
the Board, such individual is to be awarded an additional 200 shares of National
City Common the transfer of which also is restricted. The restrictions on such
shares of National City Common do not expire until the earlier of the individual
director's death, disability or a date nine months after the date of the award.
Also, to maximize the return to stockholders and promote the long-term
profitability and success of National City by providing incentive compensation
to non-employee directors of National City based on the long-term performance of
the National City Common, the National City Board of Directors Long-Term
Incentive Compensation Plan credits each non-employee director with an annual
award ranging from zero to a maximum of $25,000. The actual award is based on
National City's position as of December 31 of each year in the peer group used
for the 3 year plan cycle then ending under the National City Long-Term
Incentive Compensation Plan for Senior Officers. The award is credited to a
deferred compensation account for the benefit of the non-employee director and
is "invested" in phantom units of National City Stock. The award credited to the
non-employee director accounts for 1997 was $14,250.
NOMINEES FOR ELECTION AS DIRECTORS
Directors are to be elected to serve until the next Annual Meeting and
until their respective successors are duly elected and have qualified. It is
intended that shares represented by the proxies, unless contrary instructions
are given, will be voted for the election of the nominees listed below as
directors, whose number is equal to the total authorized number of directors.
Although management does not expect that any nominee will be unavailable for
election, in the event that vacancies occur unexpectedly, the shares will be
voted for substitute nominees, if any.
The fifteen nominees for election to the Board of Directors of National
City are identified on pages 22 through 24. All of the nominees are presently
directors of National City. All of the incumbent members of the Board of
Directors of National City were elected at the last Annual Meeting. The
following material contains biographical information concerning each of the
nominees, including their recent employment, positions with National City, other
directorships, age and the number of shares of National City Common beneficially
owned, all as of December 31, 1997. Unless otherwise indicated, the nominee has
sole voting and investment power with respect to National City's securities
shown to be owned by him. Options that are exercisable within 60 days of
December 31, 1997 are separately noted (See Beneficial Ownership at page 23).
VOTE BY STOCKHOLDERS
The election of directors requires the plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
- ---------------
* Each individual director who is not an officer of National City or any of its
subsidiaries and is a member of the board of directors of a subsidiary
receives compensation from the subsidiary for his responsibilities at that
subsidiary.
22
<PAGE> 29
<TABLE>
<S> <C>
[PHOTO] SANDRA HARDEN AUSTIN, Retired as President, Physician Services, Caremark
International, a provider of health care products and services, in 1996.
Executive Vice President and Chief Operating Officer of University of
Chicago Hospitals from 1990 to 1993. Chairperson of the Investment
Committee and Member of the Executive Committee. Age 50. Shares of
National City Common owned: 3,022.
[PHOTO] EDWARD B. BRANDON, Retired as Chairman of the Board of National City in
1995. Chairman of the Board and Chief Executive Officer of National City
from 1987 to 1995. Director of Premier Industrial Corp., RPM, Inc. and
The Standard Products Company. Director of National City since 1986;
Member of the Executive and Nominating Committees. Age 66. Shares of
National City Common owned: 79,916; options exercisable within 60 days:
150,000.
[PHOTO] JOHN G. BREEN, Chairman of the Board and Chief Executive Officer of The
Sherwin-Williams Company, a manufacturer of coatings, since 1980.
Director of The Sherwin-Williams Company, The Mead Corporation,
Parker-Hannifin Corporation and Goodyear Tire & Rubber Co. Director of
National City since 1979; Chairman of the Compensation and Organization
Committee and Member of the Executive and Nominating Committees. Age 63.
Shares of National City Common owned: 31,376.
[PHOTO] JAMES S. BROADHURST, Chairman and Chief Executive Officer of Eat'n Park
Restaurants, a chain of family restaurants, since 1984. Director of
Sheetz, Inc. Director of National City since 1996. Member of the Audit
and Compensation and Organization Committees. Age 54. Shares of National
City Common owned: 5,100; options exercisable within 60 days: 6,000.
[PHOTO] DUANE E. COLLINS, President and Chief Executive Officer of Parker
Hannifin Corporation, a durable goods manufacturer, since 1993. Vice
Chairman of Parker Hannifin Corporation for the previous year.
President -- International 1987 to 1992. Director of Parker Hannifin
Corporation and the Sherwin-Williams Company. Director of National City
since 1995, Member of the Compensation and Organization Committee. Age:
61. Shares of National City Common owned: 4,800.
</TABLE>
23
<PAGE> 30
<TABLE>
<S> <C>
[PHOTO] DAVID A. DABERKO, Chairman of the Board and Chief Executive Officer of
National City since 1995. President and Chief Operating Officer of
National City from 1993 to 1995 and Deputy Chairman of National City
from 1987 to 1993. Director of National City since 1988, Chairman of the
Executive and Nominating Committees. Age 52. Shares of National City
Common owned: 180,733; options exercisable within 60 days: 221,509.
[PHOTO] DANIEL E. EVANS, Chairman of the Board and Chief Executive Officer of
Bob Evans Farms, Inc., a restaurant and food products company, since
1971. Director of Bob Evans Farms, Inc. and The Sherwin-Williams
Company. Director of National City since 1992, Chairman of the Audit
Committee and Member of the Compensation and Organization Committees.
Age 61. Shares of National City Common owned: 6,516.
[PHOTO] BERNADINE P. HEALY, M.D., Professor of Medicine and Dean of Ohio State
University College of Medicine since September 1995. Sr. Policy Advisor,
The Cleveland Clinic Foundation from 1994-1995. Past Director of the
National Institutes of Health from 1991 to 1993. Director of Medtronic
Inc. and Invacare Corporation. Director of National City since 1995 and
previously a Director from 1989 to 1990. Member of Public Policy and
Investment Committees. Age 53. Shares of National City Common owned:
5,029.
[PHOTO] JOSEPH H. LEMIEUX, Chairman and Chief Executive Officer of
Owens-Illinois, Inc., a manufacturer of packaging products, since 1990.
Director of Owens-Illinois, Inc., Health Care and Retirement
Corporation, Libbey Inc., and Consol Limited (Johannesburg Exchange).
Director of National City since 1988, Member of the Executive and
Compensation and Organization Committees. Age 66. Shares of National
City Common owned: 3,395.
[PHOTO] W. BRUCE LUNSFORD, Chairman of the Board, President and Chief Executive
Officer of Vencor, Inc., a diversified healthcare provider, since 1985.
Director of Vencor, Inc., Churchill Downs, Incorporated, Atria
Communities, Inc. and Res-Care, Inc. Director of National City since
1995. Member of the Audit, Executive and Public Policy Committees. Age
50. Shares of National City Common owned: 15,400.
</TABLE>
24
<PAGE> 31
<TABLE>
<S> <C>
[PHOTO] ROBERT A PAUL, President and Chief Executive Officer of Ampco-Pittsburgh
Corporation, a manufacturer of engineered equipment and steel products,
since 1994. President and Chief Operating Officer from 1979-1994.
Executive Vice President and Director of the Louis Berkman Company.
Director of National City since 1996. Member of the Executive and
Investment Committees. Age 60. Shares of National City Common owned:
883,600.
[PHOTO] WILLIAM F. ROEMER, Retired as Chairman of the Board and Chief Executive
Officer of Integra Financial Corporation, a diversified financial
services corporation, during 1996 after the merger of Integra Financial
Corporation with and into National city. Served as Chairman and Chief
Exective Officer of Integra Financial Corporation since 1991 and
President and Chief Executive Officer since 1989. Director of National
City since 1996. Member of the Executive and Nominating Committees. Age
64. Shares of National City Common owned: 41,222; options exercisable
within 60 days: 428,000.
[PHOTO] MICHAEL A. SCHULER, Chairman of the Board, President and Chief Executive
Officer of Zippo Manufacturing Company, a manufacturer of lighters and
metal products, since 1986. Director of Zippo Manufacturing Company and
W.R. Case & Sons Cutlery Company. Director of National City since 1996.
Member of the Audit and Public Policy Committees. Age 48. Shares of
National City common owned: 6,200; options exercisable within 60 days:
2,600.
[PHOTO] STEPHEN A. STITLE, Chairman of the Board of National City Bank, Indiana
since 1996. Vice President, Corporate Affairs of Eli Lilly and Company,
a pharmaceutical company, from 1993 to 1995. Vice President of Human
Resources of Eli Lilly and Company from 1987 to 1993. Director of
National City since 1992, Member of the Investment, Nominating and
Public Policy Committees. Age 50. Shares of National City Common owned:
35,672; options exercisable in 60 days: 3,999.
[PHOTO] MORRY WEISS, Chairman of the Board and Chief Executive Officer of
American Greetings Corporation, a greeting card manufacturer, since
1993; President and Chief Executive Officer of American Greetings
Corporation from 1987 to 1993. Director of American Greetings
Corporation, Syratech Corporation and Artistic Greetings Incorporated.
Director of National City since 1992, Member of the Executive, Audit and
Nominating Committees. Age 55. Shares of National City Common owned:
6,800.
</TABLE>
THE BOARD OF DIRECTORS OF NATIONAL CITY RECOMMENDS A VOTE FOR THE SLATE OF
DIRECTORS.
25
<PAGE> 32
BENEFICIAL OWNERSHIP
As of December 31, 1997, National City had one class of equity securities
outstanding, National City Common par value $4.00. See "DESCRIPTION OF National
City CAPITAL STOCK."
Beneficial ownership of National City's outstanding equity securities, for
purposes of the ownership disclosures, has been determined in accordance with
Rule 13d-3 of the General Rules and Regulations under the Exchange Act, under
which Rule a person is deemed to be the beneficial owner of securities if he or
she has or shares voting power or investment power in respect of such securities
or has the right to acquire beneficial ownership within 60 days. Accordingly,
the amounts shown do not purport to represent beneficial ownership for any
purpose other than as set forth under such Rule. Further, beneficial ownership
as determined in this manner does not necessarily bear on the economic incidence
of ownership of National City's equity securities.
As of December 31, 1997, to the knowledge of National City, no person or
firm, except as noted below, beneficially owned more than 5% of National City
Common outstanding on that date. As of December 31, 1997, no individual
director, nominee or officer beneficially owned more than 5% of National City's
outstanding Common Stock. For purpose of this disclosure, the amount of
outstanding National City Common is the aggregate number of shares of National
City's Common actually outstanding on such date plus an amount equal to the
aggregate amount of National City's Common which could be issued upon the
exercise of stock options by such person or firm at that date. Beneficial
ownership of National City's Common includes, as of such date, those shares
which could have been acquired by the exercise of stock options and, for
purposes of this disclosure, those shares held for the benefit of such officers
in the National City Corporation Savings and Investment Trust.
As of December 31, 1997, to National City's knowledge, only National City
beneficially owned more than 5% of the outstanding National City Common. As of
December 31, 1997 National City owned 32,059,828 shares of National City's
Common which constituted 15.2% of the outstanding National City Common on that
date. These shares are held in various fiduciary capacities through National
City's wholly owned banking subsidiaries, primarily National City Bank, National
City Bank of Columbus, National City Bank of Kentucky, National City Bank of
Indiana and National City Bank of Pennsylvania. Of the 22,240,216 shares of
National City Common as to which National City, through its subsidiaries, had,
as of December 31, 1997, voting authority, it had sole voting authority as to
21,667,566 of those shares and shared voting authority as to the remainder. Of
the 30,131,113 shares as to which National City, through its subsidiaries, had,
as of December 31, 1997, investment authority, it had sole investment authority
as to 20,948,906 of those shares, and shared investment authority as to the
remainder. Included in the aggregate number of shares held as to which National
City had, as of December 31, 1997, sole voting and investment authority were
543,904 shares held under the National City Non-Contributory Retirement Trust.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under federal securities law, National City's directors, certain officers,
and persons holding more than 10% of any class of National City's equity
securities are required to report, within specified monthly and annual due
dates, their initial ownership in any class of National City's equity securities
and all subsequent acquisitions, dispositions or other transfers of interest in
such securities, if and to the extent reportable events occur that require
reporting by such due dates. National City is required to describe in this proxy
statement whether it has knowledge that any person required to file such a
report may have failed to do so in a timely manner. In this regard, to National
City's knowledge, based solely on the review of copies of reports furnished to
National City by its directors and executive officers pursuant to Rule 16a-3
promulgated pursuant to the Exchange Act, and on written representations that no
other reports were required during the period ending December 31, 1997, all of
National City's directors and officers satisfied such filing requirements in
full, except that Bernadine P. Healy, M.D. filed her May, 1997 Form 4 reflecting
a May 30, 1997 market purchase of 500 shares 10 days late on June 20, 1997.
OWNERSHIP GUIDELINES
The Board of Directors of National City established stock ownership
guidelines for directors at its February 26, 1996 meeting. The guidelines
recommend that each director beneficially own 6,000 shares of National City
Common.
26
<PAGE> 33
The following table sets forth the beneficial security ownership of (a)
each director and nominee of National City, (b) the chief executive officer and
the four other most highly compensated executive officers of National City and
(c) all directors and executive officers of National City as a Group, as of
December 31, 1997 (including shares that such individuals could have acquired by
the exercise of options within 60 days):
- --------------------------------------------------------------------------------
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
SHARE EQUIVALENT TOTAL SHARES &
AMOUNT OF SHARES PERCENT OF HELD IN DEFERRED SHARE EQUIVALENTS
TITLE OF CLASS NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS COMPENSATION PLANS BENEFICIALLY HELD
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock Sandra Harden Austin 3,022 * 5,623 8,645
Common Stock Charles H. Bowman 3,400 * 4,049 7,449
Common Stock Edward B. Brandon 229,916 * 217 230,133
Common Stock John G. Breen 31,376 * 217 31,593
Common Stock James S. Broadhurst 11,100 * 217 11,317
Common Stock Duane E. Collins 4,800 * 3,407 8,207
Common Stock David A. Daberko 402,242 * 1,453 403,695
Common Stock Vincent A. DiGirolamo 140,561 * 2,812 143,373
Common Stock Daniel E. Evans 6,516 * 217 6,733
Common Stock Otto N. Frenzel III 1,583,070(1) * 217 1,583,287
Common Stock Jon L. Gorney 65,105 * 3,011 68,116
Common Stock Bernadine P. Healy, M.D. 5,029 * 217 5,246
Common Stock Joseph H. Lemieux 3,395 * 15,534 18,929
Common Stock W. Bruce Lunsford 15,400 * 217 15,617
Common Stock William E. MacDonald III 147,794 * 147,794
Common Stock Robert A. Paul 883,600 * 7,532 891,132
Common Stock William R. Robertson 464,850(2) * 217 465,067
Common Stock William F. Roemer 469,222 * 2,201 471,423
Common Stock Michael A. Schuler 8,800 * 217 9,017
Common Stock Robert G. Siefers 56,186 * 1,886 58,072
Common Stock Stephen A. Stitle 39,671 * 1,067 40,738
Common Stock Morry Weiss 6,800 * 1,273 8,073
Common Stock Directors and Executive Officers 5,169,055 2.4%
of National City as a Group
</TABLE>
* The percent of National City Common beneficially owned is less than 1%.
(1) Mr. Frenzel shares voting and investment powers as to 153,650 shares of
National City Common.
(2) Mr. Robertson is the beneficial owner of 150,038 shares of National City
Common and holds options that are currently exercisable to acquire an
additional 314,812 shares of National City Common.
The following table sets forth the beneficial security ownership of all
shareholders known to National City to be the beneficial owner of more than five
percent of National City Common.
- --------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
(2) (3)
NAME AMOUNT
(1) AND ADDRESS AND NATURE OF (4)
TITLE OF OF BENEFICIAL BENEFICIAL PERCENT
CLASS OWNER OWNERSHIP(1) OF CLASS
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock National City Corporation 32,059,828 15.2%
1900 East Ninth Street
Cleveland, OH 44114-3484
</TABLE>
- ---------------
(1) No listed beneficial owner has the right to acquire beneficial ownership, as
specified in Rule 13d-3(d)(1) under the Exchange Act.
27
<PAGE> 34
REMUNERATION OF EXECUTIVE OFFICERS
AND TRANSACTIONS WITH MANAGEMENT -- NATIONAL CITY
EXECUTIVE COMPENSATION
(a) COMPENSATION. The following table sets forth, together with certain
other information, the compensation earned during the fiscal year ended December
31, 1997 by (i) David A. Daberko, the chief executive officer, and (ii) the four
other most highly compensated executive officers of National City and its
subsidiaries.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------
AWARDS
ANNUAL COMPENSATION -------------------------
------------------------------------------- RESTRICTED SECURITIES PAYOUTS ALL
OTHER STOCK UNDERLYING ---------- OTHER
NAME AND PRINCIPAL BONUS ANNUAL AWARD(S) OPTIONS/ LTIP COMP
POSITION YEAR SALARY($) ($)(1) COMP($) ($)(2) SARS(#) PAYOUTS($) ($)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------
D. A. Daberko 1997 $698,677 $371,250 $0 $ 719,108 198,088 $ 289,792 $86,297
Chairman of the Board 1996 $598,000 $368,348 $0 $ 783,203 382,607 $ 325,207 $74,776
and Chief Executive Officer 1995 $499,375 $300,400 $0 $ 55,269 75,000 $ 260,910 $66,678
V. A. DiGirolamo 1997 $437,500 $360,000 $0 $ 588,463 119,267 $ 108,100 $52,265
Vice Chairman 1996 $366,667 $308,750 $0 $ 406,119 156,859 $ 125,627 $40,704
1995 $276,833 $168,350 $0 $ 76,181 30,000 $ 107,893 $34,748
R. G. Siefers 1997 $283,333 $462,500 $0 $ 124,925 93,678 $ 75,667 $32,046
Vice Chairman 1996 $246,667 $383,750 $0 $ 343,294 149,410 $ 95,433 $29,883
1995 $226,667 $122,820 $0 $ 19,875 17,500 $ 88,667 $22,305
W. E. MacDonald III 1997 $310,000 $ 85,050 $0 $ 284,829 40,268 $ 83,917 $34,900
Executive Vice President 1996 $282,500 $ 89,775 $0 $ 267,006 136,669 $ 105,817 $32,530
1995 $246,667 $144,720 $0 $ 26,500 20,000 $ 95,317 $28,093
J. L. Gorney 1997 $275,000 $201,000 $0 $ 39,450 46,135 $ 74,167 $30,401
Executive Vice President 1996 $245,833 $168,750 $0 $ 65,069 104,386 $ 92,750 $28,215
1995 $220,833 $125,000 $0 $ 14,906 16,000 $ 52,920 $23,119
</TABLE>
- --------------------------------------------------------------------------------
(1) The National City Corporation Short Term Incentive Plan for Senior Officers
and the National City Corporation Annual Corporate Performance Plan awards
include both cash and deferred awards. The objectives used in determining
awards and their relative weights under Short Term Plan and Annual Corporate
Performance Plan are set forth on page 39. Based on the National City
objectives and their weights, the payout under the Annual Corporate
Performance Plan for 1997 was 100% of the target.
(2) Restricted Stock was granted to offset projected Supplemental Executive
Retirement Plan benefits (see page 40). In addition, D. A. Daberko and W.E.
MacDonald elected to receive a portion of their Short-Term Incentive
Compensation Plan award in the form of Restricted Stock (see page 40). The
value of the Restricted Stock granted to D.A. Daberko as payment of his
Short-Term Incentive Compensation Plan Award $436,514. The value of the
Restricted Stock granted to W.E. MacDonald as payment of his Short-Term
Incentive Compensation Plan Award was $162,008. D.A. Daberko has, in the
aggregate 39,940 shares of Restricted Stock having a total value as of
12/31/97 of $2,626,084. V.A. DiGirolamo has, in the aggregate 28,250 shares
of Restricted Stock having a total value as of 12/31/97 of $1,857,438. R.G.
Siefers has, in the aggregate 12,150 shares of Restricted Stock having a
total value as of 12/31/97 of $798,863. W.E. MacDonald has, in the aggregate
13,133 shares of Restricted Stock having a total value as of 12/31/97 of
$863,476. J.L. Gorney has, in the aggregate 3,200 shares of Restricted Stock
having a total value as of 12/31/97 of $210,400. The named executive
officers receive dividends on their Restricted Stock at the same rate and
frequency as all stockholders.
(3) All Other Compensation includes the Executive Plan (see page 38) and the
Savings and Investment Plan (see page 37) matching and profit-sharing
components together with premiums paid by National City in connection with
split dollar insurance contracts, but does not include retirement accruals
as these are not calculable. For the year 1997, each of the named executive
officers were credited with the following matching and profit-sharing amount
under the Savings and Investment Plan: D.A. Daberko, $10,058; V.A.
DiGirolamo
28
<PAGE> 35
$9,738; R.G. Siefers, $9,826; W.E. MacDonald, $9,878; J.L. Gorney, $9,826.
The named executive officers were credited with the following match and
profit-sharing amount under the Executive Savings Plan during the year 1997:
D.A. Daberko, $48,656; V.A. DiGirolamo, $26,804; R.G. Siefers, $14,207; W.E.
MacDonald, $16,922; J.L. Gorney, $13,757. All other compensation also
includes the following amounts equal to the full dollar value of the
remainder of the premiums paid by National City in connection with life
insurance policies issued pursuant to the Split Dollar Life Insurance
Agreements between National City and the following Named Executive Officers
during 1997, respectively, as applicable: D.A. Daberko, $27,584; V.A.
DiGirolamo, $15,723; R.G. Siefers, $8,013; W.E. MacDonald, $8,100; J.L.
Gorney, $6,818. The premiums paid by National City in connection with the
life insurance policies issued pursuant to such Split Dollar Life Insurance
Agreements, set forth in the preceding sentence, generally will be recovered
in full by National City upon the cancellation or purchase by a Named
Executive Officer of any such life insurance policy or the payment of any
death benefits under any such life insurance policy.
- --------------------------------------------------------------------------------
(b) OPTIONS. The following table provides information on option grants in
fiscal year 1997 to the Named Executive Officers.
- --------------------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) FISCAL YEAR (4) ($/SH) DATE ($) (5)
- ----------------------------------
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
D.A. Daberko...................... 18,123(1) 0.58% $ 55.750 06/24/02 $ 163,832
24,564(1) 0.78% $ 55.750 06/23/03 $ 222,059
30,401(1) 0.97% $ 55.750 07/06/04 $ 274,825
125,000(3) 0.06% $ 57.375 07/28/07 $ 1,163,750
V.A. DiGirolamo................... 9,706(1) 0.31% $ 50.125 06/24/02 $ 78,910
8,987(1) 0.29% $ 50.125 06/23/03 $ 73,064
70,000(3) 2.23% $ 57.375 07/28/07 $ 651,700
690(1) 0.02% $ 59.562 06/23/03 $ 6,665
11,728(1) 0.37% $ 59.562 07/06/04 $ 113,292
12,507(1) 0.40% $ 59.562 06/14/05 $ 120,818
5,649(1) 0.18% $ 59.562 09/14/05 $ 54,569
R.G. Siefers...................... 8,678(1) 0.28% $ 57.062 06/14/05 $ 80,272
60,000(3) 1.92% $ 57.375 07/28/07 $ 558,600
25,000(2) 0.80% $ 56.125 10/27/07 $ 252,500
W.E. MacDonald III................ 5,915(1) 0.19% $ 53.125 07/06/04 $ 50,987
9,353(1) 0.30% $ 53.125 06/14/05 $ 80,623
25,000(3) 0.80% $ 57.375 07/28/07 $ 232,750
J.L. Gorney....................... 3,033(1) 0.10% $ 49.625 06/23/03 $ 24,416
4,051(1) 0.13% $ 49.625 07/06/04 $ 32,611
25,000(3) 0.80% $ 57.375 07/28/07 $ 232,750
4,657(1) 0.15% $ 60.937 07/06/04 $ 46,011
6,318(1) 0.20% $ 60.937 06/14/05 $ 62,422
3,076(1) 0.09% $ 65.000 06/14/05 $ 32,421
</TABLE>
- --------------------------------------------------------------------------------
(1) Options are Additional Options as defined in the Amended and Restated
National City Corporation 1993 Stock Option Plan ("Additional Options").
Additional Options are granted at the market price of National
29
<PAGE> 36
City Common on the date of grant and become exercisable 6 months after the
date of grant. They have a contractual term equal to the remaining term of
the original option.
(2) Options are non-qualified stock options. One-third of the options become
exercisable annually beginning two years from the date of grant and all have
a contractual term of 10 years. Additional Option rights are attached to
each option and Additional Options will be granted upon exercise, subject to
certain provisions, if the exercise price or the related tax obligation is
paid using shares of National City Common owned by the optionee.
(3) One half of each option grant becomes exercisable one year after the date of
the grant and the remainder becomes exercisable on the second anniversary of
the grant. For incentive stock options a further restriction is placed on
the exercise of options such that the maximum number of shares of National
City Common which become initially available for purchase under all
post-1986 incentive stock option grants from National City in any calendar
year shall be limited to that number of shares the aggregate exercise price
of which does not exceed $100,000. Additional Option rights are attached to
each option and Additional Options will be granted upon exercise, subject to
certain provisions, if the exercise price or the related tax obligation is
paid using shares of National City Common owned by the optionee.
(4) National City granted options representing 3,132,668 shares to employees
during 1997.
(5) In accordance with Securities and Exchange Commission rules, the
Black-Scholes pricing model was used to estimate the Grant Date Present
Value. The values indicated were calculated using the following assumptions:
(i) an expected volatility of .194, (ii) an expected dividend yield of
3.50%, (iii) the risk-free interest rate at the date of grant based upon a
term equal to the expected life of the option (from 5.70% to 5.72%), (iv) an
expected option life equal to the anticipated period of time from date of
grant to exercise (from 3.9 years to 5.0 years), and (v) no discounts for
non-transferability or risk of forfeiture. The estimated values have been
included solely for purposes of disclosure in accordance with the rules of
the Securities and Exchange Commission and represent theoretical values. The
actual value, if any, an executive may realize will depend upon the increase
in the market price of National City Common through the date of exercise.
Such an increase would benefit all stockholders.
- --------------------------------------------------------------------------------
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<PAGE> 37
The following table sets forth the stock options exercised by each of the
Named Executive Officers during the calendar year 1997 and the December 31, 1997
value of all unexercised options held by the named executive officers.
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT 12/31/97 AT 12/31/97(2)
SHARES ------------- ---------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
D.A. Daberko......... 114,168 $ 3,407,180 148,421 $ 4,810,656
498,088 $11,077,755
V.A. DiGirolamo...... 84,448 $ 2,683,215 48,736 $ 1,465,888
250,574 $ 5,425,426
R.G. Siefers......... 44,893 $ 1,087,324 0 $ 0
218,678 $ 4,693,515
W.E. MacDonald III... 24,801 $ 713,176 79,681 $ 2,527,573
125,000 $ 3,309,375
J.L. Gorney.......... 35,450 $ 1,131,517 35,772 $ 1,290,155
139,051 $ 3,364,499
</TABLE>
- --------------------------------------------------------------------------------
(1) The "Value Realized" is equal to the difference between the option exercise
price and the fair market value of National City Common on the date of
exercise.
(2) The "Value of Unexercised In-The-Money Options/ SARs at 12/31/97" is equal
to the difference between the option/SAR exercise price and National City
Common's closing price on December 31, 1997 of $65.750.
- --------------------------------------------------------------------------------
The following table provides information on the awards of long term
incentive plan participation during the year 1997.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF OR OTHER NON-STOCK PRICE-BASED PLANS(3)
SHARES, UNITS PERIOD UNTIL -----------------------------------
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#)(1) PAYOUT(2) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
- ---------------------
D.A. Daberko......... N/A December 31, 2000 $ 231,268 $385,446 $770,892
V.A. DiGirolamo...... N/A December 31, 2000 $ 115,854 $193,091 $386,181
R.G. Siefers......... N/A December 31, 2000 $ 75,029 $125,049 $250,098
W.E. MacDonald III... N/A December 31, 2000 $ 61,568 $102,614 $205,228
J.L. Gorney.......... N/A December 31, 2000 $ 54,617 $ 91,028 $182,057
</TABLE>
- --------------------------------------------------------------------------------
(1) The National City Long-Term Incentive Plan for Senior Officers ("LTIP")
grants cash awards based on a percentage of the individual's base pay. No
shares or other rights are granted. (See pages 38 and 39)
(2) The LTIP is based on a three year cycle starting 1/1/98 and ending 12/31/00.
Messrs. Daberko, DiGirolamo, Siefers, MacDonald, and Gorney were each
awarded the opportunity to participate in the next three year cycle. Payouts
occur only at the end of the cycle. (See pages 38 and 39)
(3) The payout is based on National City's total return to its stockholders over
a three-year period as compared to the total return to stockholders of a
peer group of high performing banking companies. Payouts are made on a basis
of a percentage of the average base pay for the three-year period for each
participant. (See pages 38 and 39 )
- --------------------------------------------------------------------------------
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<PAGE> 38
The value of benefits paid or furnished by National City in 1997 to
executive officers, other than those included in the preceding table are less
than the amounts required to be disclosed pursuant to the Exchange Act.
REPORT OF COMPENSATION AND ORGANIZATION COMMITTEE
National City believes that its stockholders should be provided information
about executive compensation that is easily understood and consistent with the
SEC proxy rules on executive compensation.
The information provided is intended to enable stockholders to fully
understand the performance-based compensation programs for executives. National
City welcomes stockholder comments or suggestions on whether the disclosure
objectives have been met. Please send any comments to the Corporate Secretary,
National City Corporation, 1900 East Ninth Street, Cleveland, Ohio 44114.
COMPENSATION PHILOSOPHY
National City is committed to aligning compensation strategies with overall
business objectives. The performance of National City's employees is key in
delivering the types of products and services that will enable National City to
be the premier diversified financial services company in the Midwest.
National City's compensation philosophy is built on four integral
components that form the basis of National City's FOCUS ON PERFORMANCE programs:
- Implement strategies that differentiate and focus on employee
performance.
- Tailor compensation programs to reflect unit and organizational
priorities.
- Compensate employees based on their contributions to the achievement of
National City's goals and objectives.
- Provide and support opportunities for equity ownership.
National City will structure its compensation plans to reward individuals
based on their contributions to individual, unit, and corporate objectives.
Compensation strategies that support and are aligned with business objectives
will be pursued. National City's compensation philosophy recognizes the need for
diversification in pay practices. Variable pay opportunities provided through
incentive plans and performance bonus programs are important vehicles for
rewarding individual employee contributions. National City's FOCUS ON
PERFORMANCE programs are the foundation of achieving individual goals and
National City's financial objectives.
EXECUTIVE COMPENSATION PRINCIPLES
National City's compensation programs are designed to encourage and reward
performance. The executive compensation package is competitive and comparable to
the levels of compensation offered by National City's peer group companies.
Because building the bottom line is critical to National City's success,
compensation is focused on performance that generates revenue -- directly
through the business line and through increased efficiency as a result of staff
unit contributions. The attainment of National City's goals and objectives
contribute to the maximization of stockholder value and create enhanced
compensation opportunities for participating executives.
National City's executive compensation programs place a significant portion
of an executive's compensation at risk based upon performance. Rewards are based
on the attainment of both long-term and short-term strategic objectives.
Cash-based and equity-based instruments are used to provide alignment between
executive rewards and the achievement of individual, unit, and corporate
objectives.
National City believes that it is in the best interest of stockholders to
retain as much flexibility as possible, now and in the future, with respect to
the design and administration of the written compensation plans that determine
cash-based and equity-based compensation for executive officers. National City
does, however, recognize the constraints imposed on this flexibility by Section
162(m) of the Internal Revenue Code, which disallows a tax deduction for
non-exempted compensation it pays in excess of $1,000,000 to key executives.
National City's compensation plans are currently structured to minimize the
non-exempted compensation that
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<PAGE> 39
exceeds the limitation for deduction by National City established by Section
162(m). In the event that the limitation is exceeded, the Compensation and
Organization Committee determines whether the compensation in excess of the
limitation will be paid in cash or deferred until a later time.
COMMITMENT TO EMPLOYEE EQUITY OWNERSHIP
National City is committed to ensuring that stockholders and employee
owners share long-term interests. A focus on increasing employee equity
ownership strengthens the link between executive rewards and long-term corporate
performance. This focus is demonstrated by the implementation of stock ownership
guidelines. In addition, several programs are in place to provide more
opportunities for executives to increase their level of equity interests. For
example, executives can receive part of their short-term bonus in the form of
restricted stock and the use of Additional Options encourages employees to
exercise their stock options earlier than they would have otherwise and hold the
shares arising from the exercise.
STOCK OWNERSHIP GUIDELINES
In 1996, National City adopted stock ownership guidelines for its
executives. Equity ownership is a vital component of National City's total
compensation strategy, which is based on corporate performance and stockholder
interests. Ownership guidelines were determined based on a multiple of the base
salary mid range and converted to a fixed number of shares. Guidelines for the
chief executive officer and president were determined by market median
compensation data. The guidelines are applicable to all executives participating
in the National City Corporation Long-Term Incentive Compensation Plan for
Senior Officers and certain other executive officers of National City or its
major subsidiaries. Ownership guidelines are currently in place for 55
executives.
STOCK OWNERSHIP GUIDELINES FOR THE NAMED EXECUTIVES
<TABLE>
<S> <C> <C>
David A. Daberko 5.5 X Market Median Salary 59,459 Shares
Vincent A. DiGirolamo 3.5 X Multiple of Mid Range 37,838 Shares
Robert G. Siefers 3.5 X Multiple of Mid Range 26,014 Shares
William E. MacDonald III 3.5 X Multiple of Mid Range 26,014 Shares
Jon L. Gorney 3.5 X Multiple of Mid Range 26,014 Shares
</TABLE>
The executives have until 1999 to meet the stock ownership guidelines. Both
direct and indirect forms of ownership are recognized in achieving the
guidelines. Direct ownership will be in the form of shares of National City
Common owned. Indirect ownership includes deferred compensation invested in
phantom National City Common and 401(k) funds invested in the National City
Corporation Common Stock Fund.
In addition to the stock ownership guidelines for employees, National City
has adopted stock ownership guidelines for its Board of Directors. Increased
equity ownership for directors strengthens the linkage to long-term stockholder
interests. The Board established stock ownership guidelines in 1996. The
guidelines recommend that each director beneficially own 6,000 shares of
National City Common. Both direct and indirect National City equity ownership
will be considered as owned shares for the purpose of the guideline. Direct
ownership includes National City Common and Restricted Stock. Indirect ownership
includes deferred compensation invested in the form of phantom National City
Common.
EQUITY-BASED REWARDS
Stock options are an important component of total compensation and provide
a long-term incentive to participants to align performance with stockholder
interests. Each organizational unit is allocated a pool of options for
distribution based on unit performance. Stock options are awarded to employees
based on their contribution to the performance of the unit. Broad guidelines are
used to award the stock options, with above target awards linked to above
average unit and individual performance and long-term potential. The performance
measures used for the distribution of equity-based rewards vary by business
unit. Measures such as net income and credit quality are common for core banking
units while accomplishment of strategic initiatives and cost control are
examples of measures used in other units.
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<PAGE> 40
The National City Corporation Amended and Restated 1993 Stock Option Plan
provides for a one time additional stock option grant (an "Additional Option")
when the employee has used previously owned National City Common to pay the
exercise price of an original option grant (a swap transaction). The Additional
Option feature typically encourages an employee to exercise the option grant
earlier than if the feature were not present, thereby increasing the employee's
level of equity ownership. Each Additional Option's termination date is the same
as the termination date of the option that originally had the Additional Option
feature. Its option price is the market price at the time of the exercise of the
original option. An Additional Option is NOT provided upon exercise of an
Additional Option. This program was implemented when the stock ownership
guidelines were established and supports National City's focus on increased
equity ownership.
CASH-BASED REWARDS
National City believes that cash compensation should be driven by the
attainment of aggressive business goals. These goals are based on annual and
three year plan cycles. Performance is assessed in terms of achievement of
internal business goals as well as financial achievements compared to those of
the peer group. Above target cash compensation can only be attained by achieving
an above average ranking against National City's peer group and the attainment
of the aggressive business goals.
National City establishes a salary range for each executive officer that is
determined by an evaluation of job criteria. This internally driven process is
then validated by market comparisons at peer group companies. National City's
objective is to provide base compensation at market median and to provide total
cash compensation opportunities above the market median when there is above
average performance. Executive salaries can vary within National City's range
structure based on performance, experience, and long-term potential.
THE NATIONAL CITY CORPORATION ANNUAL CORPORATE PERFORMANCE INCENTIVE PLAN,
as amended January 1, 1996, rewards performance relative to a peer group
comprised of approximately 16 super-regional banks based on four factors: growth
in earnings per share (33% weight), return on assets (17%) , overhead ratio
(17%), and return on equity (33%). Awards are paid based on National City's
performance over the year as well as the employee's individual award category.
Awards under this plan are a percentage of base pay and can range from 0% to
76.5% for the chief executive officer, 0% to 60% for a vice chairman and 0% to
42% for other executive officers of National City or its major subsidiaries. For
1997 National City ranked eighth out of the banks in the peer group. The award
payment for 1997 was equal to the target award.
THE NATIONAL CITY CORPORATION SHORT-TERM INCENTIVE COMPENSATION PLAN FOR
SENIOR OFFICERS allows for rewards to be based on bottom-line performance of the
line or staff unit and the achievement of individual performance goals. Award
pools are funded based on unit performance. Individual awards are distributed
within each unit based on the funding level of the pool and the individual's
contributions toward the unit's performance. Awards under this plan are a
percent of base pay and can range from 0% to 53.5% for the chief executive
officer, 0% to 50% for a vice chairman and 0% to 48% for other executive
officers of National City or its major subsidiaries.
THE NATIONAL CITY CORPORATION LONG-TERM INCENTIVE COMPENSATION PLAN FOR
SENIOR OFFICERS is designed to maximize returns to stockholders by linking the
compensation of key executives to the overall profitability and success of
National City. Awards are based on National City's ranking relative to a peer
group comprised of approximately 16 super-regional banks. The ranking is
determined by the increase in total stockholder return over a three year plan
cycle. Awards are paid at the completion of each plan cycle. Awards under this
plan can range from 0% to 100% for the chief executive officer, 0% to 80% for a
vice chairman, and 0% to 60% for any executive officer of National City or its
major subsidiaries. The incentive award is computed based on the executive's
average annual salary during each plan cycle. National City ranked eighth in the
peer group total return to stockholders for the 1995-1997 plan cycle. The payout
was equal to the target, 50% of the maximum award.
PEER GROUP BANKS
The peer group companies are selected by the Compensation and Organization
Committee. They are all included in the KBW 50 Total Return Index ("KBW 50")
used in the performance chart on page 37 and, as a
34
<PAGE> 41
group, have outperformed the KBW 50 over time. National City believes it is
important that the peer group it compares itself to consists of the better
performing banks.
SUMMARY
National City's compensation programs serve to closely align an
individual's compensation opportunities with the impact of the individual's
contributions on the overall performance of National City. Both cash-based and
equity-based vehicles are used to reward performance that is measured annually
and over a three-year period. Achievement of National City's business goals and
performance relative to peer group performance are used as measurement criteria.
National City will continue to build on programs that tie total compensation to
National City's success.
THE COMPENSATION AND ORGANIZATION COMMITTEE'S
REVIEW OF CEO COMPENSATION
National City's executive compensation program is based on corporate and
individual performance and places a significant portion of an executive's
compensation at risk if pre-established goals are not attained. In addition, the
program rewards long-term strategic management by using compensation vehicles
which promote equity ownership and emphasize attention to stockholder value.
Mr. Daberko served as president and chief operating officer of National
City from 1993 until July of 1995, when he was named chief executive officer.
Mr. Daberko has been an employee of National City for 29 years. In 1997, Mr.
Daberko's total cash compensation was $1,709,719.
During 1997, Mr. Daberko's salary was adjusted to be reflective of his
performance and the relationship of his earning opportunities to that of other
CEO's at peer companies. His base salary at the end of 1997 was $750,000.
Long-Term Plan awards are based solely on the change in total stockholder
return as compared to the change in total stockholder return of a selected peer
group of financial institutions for a three year period. Based on National
City's relative performance during the 1995-1997 time period, Mr. Daberko's
award in 1997 was $289,792.
Mr. Daberko's Short-Term Plan goals for 1997 were based on financial
performance measurements and several other key strategic initiatives designed to
ensure the long-term viability of National City. These goals related to
earnings, credit quality, leading the emphasis on a sales and service culture,
ensuring the strong future leadership of National City, and attainment of
National City's stated 1997 critical initiatives that relate to database
marketing, wealth management strategies, brokerage strategies, long-range
technology, payment system strategy, item processing business, delivery
channels, deposit/funding strategy, organizational structure, business process
redesign, sales management, non-personnel expense, insurance business, equity
allocation, and specialized corporate lending. Mr. Daberko has elected to
receive his bonus in the form of restricted stock (6,687 shares), further
linking his interests to the performance of National City.
The Annual Corporate Performance Plan awards are determined by comparing
National City's relative performance against a selected peer group of financial
institutions based on return on equity, return on assets, growth in earnings per
share and overhead ratio. Mr. Daberko's Annual Corporate Performance Plan award
was $371,250.
Stock options are another key element of total compensation. Equity-based
compensation produces a long-term link between the results achieved for
stockholders and the rewards provided to key executive officers. Each year, the
Committee reviews competitive peer group data and individual performance to
determine the level of equity-based awards to be granted to key executives.
National City places significant value and importance on stock ownership by
senior management. Based on Mr. Daberko's performance, he received an option in
1997 to purchase 125,000 shares of National City Common with an exercise price
of $57.375 per share (the market value of National City Common on the day of the
grant). Mr. Daberko's stock option grant was based on his performance as
measured by National City's accomplishment of goals. These goals were expressed
in terms of earnings, credit quality, and the successful completion of National
City's 1997 critical initiatives previously
35
<PAGE> 42
mentioned. The option award was competitive with option awards made to chief
executive officers of the peer group companies. The Committee does not consider
the number of options held by Mr. Daberko in making this award, except for
assuring the Option Plan's limits are not exceeded. In addition, Mr. Daberko
received Additional Option stock options during 1997 by surrendering
previously-owned shares of National City Common to exercise stock options with
the Additional Options feature. These Additional Options have an exercise price
equal to the market price at the time of the exercise of the original option.
National City uses Restricted Stock to offset projected benefits under the
Supplemental Executive Retirement Plan in which Mr. Daberko participates. In
1997, Mr. Daberko received 4,250 shares of Restricted Stock for this purpose.
During 1997, National City's fully diluted net income per common share was
$3.66, up from $3.27 in 1997. The share price of National City Common rose to
$65.75 from $44.875 and dividends were increased to $1.67 per share from $1.47.
In addition, National City announced the purchase of First of America Bank
Corporation, scheduled to close in 1998. The performance-based reward programs
in which Mr. Daberko participates are designed to provide levels of equity-based
and cash-based rewards that are aligned with the performance of National City.
Mr. Daberko's compensation and the performance of National City during 1997 have
demonstrated the existence of this alignment.
COMPENSATION AND ORGANIZATION COMMITTEE
John G. Breen, Chairman
James S. Broadhurst
Duane E. Collins
Daniel E. Evans
Joseph H. Lemieux
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<PAGE> 43
STOCKHOLDER RETURN PERFORMANCE
Set forth below is a line graph comparing the five year cumulative total
return of National City Common, assuming reinvestment of dividends, with that of
the S&P 500 and the KBW 50. The KBW 50 is a market-capitalization-weighted bank
stock index developed and published by Keefe, Bruyette & Woods, Inc., a
nationally recognized brokerage and investment banking firm specializing in bank
stocks. The index is made up of 50 of the nation's most important banking
companies and is meant to be representative of the performance of the nation's
large banks.
5 YEAR TOTAL RETURN
12/92 - 12/97
NATIONAL CITY VS. KBW 50 AND S&P 500
[GRAPH]
1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
National City 100.0 102.9 113.6 152.2 214.5 324.4
S&P 500 100.0 110.0 111.4 153.1 188.2 251.0
KBW 50 100.0 105.5 100.0 160.4 226.9 331.7
DESCRIPTION OF NATIONAL CITY'S COMPENSATION AND BENEFIT PLANS
SAVINGS PLAN. The National City Savings and Investment Plan (the "Savings
Plan") is a qualified salary reduction profit-sharing plan within the meaning of
Section 401(k) of the Code. Under the Savings Plan as amended, all eligible
employees (generally, an eligible employee is one who has completed one year of
continuous service, is 21 years of age or older and has completed 1,000 hours of
service) of National City and its adopting subsidiaries may participate in the
Savings Plan by directing their employers to make Before-Tax Contributions (as
defined in the Savings Plan) to the Savings Plan Trust (the "Trust") for their
accounts and to reduce their compensation by an equal amount. Contributions may
be directed in any whole percentage between 1% and 10% of the employee's base
compensation. The employers also make contributions to the Trust ("Matching
Employer Contributions") in an amount equal to the Matching Employer
Contribution percentage then in effect (the Matching Employer Contribution
percentage is currently an amount equal to 100% of the first 3% of the
employee's pay contributed as a Before-Tax Contribution, plus 50% of the next 4%
of the employee's pay similarly contributed as a Before-Tax Contribution, with
no further Matching Employer Contribution for any additional pay contributed as
a Before-Tax Contribution). Amounts contributed pursuant to the Savings Plan may
be invested in certain investment choices. Before-Tax Contributions and Matching
Employer Contributions are fully vested at all times.
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<PAGE> 44
The Savings Plan has a profit-sharing feature based upon National City's
profitability, as measured by the percentage return on common equity ("ROE")
from year to year. The profit-sharing contribution is in addition to the regular
Matching Employer Contributions described above. The additional amount of this
profit-sharing contribution in any year depends on National City's ROE for that
year and ranges, in five-cent increments from no additional contribution, if a
minimum ROE of 12% is not attained, to a maximum of 50 cents for each $1.00 of
an individual's Before-Tax Contributions for the year if National City's ROE is
equal to or greater than 18.5%. In 1997, National City's ROE was 18.53%, which
resulted in National City contributing 50 cents for each $1.00 of an
individual's Before-Tax Contribution as a profit-sharing contribution for the
year 1997.
EXECUTIVE PLAN. Effective January 1, 1989, National City adopted the
National City Executive Savings Plan (the "Executive Plan"), in the form of a
non-qualified salary reduction profit-sharing plan, similar to the Savings Plan.
The Executive Plan is to supplement the Savings Plan with respect to employee
Before-Tax Contributions and the attendant Matching Employer Contributions which
by reason of an individual's annual compensation would not be otherwise allowed
because of the annual maximum limit of the Code or because of the application,
under the Code, of actual deferral percentage testing against prohibited
excessive deferrals by highly compensated employees. The Executive Plan is
substantially similar to the Savings Plan as to amounts of employee Before-Tax
Contributions and Matching Employer Contributions.
Participants in the Executive Plan are limited to those key officers of
National City or its subsidiaries who may be designated from time to time by the
Committee of the Board of Directors. The benefits of the Executive Plan are
without regard to any limitation imposed by the Code, or any other applicable
law limiting the amount payable under a qualified plan (such as the Savings
Plan), and represent unfunded general obligations of National City. Portions of
such benefits are subject to certain provisions for forfeiture as set forth in
the Executive Plan.
Directors of National City or its subsidiaries who are not also employees
of National City or its subsidiaries are not eligible to participate in the
Savings Plan or the Executive Plan.
LONG-TERM PLAN. The National City Long-Term Incentive Compensation Plan
(the "Long-Term Plan") for Senior Officers focuses upon providing superior
returns to stockholders of National City and measures National City's total
return to its stockholders against the total returns to stockholders of a peer
group of high-performing banking companies to their stockholders. The
measurement of total return includes dividends paid plus changes in the market
value of the National City Common. The measurement over a three-year period is
intended to focus on the long-term performance of National City linking senior
management's compensation to the total returns experienced by the stockholders
during the period.
Each year begins a new three-year cycle. The awards can range up to 100% of
an individual participant's average annual base salary during the cycle for the
chief executive officer of National City and up to a lesser percentage for other
senior executive officers selected to participate under the Long-Term Plan. The
amount of the award earned is dependent upon the total stockholder return during
the cycle in comparison with the total stockholder return of the peer group. The
peer group is established prior to the beginning of the cycle by the Committee.
The banking companies in the peer group at this time are all included in the KBW
50 used in the performance chart on page 37. National City believes it is
important that the peer group it compares itself to consists of the
better-performing banking companies. No awards under the Long-Term Plan were
paid prior to the end of the first cycle, December 31, 1990.
Amounts awarded under the Long-Term Plan may be in cash, in unfunded future
benefits or a combination thereof. With the exception of a cash award, awards
are not funded, but simply remain contractual liabilities of National City and
are subject to payment upon the recipient's termination of employment with
National City or its subsidiaries. Generally, these unfunded benefits, together
with earnings thereon, are payable to the former officer, his beneficiary, or
his estate on an installment basis over 10 years. Unfunded future benefits
awards are considered as invested in the funds described in the Savings Plan or
as directed by the recipient from time to time in the equivalent of a savings
account and are subject to the gains or losses on those investments.
In the event of a change in control of National City, the Long-Term Plan
provides that all the performance cycles shall terminate. The Long-Term Plan
provides that if such change in control occurs, then each of the three-year
performance cycles then existing shall terminate as of the date of change in
control, National City's stockholder total return during each of the abbreviated
performance cycles shall be deemed to have reached that
38
<PAGE> 45
level at which the participant in the Long-Term Plan would be entitled to be
awarded his or her maximum award, and the award for each cycle shall be
apportioned based upon the number of full months from the beginning of the
performance cycle to the premature cycle termination date divided by 36. In
adopting this plan, it was felt this termination was appropriate in that those
individuals previously charged with providing superior total returns to the
stockholders of National City would no longer be in the same position to guide
the affairs of National City as they were prior to the event constituting a
change in control and, furthermore, following such a change in control no
further performance comparisons could be made.
Directors of National City or its subsidiaries who are not also employees
of National City or its subsidiaries are not eligible to participate in the
Long-Term Plan.
SHORT-TERM COMPENSATION PLAN. The National City Short-Term Incentive
Compensation Plan for Senior Officers, as amended (the "Short-Term Plan")
focuses on the short-term goals achieved by the individual participant. Under
this plan, awards can be granted to any senior officer of National City, or to
other officers of National City or its subsidiaries as may be designated from
time to time by the Committee. Each participant in the Short-Term Plan is
evaluated annually with respect to performance on approved objectives. Awards
are based on individual results and can range from 0% to 53.5% of the
recipient's base salary in effect at the close of the year for which the
evaluation is made. Awards under this plan are paid or credited no later than
the end of first quarter of the following year.
Amounts awarded under the Short-Term Plan may be in cash, in unfunded
future benefits, in Restricted Stock or a combination thereof. With the
exception of a cash award, awards are not funded, but simply remain contractual
liabilities of National City and are subject to payment upon the recipient's
termination of employment with National City and its subsidiaries. Generally,
these unfunded benefits, together with earnings thereon, are payable to the
former officer, his beneficiary, or his estate on an installment basis over 10
years. Unfunded future benefits awards are considered as invested as directed by
the recipient from time to time, in funds described in the Savings Plan or in
the equivalent of a savings account and are subject to the gains or losses on
those investments.
In the event of a change in control, the Short-Term Plan provides that each
participant will be paid at the effective time of the change in control the
maximum benefit the participant is entitled to receive under the Short-Term
Plan.
ANNUAL CORPORATE PERFORMANCE PLAN. The National City Annual Corporate
Performance Incentive Plan (the "Annual Performance Plan") focuses on the annual
operating results achieved by National City. Under this plan, awards can be
granted to any senior officer of National City, or to other officers of National
City or its subsidiaries as may be designated from time to time by the
Committee. National City's financial performance is currently measured in
comparison with the financial performance of other high-performing banking
companies, weighted as follows: return on equity (33%), return on assets (17%),
overhead ratio (17%) and percentage change in earnings per share (33%). The high
performing banks in the peer group are all included in the KBW 50 used in the
performance chart on page 37. National City believes it important that the peer
group it compares itself to consists of the better performing banks. Awards are
based on the corporate results and can range from 0% to 76.5% of the recipient's
base salary in effect at the close of the year for which the evaluation is made.
Awards under this plan are paid or credited no later than the end of first
quarter of the following year.
Amounts awarded under the Annual Performance Plan may be in cash, in
unfunded future benefits, or a combination thereof. With the exception of a cash
award, awards are not funded, but simply remain contractual liabilities of
National City and are subject to payment upon the recipient's termination of
employment with National City and its subsidiaries. Generally, these unfunded
benefits, together with earnings thereon, are payable to the former officer or
his beneficiary or his estate on an installment basis over 10 years. Unfunded
future benefits awards are considered as invested as directed by the recipient
from time to time, in funds described in the Savings Plan or in the equivalent
of a savings account, and are subject to the gains or losses on those
investments.
In the event of a change in control, the Annual Performance Plan provides
that each participant will be paid at the effective time of the change in
control the maximum benefit the participant is entitled to receive under the
Annual Performance Plan.
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Directors of National City or its subsidiaries who are not also employees
of National City or its subsidiaries are not eligible to receive benefits.
STOCK OPTION PLANS. National City has in effect the 1984 Stock Option Plan,
as amended; the 1989 Stock Option Plan; the 1993 Stock Option Plan, as amended
and restated, and the 1997 Stock Option Plan. Each of the four stock option
plans (hereinafter referred to jointly as the "Stock Option Plans") have
substantially similar provisions and generally provide for the granting of
options to purchase shares of National City Common, the options being either
non-qualified options or options that are intended to qualify as Incentive Stock
Options under Section 422 of the Code. The Stock Option Plans also provide for
the granting of Appreciation Rights, but only in tandem with stock options
previously granted or contemporaneously being granted. Under the Stock Option
Plans, no options may be granted at less than 100% of the market value of
National City Common on the date of the grant of the option. Stock option awards
are based on current individual performance. Previous awards are not considered
except for assuring the plan maximums are not exceeded.
Directors of National City or its subsidiaries who are not also employees
of National City or its subsidiaries are not eligible to receive options under
the Stock Option Plans.
RESTRICTED STOCK PLAN. National City has in effect the National City
Corporation Amended and Second Restated 1991 Restricted Stock Plan (the "1991
Plan") and the National City Corporation 1997 Restricted Stock Plan
(collectively the "Restricted Stock Plans"). Each of the Restricted Stock Plans
has substantially similar provisions. The purpose of the Restricted Stock Plans
is to provide alternative means of compensation and to promote the long-term
profitability and success of National City by providing equity interests and
equity-based incentives in National City to key employees and members of the
Board of Directors of National City.
The Restricted Stock Plan is administered by the Compensation and
Organization Committee of the Board of Directors of National City.
Restricted Stock is granted to executive officers for two purposes the
first of which is to offset the liability of a portion of their Supplemental
Retirement Benefits with the restrictions being lifted at retirement. Grants are
based on the present value of accrued supplemental benefits. The second is to
deliver all or part of their Short-Term Incentive Compensation Plan award. In
this case restrictions lapse after one year.
Other employees, who do not receive stock option grants and who have been
identified by their managers as high potential employees, may be awarded
restricted stock grants. The restrictions on grants to high potential employees
lapse on the fourth anniversary of the grant.
Generally, the Restricted Stock Plans provide for the granting of shares of
National City Common ("Restricted Stock") to a recipient and restricting that
recipient's rights to transfer the shares for a specific period of time. During
that restricted period, those shares are subject to substantial risk of
forfeiture. To the extent the recipient forfeits his interest in the Restricted
Stock, he or she will have no rights in the Restricted Stock forfeited.
The total amount of Restricted Stock that may be awarded under the 1991
Plan, as amended is 1,000,000 shares of which no more than 150,000 shares may be
awarded in the aggregate to any one individual. The total amount of Restricted
Stock that may be awarded under the 1997 Restricted Stock Plan is 1,500,000
shares of which no more than 225,000 shares may be awarded in the aggregate to
any one individual. Under the Restricted Stock Plans, awards of Restricted Stock
may be made to any regular employee of National City (including employees who
are members of the Board of Directors) or any of its subsidiaries ("Employee
Awards") and to the directors of National City who are not employees of National
City or its subsidiaries ("Director Awards").
The Restricted Stock Plan contemplates that the Committee may award
Restricted Stock to the employees of National City and National City's
subsidiaries subject to the following restrictions: (a) all awards are to be
made subject to transfer restrictions which are set by the Committee; such
restrictions must last at least six months from the date of the award under the
1991 Plan; and (b) all awards of Restricted Stock shall be subject to the award
agreement entered into between National City and the employee receiving the
award (such agreements may differ from employee to employee and from award to
award).
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Other than directors who also are officers of National City, each
individual who was elected to the Board of Directors of National City on April
22, 1991, the date when the Restricted Stock Plan became effective, was awarded
500 shares of Restricted Stock, and each individual who is first elected or
appointed to the Board of Directors will be, awarded 1000 (500 shares adjusted
for the July 1993 100% stock dividend) shares of Restricted Stock subject to
transfer restrictions. In addition, each year in which an individual is
reelected or reappointed as a director of National City, such individual is to
be awarded an additional 200 shares of Restricted Stock. The restrictions on the
Director Awards do not expire until the earlier of the individual director's
death, disability, or nine months after the date of the award.
The Restricted Stock Plan provides that upon a change in control of
National City (as defined in the Restricted Stock Plan), all Restricted Stock
Plan restrictions will lapse and be of no further force or effect and that
National City shall cause all outstanding Restricted Stock held under the
Restricted Stock Plan to be exchanged for shares of National City Common free of
any Restricted Stock Plan legends or restrictions.
SEVERANCE AGREEMENTS. National City recognizes that, as is the case at most
companies, the possibility of a change in control exists. Accordingly, National
City desires to assure itself of both present and future continuity of
management and wishes to ensure that its senior executive officers and other key
employees ("Executives") continue to remain in the employ of National City by
entering into severance pay agreements with certain Executives of National City.
The severance agreements were entered into upon the recommendation of the
Committee and the forms of the agreement were approved by the Board of Directors
at its December 19, 1994 meeting. The agreements become immediately operative
upon a change in control.
The severance agreements provide that upon termination of employment with
National City, a subsidiary, or a successor to National City within three years
following a change in control, unless the termination is because of death,
permanent disability, or cause, the Executive will be entitled to severance
compensation. The severance agreements also provide that following a change in
control, the Executive may terminate his own employment with National City or a
subsidiary with the right to severance compensation during the period commencing
with the occurrence of the change in control and continuing until the earliest
of (i) the third anniversary of the occurrence of the change in control, (ii)
death, or (iii) attainment of age sixty-five and upon the occurrence of one or
more certain additional events. For twenty Executives, the severance agreements
also provide that in the event of a change in control, the Executive may
terminate his employment with National City or any subsidiary for any reason
during the thirty-day period immediately following the first anniversary of the
first occurrence of a change in control without cause with the right to
severance compensation.
The severance compensation will be a lump sum payment in an amount equal to
three times the sum of (i) base pay at the highest rate in effect for any period
prior to the termination date plus (ii) incentive pay in an amount equal to not
less than the highest aggregate annual bonus, incentive, or other payments of
cash compensation made or to be made in regard to services rendered in any
calendar year during the three calendar years immediately preceding the year in
which the change in control occurs. For thirty-six months following the
termination, National City will arrange to provide the Executive with employee
benefits that are welfare benefits substantially similar to those which the
Executive was receiving or was entitled to receive immediately prior to the
termination date and such thirty-six month period will be considered service
with National City for the purpose of determining service credits and benefits
due and payable under National City's various retirement benefit plans.
National City has agreed to bear the expense of any and all legal fees
incurred by any Executive associated with the interpretation, enforcement, or
defense of his rights under the severance agreements.
RETIREMENT PLANS. The National City Non-Contributory Retirement Plan (the
"Retirement Plan") is a qualified, non-contributory defined benefit plan, and
the pension trust is tax exempt under the Code. The Retirement Plan presently
covers all regular employees of National City and those subsidiaries of National
City that have adopted the Retirement Plan when such employees have completed
1,000 hours of service in a 12-month period (normally the first 12 months of
employment), provided they have attained age 21.
Upon reaching the normal retirement age of 65, with five years of vesting
service, each participant in the Retirement Plan generally is entitled to
receive monthly for life a basic benefit (less certain deductions specified in
the Retirement Plan) based upon the participant's highest average annual
Earnings for any 60 consecutive
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<PAGE> 48
months of active employment during the last 120 months preceding retirement
("Final Average Earnings"). The annual basic benefit shall be equal to the sum
of (a) 1 1/4% times the employee's Final Average Earnings not in excess of
"Covered Compensation" plus (b) 1 3/4% times the employee's Final Average
Earnings in excess of "Covered Compensation," and such sum multiplied by the
number of years of benefit service, but not more than 35 years. "Covered
Compensation," which is computed pursuant to government regulations, generally
is based upon the average of the wage base covered by Social Security, upon the
employee's date of birth, and upon an assumed 35-year work experience.
Participant's Earnings is defined by the Retirement Plan to mean generally the
salary and wages paid to such participant, excluding overtime, bonuses,
commissions, and other similar forms of remuneration. The Code places limits on
the amount of annual benefits which may be paid to any participant by the
pension trust of the Retirement Plan.
The Retirement Plan also provides for optional early retirement at a
reduced benefit at any time after a participant attains age 55 with at least 10
years of benefit service. The amount of the reduction of the benefit is
determined by a formula dependent upon the age at which the participant elects
to begin to receive benefits. If a participant has more than 20 years of vesting
service, the participant may elect to retire at 62 and start receiving unreduced
pension benefits.
National City adopted a supplemental retirement plan ("Supplemental Plan")
to supplement the pension payments under the Retirement Plan for those certain
senior officers of National City and its subsidiaries who may be designated from
time to time by the Committee. Payments under the Supplemental Plan are paid
from the general revenues of National City and have no effect on the existing
pension trust fund.
The Supplemental Plan's purpose is to augment an individual's income from
Social Security and pension payments the individual is entitled to receive upon
retirement. The amount of the Supplemental Plan benefit for any covered
individual will be the amount of the individual's retirement benefit determined
under the Retirement Plan, but determined (a) without regard to the limitations
on such benefits contained in the Code, and (b) by adding to the individual's
highest average base compensation the average of the amounts (if any) of the
individual's five largest (not necessarily consecutive) awards under the
Short-Term Plan, Long-Term Plan and the Annual Performance Plan during the 10
calendar years completed prior to retirement, less the sum of (i) amounts
payable to the individual under the Retirement Plan plus (ii) amounts payable to
the individual under any corporate program which is deemed to be another offset
program to the Supplemental Plan, as determined by the Committee of the Board of
Directors. The amount of the Supplemental Plan benefit may, in the discretion of
such Committee, be paid to the individual in a lump sum.
The Supplemental Plan also provides supplemental disability benefits and
supplemental surviving spouse benefits. All benefits under the Supplemental Plan
are computed on the basis of the individual's retirement at age 65 (or age 62 if
he has 20 years of vesting service), and if an individual otherwise entitled to
receive benefits under the Supplemental Plan retires prior to attaining said
age, Supplemental Plan benefits will be reduced in accordance with a formula
dependent upon the individual's age and years of service with National City at
the time such benefits commence, subject, however, to such reduction being
waived by that Committee.
In the event of a change in control of National City, the Supplemental Plan
provides for the vesting of all accrued benefits.
GRANTOR TRUST
A trust has been established to hold assets in the case of a change in
control for the payment of benefits for unfunded deferred compensation for
executives under the Short-Term Plan, the Long-Term Plan, the Supplemental Plan,
the Executive Plan, and the split dollar life insurance agreements.
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- --------------------------------------------------------------------------------
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE
AVERAGE BASE -------------------------------------------------------------------------------------------------
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C>
$ 25,000 $ 3,125 $ 4,687 $ 6,250 $ 7,812 $ 9,375 $ 10,937
50,000 7,373 11,060 14,747 18,434 22,120 25,807
100,000 16,124 24,185 32,248 40,310 48,371 56,433
200,000 33,623 50,435 67,247 84,059 100,870 117,682
400,000 68,624 102,936 137,248 171,560 205,871 240,183
600,000 103,624 155,436 207,248 259,059 310,873 362,685
800,000 138,623 207,935 277,247 346,559 415,870 485,182
1,000,000 173,624 260,436 347,248 434,060 520,871 607,683
1,200,000 208,624 312,936 417,248 521,561 625,873 730,185
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Retirement benefits above the annual compensation limit are paid to those
officers who are participating through a nonqualified Supplemental Executive
Retirement Plan. The Social Security Taxable Wage Base (as defined in the
Retirement Plan) and the annual compensation limit taken into account during any
Plan Year are the Social Security Taxable Wage Base and annual compensation
limit in effect at the beginning of such Plan Year. For example, the 1998 Social
Security Taxable Wage Base and the $160,000 annual compensation limit for 1998
will not be applied until the Plan Year beginning October 1, 1998 and ending
September 30, 1999. "Plan Year" under and as defined in the Retirement Plan is
the 12 month period of time from the first day of October to the last day of
September, annually.
- --------------------------------------------------------------------------------
Assuming retirement at age 65 under the Retirement Plan, the number of
years of benefit service under both the Retirement Plan and the Supplemental
Plan for the four executive officers and the CEO named in the Summary
Compensation Table would be: David A. Daberko, 35 years; Vincent A. DiGirolamo,
35 years; Robert G. Siefers, 35 years, William E. MacDonald III, 35 years and
Jon L. Gorney, 35 years.
2. SELECTION OF INDEPENDENT AUDITORS -- NATIONAL CITY
The Board of Directors of National City believes it appropriate to submit
for action by the stockholders of National City the approval of the selection of
Ernst & Young LLP, independent auditors, as auditors for National City for the
year 1998. This firm and its predecessors have served as independent auditors
for National City since its inception in 1973. In the opinion of the Board of
Directors of National City, the reputation, qualifications and experience of the
firm make appropriate its reappointment for 1998. A representative of the firm
is expected to be present at the Annual Meeting with the opportunity to make a
statement if such representative desires to do so and is expected to be
available to respond to appropriate questions. The affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote is required to approve the selection of Ernst & Young LLP as
auditors for National City for the year 1998.
THE BOARD OF DIRECTORS OF NATIONAL CITY RECOMMENDS A VOTE FOR THIS
PROPOSAL.
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3. MERGER
This section of the Proxy Statement describes the material aspects of the
Merger. The following description of the Merger does not purport to be complete
and is qualified in its entirety by reference to the Agreement, the National
City Option Agreement and the FOA Option Agreement, which are attached as
Appendices A, E and F respectively to this Proxy Statement and are incorporated
herein by reference. All stockholders of National City and all shareholders of
FOA are urged to read the agreements.
BACKGROUND OF AND REASONS FOR THE MERGER -- FOA
The Board of Directors of FOA periodically reviews FOA's strategy in light
of general conditions in the banking industry, competitive and economic
conditions in its markets and potential new markets, results of its operations
and its future prospects, and other developments affecting the banking industry
generally and FOA specifically. At least annually, these periodic strategic
reviews have focused on potential mergers and acquisitions involving FOA,
including potential acquisition targets, potential candidates for mergers of
equals with FOA, and potential acquirors of FOA.
The Board of Directors of FOA conducted its regular annual review of FOA's
strategic plan at its May 1997 meeting, and, at that time, it scheduled its
annual strategic review focusing on mergers and acquisitions for its regular
November 1997 meeting. Consistent with its past practice, the Board of Directors
of FOA planned to receive at that meeting presentations by FOA's legal and
financial advisors analyzing recent merger and acquisition developments and the
effects of those developments on FOA's strategic plan.
At its regular October 1997 meeting, the Board of Directors of FOA was
advised by Richard F. Chormann, FOA's Chairman, President and Chief Executive
Officer, that, based on his discussions with FOA's financial advisor in
preparation for the November meeting, because of the relative scarcity of
opportunities for and intense price competition associated with potential
acquisitions by FOA combined with the current attractiveness of FOA as an
acquisition target and the current ability of potential acquirors to offer a
significant premium to FOA shareholders, he intended that the discussion at that
meeting would include more emphasis on potential acquirors of FOA than similar
merger and acquisition strategic reviews conducted in the past.
Over the past year, National City's chairman and chief executive officer,
David A. Daberko, engaged in informal discussions with Mr. Chormann about the
possibility of a merger of the two companies over the phone and at various
conferences. On September 3, 1997 Mr. Daberko and Mr. Chormann met over lunch.
During these discussions Mr. Daberko approached Mr. Chormann to express National
City's interest in engaging in a merger transaction and to determine FOA's long
term strategic direction.
At its regular meeting held on November 19, 1997, the Board of Directors of
FOA reviewed merger and acquisition developments in relation to FOA's strategic
plan. The Board first received a presentation from FOA's legal counsel regarding
directors' fiduciary duties and appropriate procedures for considering
acquisition proposals. Next, FOA's financial advisor, Merrill Lynch, discussed
current conditions, earnings opportunities, financial considerations and
strategic alternatives. The Board of Directors of FOA then discussed at length
FOA's strategic plan and various alternatives. As a result of those discussions,
the Board authorized FOA's senior management to explore strategic alternatives
available to FOA, including a possible business combination with another larger
financial institution. It also authorized the retention of Merrill Lynch to
assist FOA in the undertaking.
Based on the analysis presented to the Board of Directors of FOA and
further discussions with FOA's senior management, on November 20, 1997, Merrill
Lynch contacted selected financial institutions about their interest in
exploring a possible combination with FOA. Certain of such institutions entered
into confidentiality agreements with FOA and received materials intended to
facilitate their evaluation of a possible transaction. Merrill Lynch requested
that each such financial institution respond with their best proposal for a
business combination transaction with FOA.
As of November 28, 1997, FOA received multiple proposals, including
National City's. Merrill Lynch then reviewed such proposals with FOA's senior
management. The National City proposal was, on its face, financially superior to
the other proposals, and FOA's senior management authorized Merrill Lynch and
FOA's legal counsel to enter into direct negotiations with National City with
respect to a definitive agreement providing for a business combination with
National City. Consistent with procedures adopted by the Board of Directors of
FOA and the financial superiority of the National City proposal, the Board of
Directors determined that no further discussions
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<PAGE> 51
with parties other than National City would take place. National City was
informed of this action on November 28, 1997.
On November 29 and 30, 1997, FOA and National City conducted due diligence
and negotiations. Representatives of National City visited FOA's headquarters in
Kalamazoo, Michigan and met with management representatives of FOA. At the same
time, the parties determined the Exchange Rate and with the assistance of their
respective legal and financial advisors, negotiated a definitive agreement.
On the evening of November 30, 1997 the Board of Directors of FOA held a
special meeting to consider the proposed transaction and definitive agreement.
At the meeting, the Board of Directors of FOA received a recommendation from
FOA's senior management that the Board of Directors of FOA approve the proposed
transaction and definitive agreement. Merrill Lynch then presented to the Board
of Directors of FOA a financial review and analysis of FOA, National City and
the proposed transaction. Merrill Lynch concluded its presentation by delivering
its oral opinion to the Board of Directors of FOA, subsequently confirmed in
writing on November 30, 1997 and the date hereof, that the Exchange Rate was
fair from a financial point of view to the shareholders of FOA (other than
National City and its affiliates). The Board of Directors of FOA then received
presentations from its legal counsel regarding the Board's fiduciary duties and
the terms of the definitive agreement, the proposed stock option agreements, due
diligence, and various employment related and other relevant matters. Following
a lengthy discussion of the proposed transaction and agreements and related
matters, the Board of Directors of FOA unanimously approved the Merger, adopted
the Agreement and approved the authorized related matters and agreements.
The Board of Directors of FOA believes the Merger is fair to and in the
best interests of FOA and its shareholders and recommends that its shareholders
vote in favor of approval of the Agreement. In negotiating the terms of the
Merger and the Agreement, and in formulating its recommendation that FOA
shareholders approve the Agreement, the Board of Directors of FOA reviewed a
number of factors with a view to maximizing shareholder value in the
intermediate and long term. Among the factors considered by the Board of
Directors of FOA were, without limitation, the following:
(a) FOA's financial performance relative to its peers;
(b) FOA's challenging prospects for maximizing shareholder value as an
independent company, including FOA's anticipated costs of necessary
investments in technology;
(c) FOA's various other alternatives for enhancing shareholder value,
including acquiring other financial institutions and a merger of
equals;
(d) the relative scarcity of opportunities for and intense price
competition associated with potential acquisitions by FOA;
(e) the risks associated with a merger of equals and the comparative
potential shareholder value associated therewith;
(f) the current attractiveness of FOA as an acquisition target and the
current ability of potential acquirors to offer a significant premium
to FOA shareholders;
(g) the enhanced value to FOA shareholders that the Merger and the
Agreement offer is greater than the value projected by FOA's strategic
plan; and
(h) the financial superiority of the transaction proposed by National City
in comparison to the proposals received from other institutions.
The foregoing discussion of the information and factors considered by the
Board of Directors of FOA is not intended to be exhaustive, but is believed to
include all material factors and information considered. In reaching its
decision to approve and recommend the Merger, the Board of Directors of FOA did
not assign any relative or specific weights to the foregoing factors, and
individual directors may have given differing weights to different factors.
After deliberating with respect to the Merger and other transactions
contemplated by the Agreement, considering, among other things, the matters
discussed above and the opinion of Merrill Lynch described below,
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<PAGE> 52
the Board of Directors of FOA unanimously (with all directors present) approved
the Merger and adopted the Agreement and the transactions contemplated thereby,
as being in the best interests of FOA and its shareholders.
IN VIEW OF ALL OF THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF
DIRECTORS OF FOA UNANIMOUSLY RECOMMENDS THAT FOA SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AGREEMENT.
BACKGROUND OF AND REASONS FOR THE MERGER -- NATIONAL CITY
National City's acquisition strategy has been to be a major player in its
existing markets and to expand into contiguous markets where a major presence
can be established. National City considers Michigan and Illinois an extension
of its Ohio and Indiana markets because of their proximity and similar
demographics. FOA represented a very attractive way to enter the Michigan and
Illinois markets. Over the past year, National City's chief executive officer,
David A. Daberko engaged in discussions with FOA's chief executive officer about
the possibility of a merger of the two companies. On several occasions, Mr.
Daberko approached Mr. Chormann to express National City's interest in engaging
in a merger transaction and to determine FOA's interest in such a transaction.
Merrill Lynch contacted National City in mid November indicating that the Board
of Directors of FOA had authorized Merrill Lynch to seek proposals for the
acquisition of FOA by other financial institutions. National City expressed its
interest and immediately began its effort to accumulate all publicly available
information concerning FOA. National City at the same time engaged UBS and
Montgomery to advise management concerning the potential acquisition of FOA.
The Board of Directors of National City convened a special meeting on the
morning of November 28, 1997, approved the bid, adopted a definitive agreement
and authorized the officers of National City to negotiate with FOA to reach a
final definitive agreement. The bid, including a proposed definitive agreement,
was submitted to FOA on the same morning.
Early in the evening of November 28, 1997, National City was informed that
based on its bid, FOA desired to proceed with negotiations and due diligence.
Negotiations on the definitive agreement and due diligence were simultaneously
conducted culminating in the Board of Directors of FOA adopting the Agreement at
a special meeting held on the evening of November 30, 1997. The Agreement was
executed on November 30, 1997, and an announcement was made on December 1, 1997.
As indicated above, concurrent with the negotiation of the Agreement,
National City conducted a due diligence review of FOA. A team from National City
reviewed such areas as credit quality, risk management, systems, controls,
consolidation opportunities, and management issues. One of the main objectives
of the due diligence review was the verification of assumptions used to
determine the price to be paid for the FOA shares. After the review was
completed, National City gained further comfort with regard to its initial
estimates of cost savings, revenue enhancements and one-time merger related
charges.
Specifically, National City believes that annual cost savings of
approximately $243 million ($153 million after-tax), can be realized from the
Merger beginning in 1999. The savings are derived primarily from the elimination
of duplicative corporate staff support functions and the conversion of FOA's
operating systems to National City's. National City has also identified
potential annual net revenue enhancements of $25 million after-tax beginning in
1999. Such enhancements are derived primarily from the introduction of National
City products and services into FOA's markets. Such products and services
include, but are not limited to, commercial leasing, syndicated lending,
asset-based lending, investment banking, student loans, consumer automobile
leasing, and corporate payments outsourcing.
Based on the above assumptions, National City's desire to have the Merger
be accretive to its earnings per share no later than the second year after the
Merger, and review of recent acquisition prices, National City determined to
submit a bid whereby it would exchange 1.2 shares of National City Common for
each share of FOA Common. National City submitted with its bid a draft
definitive agreement that contained terms and conditions substantially similar
to the final Merger Agreement.
The Board of Directors of National City believes that the Merger is fair to
and in the best interests of National City and its stockholders and recommends
that its stockholders vote in favor of the transaction. In negotiating the terms
of the Merger and in considering its recommendation to the stockholders to adopt
the
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<PAGE> 53
Agreement, National City reviewed a number of factors with a view to maximizing
stockholder value in the intermediate and long-term, including earnings
potential, realization of economies of scale, market position of FOA and
National City's ability to sell its products to FOA's large customer base. In
addition, the Board of Directors of National City consulted with National City
management, as well as its financial and legal advisers,
and considered other factors, including, without limitation, the following: (a)
the business, operations, earnings, prospects and financial condition of FOA as
determined from the due diligence conducted by National City management; (b) the
opinion of its financial advisors as described below; (c) the terms of the
Agreement, the National City Option and the FOA Option; and (d) regulatory
approval requirements.
National City believes that the affiliation of FOA with National City and
the acquisition of the banks and other subsidiaries now owned by FOA will
provide National City with a meaningful presence in Michigan and Illinois, will
improve National City's market presence in Indiana and will provide an expansion
of National City's customer base and assets. National City also believes that
FOA's low loan-to-deposit ratio represents a significant source of low cost
funding for all of National City. In addition, FOA's strong retail base provides
significant opportunities for expansion by offering National City's products and
services into Michigan and Illinois. National City, with its expertise in middle
market lending, wealth management and investment banking, foresees an
outstanding opportunity to increase revenues in the FOA markets.
National City has had substantial prior experience in effecting successful
mergers, including major bank holding company mergers (BancOhio Corporation in
1984, First Kentucky National Corporation in 1988, Merchants National
Corporation in 1992 and Integra Financial Corporation in 1996) as well as other
smaller acquisitions. National City has completed all of its own standardization
and consolidation projects and believes it can effectively integrate the
operations of FOA into National City within a short period after the
consummation of the Merger. The Board of Directors of National City believes
that the Merger will result in a combined entity with increased financial
resources and greater financial strength than either National City or FOA alone.
The anticipated cost savings noted above, coupled with the expected revenue
enhancements, should make the Merger accretive to National City's earnings per
share in 1999. The increased scale of operations should also aid the
profitability of such key product areas as trust, mortgage servicing, credit
card processing, investment banking and consumer finance.
IN VIEW OF ALL THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS
OF NATIONAL CITY UNANIMOUSLY RECOMMENDS THAT NATIONAL CITY STOCKHOLDERS VOTE FOR
THE ADOPTION OF THE AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
FOA. FOA retained Merrill Lynch to act as FOA's financial advisor in
connection with the Merger and related matters based upon its qualifications,
expertise and reputation, as well as its prior investment banking relationship
and general familiarity with FOA.
OPINION TO FOA
On November 19, 1997, FOA engaged Merrill Lynch to act as its exclusive
financial advisor in connection with a possible business combination involving
FOA and another party. Pursuant to the terms of its engagement, Merrill Lynch
agreed to assist FOA in identifying such parties and in analyzing, structuring,
negotiating and effecting any proposed business combination involving FOA and
another such party. As part of its investment banking business, Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions.
As part of its engagement, FOA requested that Merrill Lynch render an
opinion as to whether or not the Exchange Rate, as determined by FOA and
National City, was fair to the shareholders of FOA from a financial point of
view. Representatives of Merrill Lynch attended the meeting of the FOA Board
held on November 30, 1997 at which time the Board of Directors of FOA considered
and approved the Agreement. At the November 30, 1997 meeting, Merrill Lynch
rendered an oral opinion (subsequently confirmed in writing on November 30, 1997
and the date hereof) that, as of such date, the Exchange Rate was fair from a
financial point of view to the shareholders of FOA (other than National City and
its affiliates).
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The full text of Merrill Lynch's written opinion (the "Opinion"), dated as
of the date of this Proxy Statement, is attached as Appendix B to this Proxy
Statement and is incorporated herein by reference. The description of the
Opinion set forth herein is qualified in its entirety by reference to Appendix
B. FOA shareholders are urged to read the Opinion in its entirety for a
description of the procedures followed, assumptions made, matters considered,
and qualifications and limitations on the review undertaken by Merrill Lynch in
connection therewith.
MERRILL LYNCH'S OPINION IS FOR THE USE AND BENEFIT OF THE BOARD OF
DIRECTORS OF FOA. IT DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY
FOA TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER OF FOA AS TO HOW SUCH SHAREHOLDER SHOULD VOTE ON THE PROPOSED
MERGER.
Merrill Lynch has informed FOA that in arriving at its Opinion, Merrill
Lynch, among other things: (1) reviewed certain publicly-available business and
financial information relating to FOA and National City that Merrill Lynch
deemed to be relevant; (2) reviewed certain information, including financial
forecasts, relating to the respective businesses, earnings, assets, liabilities
and prospects of FOA and National City furnished to Merrill Lynch by senior
management of FOA and National City, as well as the amount and timing of the
cost savings, revenue enhancements and related expenses expected to result from
the Merger (the "Expected Synergies") furnished to Merrill Lynch by senior
management of National City; (3) conducted discussions with members of senior
management of FOA and National City concerning the matters described in clauses
(1) and (2) above, as well as their businesses and prospects before and after
giving effect to the Merger and the Expected Synergies; (4) reviewed the market
prices and valuation multiples for FOA Common and National City Common and
compared them with those of certain publicly-traded companies that Merrill Lynch
deemed to be relevant; (5) reviewed the respective financial condition and
results of operations of FOA and National City and compared them with those of
certain publicly-traded companies that Merrill Lynch deemed to be relevant; (6)
compared the proposed financial terms of the Merger with the financial terms of
certain other transactions that Merrill Lynch deemed to be relevant, (7)
participated in certain discussions and negotiations among representatives of
FOA and National City and their financial and legal advisors; (8) reviewed the
potential pro forma impact of the Merger; (9) reviewed a draft of the Agreement,
the National City Option Agreement and the FOA Option Agreement; and (10)
reviewed such other financial studies and analyses and took into account such
other matters as it deemed necessary, including its assessment of general
economic, market and monetary conditions.
In preparing the Opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch has not assumed responsibility for independently
verifying such information or undertaken an independent evaluation or appraisal
of the assets or liabilities of FOA or National City or been furnished any such
evaluation or appraisal. Merrill Lynch is not an expert in the evaluation of
allowances for loan losses, and Merrill Lynch has neither made an independent
evaluation of the adequacy of the allowance for loan losses of FOA or National
City, nor has Merrill Lynch reviewed any individual credit files relating to FOA
or National City, and, as a result, Merrill Lynch has assumed that the aggregate
allowance for loan losses for both FOA and National City is adequate to cover
such losses and will be adequate on a pro forma basis for the combined entity.
In addition, Merrill Lynch has not assumed any obligation to conduct, nor has
Merrill Lynch conducted, any physical inspection of the properties or facilities
of FOA or National City. With respect to the financial forecast information and
Expected Synergies furnished to or discussed with Merrill Lynch by FOA or
National City, Merrill Lynch has assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgments of the senior
management of FOA and National City as to the future financial performance of
FOA, National City or the combined entity, as the case may be. Merrill Lynch has
further assumed that the Merger will be accounted for as a pooling-of-interests
under generally accepted accounting principles and that it will qualify as a
tax-free reorganization for U.S. federal income tax purposes. Merrill Lynch has
also assumed that the final form of the Agreement will be substantially similar
to the last draft received by it from FOA.
The Opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
Merrill Lynch as of the date thereof. Merrill Lynch has assumed that in the
course of obtaining the necessary regulatory or other consents or approvals
(contractual or
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otherwise) for the Merger, no restrictions, including any divestiture
requirements or amendment or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Merger.
Merrill Lynch has not expressed any opinion as to the prices at which FOA
Common or National City Common will trade following the announcement or
consummation of the Merger.
In connection with rendering the Opinion, Merrill Lynch performed a variety
of financial analyses, including those summarized below. The summary set forth
below does not purport to be a complete description of the analyses performed by
Merrill Lynch in this regard, although it describes all material analyses
performed by Merrill Lynch in connection therewith. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to a partial analysis or summary description. Accordingly,
notwithstanding the separate factors summarized below, Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and factors considered by it, without considering all analyses and
factors, or attempting to ascribe relative weights to some or all such analyses
and factors, could create an incomplete view of the evaluation process
underlying the Opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to the industry performance, general business and economic conditions
and other matters, many of which are beyond the control of National City and
FOA. The analyses performed by Merrill Lynch are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Merrill Lynch's analysis of the fairness, from a financial point of
view, to the shareholders of FOA of the Exchange Rate and were provided to the
Board of Directors of FOA in connection with the delivery of the Opinion.
Merrill Lynch gave the various analyses described below approximately similar
weight and did not draw any specific conclusions from or with regard to any one
method of analysis. With respect to the comparison of selected comparable
companies analysis and the analysis of selected bank merger transactions
summarized below, no company utilized as a comparison is identical to FOA or
National City and no transaction is identical to the Merger. Accordingly, an
analysis of comparable companies and comparable business combinations is not
mathematical; rather it involves complex considerations and judgments concerning
the differences in financial and operating characteristics of the companies and
other factors that could affect the public trading values or announced merger
transaction values, as the case may be, of the companies concerned. The analyses
do not purport to be appraisals or to reflect the prices at which FOA or
National City might actually be sold or the prices at which any securities may
trade at the present time or at any time in the future. In addition, as
described above, the Opinion is just one of many factors taken into
consideration by the FOA Board.
The projections furnished to Merrill Lynch and used by it in certain of its
analyses were prepared by the senior management of National City and FOA. FOA
and National City do not publicly disclose internal management projections of
the type provided to Merrill Lynch in connection with its review of the Merger,
and as a result, such projections were not prepared with a view towards public
disclosure. The projections were based on numerous variables and assumptions
that are inherently uncertain, including, without limitation, factors related to
general economic and competitive conditions, and accordingly, actual results
could vary significantly from those set forth in such projections.
The following is a summary of the material analyses presented by Merrill
Lynch to the Board of Directors of FOA on November 30, 1997 in connection with
its Opinion dated the date hereof.
Summary of Proposal. Merrill Lynch reviewed the terms of the proposed
transaction, including the Exchange Rate and the implied aggregate transaction
value. Based on National City's closing stock price of $66.75 on November 28,
1997, Merrill Lynch calculated an implied transaction value per share of FOA of
$80.10, and an implied total transaction value of approximately $7.2 billion.
Based on such implied total transaction value, Merrill Lynch also calculated the
price to market, price to book, price to tangible book and price to earnings
multiples, and the implied deposit premium paid (defined as the transaction
value minus the tangible book value divided by total deposits) for FOA in the
Merger. This analysis yielded a price to market multiple of 1.36x, a price to
book value multiple of 3.93x, a price to tangible book value multiple of 4.40x,
a price to last twelve months earnings multiple of 25.76x, a price to 1997
estimated earnings multiple of 24.27x, a price to 1998 estimated earnings
multiple of 22.44x, and an implied deposit premium of 35.41%.
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Pro Forma Merger Analysis. Based on publicly available earnings forecasts
from third parties and projections provided by National City and FOA, including
an after-tax fully-phased-in Expected Synergies assumption of $178 million in
1999, Merrill Lynch analyzed certain pro forma effects of the Merger. This
analysis indicated that the transaction would be accretive to projected earnings
per share of National City Common in 1999 and thereafter and that the Merger
would be dilutive to National City's book value and tangible book value per
share at the assumed closing of the Merger. In this analysis, Merrill Lynch
assumed that National City and FOA performed in accordance with the publicly
available earnings forecasts from third parties and Expected Synergies
assumptions provided to Merrill Lynch by National City's and FOA's senior
management.
Discounted Dividend Stream Analysis -- FOA. Using a discounted dividend
stream analysis, Merrill Lynch estimated the present value of the future streams
of after-tax cash flows that FOA could produce and distribute to shareholders
("dividendable net income") on a stand-alone basis from 1998 through 2002.
Merrill Lynch assumed that FOA performed in accordance with publicly available
earnings forecasts from third parties in 1997 and 1998, increased at 9.00% per
annum thereafter, and that FOA's tangible common equity to tangible asset ratio
would be maintained at a minimum 6.0% level. Merrill Lynch estimated the
terminal values for the FOA common stock at 13.0, 14.0 and 15.0 times FOA's 2003
estimated operating income (defined as net income before intangible
amortization). The dividendable net income streams and terminal values were then
discounted to present values using different discount rates (ranging from 12% to
14%) chosen to reflect different assumptions regarding required rates of return
of holders or prospective buyers of FOA Common. This discounted dividend stream
analysis indicated a reference range of $52.26 to $61.69 per share for FOA
Common. As indicated above, this analysis is not necessarily indicative of
actual values or actual future results and does not purport to reflect the
prices at which any securities may trade at the present or at any time in the
future. Merrill Lynch noted that the discounted dividend stream analysis is a
widely used valuation methodology, but the results of such methodology are
highly dependent upon the numerous assumptions that must be made, including
earnings growth rates, dividend payout rates, terminal values and discount
rates.
Analysis of Selected Bank Merger Transactions -- FOA. Merrill Lynch
reviewed publicly available information regarding eleven bank merger
transactions with a value greater than $1 billion which had occurred in the
United States since December 1, 1995 that it deemed to be relevant (the
"Comparable Transactions"). The Comparable Transactions and the month in which
they were announced are: First Union's proposed acquisition of CoreStates
Financial (November 1997); Banc One's proposed acquisition of First Commerce
(October 1997); NationsBank's proposed acquisition of Barnett Banks (August
1997); First Union's acquisition of Signet Banking (July 1997); Wachovia's
proposed acquisition of Central Fidelity (June 1997); First Bank System's
acquisition of US Bancorp (March 1997); Allied Irish Banks' acquisition of
Dauphin Deposit (January 1997); NationsBank's acquisition of Boatmen's
Bancshares (August 1996); Wells Fargo's acquisition of First Interstate (January
1996); Fleet Financial's acquisition of National Westminster (December 1995);
and Bank of Boston's acquisition of BayBanks (December 1995). Merrill Lynch
compared the price to book value, price to tangible book value and price to
earnings ratios and the implied deposit premium paid in the Merger to the
corresponding ratios for the Comparable Transactions. This analysis yielded a
range of (i) price to book value multiples of 1.05x to 5.51x with a mean of
3.14x and a median of 3.04x (compared with a multiple of 3.93x for FOA using the
November 28, 1997 price for National City Common), (ii) price to tangible book
value multiples of 1.55x to 6.34x with a mean of 3.64x and a median of 3.70x
(compared with a multiple of 4.40x for FOA using the November 28, 1997 price for
National City Common), (iii) price to trailing twelve months earnings multiples
of 12.15x to 26.00x with a mean of 19.60x and a median of 19.37x (compared with
a multiple of 25.76x for FOA using the November 28, 1997 price for National City
Common), (iv) price to 1997 estimated earnings multiples of 14.37x to 23.10x
with a mean of 18.74x and a median of 18.10x (compared with a multiple of 24.27x
for FOA using the November 28, 1997 price for National City Common), (v) price
to 1998 estimated earnings multiples of 13.06x to 20.65x with a mean of 17.04x
and a median of 16.37x (compared with a multiple of 22.44x for FOA using the
November 28, 1997 price for National City Common), and (vi) implied deposit
premiums paid of 6.07% to 45.02% with a mean of 26.59% and a median of 24.16%
(compared with a premium of 35.41% for FOA using the November 28, 1997 price for
National City Common). This analysis yielded an overall imputed reference range
per share of FOA Common of $58.42 to $67.37 based on the mean and median imputed
range.
Comparison of Selected Comparable Companies -- FOA. In connection with the
Merrill Lynch Report, Merrill Lynch compared selected operating and stock market
results of FOA to the publicly available
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corresponding data of certain other companies that Merrill Lynch deemed to be
relevant, including AmSouth Bancorp., BB&T Corp., Commerce Bancshares Inc.,
Compass Bancshares Inc., Crestar Financial Corp., Fifth Third Bancorp, First
American Corp., First Empire State Corp., First Security Corp., First Tennessee
National, Firstar Corp., Hibernia Corp., Huntington Bancshares Inc., Marshall &
Ilsley Corp., Mercantile Bancorp., Northern Trust Corp., Old Kent Financial
Corp., Regions Financial Corp., SouthTrust Corp., Star Banc Corp., Summit
Bancorp and Union Planters Corp. (collectively the "FOA Composite"). This
comparison showed, among other things, that for the twelve months ended
September 30, 1997 (i) FOA's net interest margin was 4.65%, compared with a mean
of 4.25% for the FOA Composite, (ii) FOA's efficiency ratio (defined as
operating expenses divided by the sum of noninterest income and net interest
income before provision for loan losses) was 57.40%, compared with a mean of
55.87% for the FOA Composite, (iii) FOA's return on average assets was 1.30%,
compared to a mean of 1.36% for the FOA Composite and (iv) FOA's return on
average equity was 15.59%, compared to a mean of 16.67% for the FOA Composite.
This comparison also indicated that (i) at September 30, 1997, (A) FOA's
tangible equity to tangible asset ratio was 7.56%, compared to a mean of 7.24%
for the FOA Composite, (B) FOA's ratio of nonperforming loans to total loans was
0.63%, compared with a mean of 0.44% for the FOA Composite, (C) FOA's ratio of
nonperforming assets to total assets was 0.51%, compared with a mean of 0.35%
for the FOA Composite, (D) FOA's ratio of loan loss reserves to nonperforming
assets was 234.88%, compared with a mean of 326.03% for the FOA Composite, (ii)
as of November 28, 1997, (A) the ratio of FOA's market price to 1997 estimated
earnings was 17.80x, compared to a mean of 19.56x for the FOA Composite
(assuming reported average earnings estimates based on data from First Call for
both FOA and the FOA Composite), (B) The ratio of FOA's market price to 1998
estimated earnings was 16.46x, compared to 17.48x for the FOA Composite
(assuming reported average earnings estimates based on data from First Call for
both FOA and the FOA Composite), (C) the ratio of FOA's market price to book
value per share at September 30, 1997 was 2.82x, compared to a mean of 3.34x for
the FOA Composite, (D) the ratio of FOA's market price to tangible book value
per share at September 30, 1997 was 3.15x, compared to a mean of 3.84x for the
FOA Composite, and (E) FOA's dividend yield was 2.45%, compared to a mean of
1.96% for the FOA Composite.
No company or transaction used in the above analyses as a comparison is
identical to FOA or the Merger respectively. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading values or
announced merger transaction values, as the case may be, of FOA and the
companies to which it is being compared.
Discounted Dividend Stream Analysis -- National City. Using a discounted
dividend stream analysis, Merrill Lynch estimated the present value of the
future streams of after tax cash flows that National City could produce and
distribute to stockholders ("dividendable net income") on a stand-alone basis
from 1998 through 2002. Merrill Lynch assumed that National City performed in
accordance with the publicly available earnings forecasts from third parties in
1997 and 1998, increased at 11.00% per annum thereafter, and that National
City's tangible common equity to tangible asset ratio would be maintained at a
minimum 6.0% level. Merrill Lynch estimated the terminal values for the National
City Common at 13.0, 14.0 and 15.0 times National City's 2003 estimated
operating income (defined as net income before intangible amortization). The
dividendable net income streams and terminal values were then discounted to
present values using different discount rates (ranging from 12% to 14%) chosen
to reflect different assumptions regarding required rates of return of holders
or prospective buyers of National City Common. This discounted dividend stream
analysis indicated a reference range of $61.23 to $73.24 per share for National
City Common. As indicated above, this analysis is not necessarily indicative of
actual values or actual future results and does not purport to reflect the
prices at which any securities may trade at the present or at any time in the
future. Merrill Lynch noted that the discounted dividend stream analysis is a
widely used valuation methodology, but the results of such methodology are
highly dependent upon the numerous assumptions that must be made, including
earnings growth rates, dividend payout rates, terminal values and discount
rates.
Comparison of Selected Comparable Companies -- National City. Merrill Lynch
compared selected operating and stock market results of National City to the
publicly available corresponding data of certain other companies that Merrill
Lynch deemed to be relevant, including BankBoston Corp., Comerica Inc., Fifth
Third Bancorp, Fleet Financial Group, KeyCorp, Mellon Bank Corp., PNC Bank
Corp., Summit Bancorp, SunTrust Banks Inc. and Wachovia Corp. (collectively the
"National City Composite"). This comparison showed, among
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other things, that for the twelve months ended September 30, 1997 (i) National
City's net interest margin was 4.31%, compared to a mean of 4.35% for the
National City Composite, (ii) National City's efficiency ratio (defined as
operating expenses divided by the sum of noninterest income and net interest
income before provision for loan losses) was 57.96%, compared with a mean of
53.86% for the National City Composite, (iii) National City's return on average
assets was 1.50%, compared to a mean of 1.46% for the National City Composite
and (iv) National City's return on average equity was 17.23%, compared to a mean
of 17.52% for the National City Composite. This comparison also indicated that
(i) at September 30, 1997, (A) National City's tangible equity to tangible asset
ratio was 7.63%, compared to a mean of 7.06% for the National City Composite,
(B) National City's ratio of nonperforming loans to total loans was 0.34%,
compared with a mean of 0.50% for the National City Composite, (C) National
City's ratio of nonperforming assets to total assets was 0.28%, compared with a
mean of 0.41% for the National City Composite, (D) National City's ratio of loan
loss reserves to nonperforming assets was 477.57%, compared with a mean of
329.41% for the National City Composite, (ii) as of November 28, 1997, (A) the
ratio of National City's market price to 1997 estimated earnings was 18.29x,
compared to a mean of 18.86x for the National City Composite (assuming reported
average earnings estimates based on data from First Call for both National City
and the National City Composite), (B) the ratio of National City's market price
to 1998 estimated earnings was 16.48x, compared to 16.88x for the National City
Composite (assuming reported average earnings estimates based on data from First
Call for both National City and the National City Composite), (C) the ratio of
National City's market price to book value per share at September 30, 1997 was
3.30x, compared to a mean of 3.41x for the National City Composite, (D) the
ratio of National City's market price to tangible book value per share at
September 30, 1997 was 3.57x, compared to a mean of 4.10x for the National City
Composite, and (E) National City's dividend yield was 2.59%, compared to a mean
of 2.28% for the National City Composite.
In connection with the Opinion, Merrill Lynch performed procedures to
update, as necessary, certain of the analyses described above and reviewed the
assumptions on which such analyses described above were based and the factors
considered in connection therewith. Merrill Lynch did not perform any analyses
in addition to those described above in updating its November 30, 1997 opinion.
Merrill Lynch has been retained by the Board of Directors of FOA as an
independent contractor to act as financial advisor to FOA with respect to the
Merger. Merrill Lynch is a nationally recognized investment banking firm which,
among other things, regularly engages in the valuation of businesses and
securities, including banking institutions, in connection with mergers and
acquisitions. Within the past two years, Merrill Lynch has provided financial
advisory, investment banking and other services to FOA and National City and has
received fees of approximately $1,540,000 and $7,986,000, respectively, for the
rendering of such services. In the ordinary course of its business, Merrill
Lynch and its affiliates may actively trade the securities of FOA and National
City for their own accounts and for the accounts of customers and, accordingly,
may from time to time hold a long or short position in such securities.
FOA and Merrill Lynch have entered into a letter agreement dated November
19, 1997 relating to the services to be provided by Merrill Lynch in connection
with any business combination transaction involving FOA. FOA has agreed to pay
Merrill Lynch fees as follows: (i) a fee of $500,000, payable in cash upon the
execution of the letter agreement; (ii) a fee of $3,500,000, payable in cash
upon the execution of the Merger Agreement, and (iii) a transaction fee of
$27,575,000 (less the fees paid to Merrill Lynch pursuant to (i) and (ii)
above), payable in cash at the Closing of the Merger. In such letter, FOA also
agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses
incurred in connection with its advisory work, including the reasonable fees and
disbursements of its legal counsel, and to indemnify Merrill Lynch against
certain liabilities relating to or arising out of the Merger, including
liabilities under the federal securities laws.
Opinions to National City. Due to the size and complexity of the Merger,
National City retained two financial advisors, UBS and Montgomery. These firms
were chosen based on their qualifications, expertise and reputation, as well as
their prior investment banking relationship and general familiarity with
National City. At the November 28, 1997 meeting of the Board of Directors of
National City, UBS rendered an oral opinion to the Board of Directors of
National City that, as of such date, the Exchange Rate pursuant to the Agreement
was fair to National City from a financial point of view, and Montgomery
rendered an oral opinion to the Board of Directors of National City that, as of
such date, the consideration to be paid by National City pursuant to the
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Merger was fair to National City from a financial point of view. UBS
subsequently delivered to the Board of Directors of National City its written
opinion dated November 30, 1997, confirming its oral opinion, and Montgomery
subsequently delivered to the Board of Directors of National City its written
opinion dated December 1, 1997 confirming its oral opinion. UBS and Montgomery
reconfirmed their respective opinions by delivery to the Board of Directors of
National City of their written opinions dated the date of this Proxy Statement.
No limitations were imposed by National City on the scope of UBS's or
Montgomery's investigation or on the procedures followed by them in rendering
their respective opinions.
The full text of the written opinions of UBS and Montgomery dated as of the
date of this Proxy Statement, which set forth, among other things, assumptions
made, procedures followed, matters considered and limitations on the review
undertaken by each of them, are attached as Appendices C and D respectively to
this Proxy Statement. National City stockholders are urged to read these
opinions in their entirety. The summaries of the opinions of UBS and Montgomery
set forth in this Proxy Statement are qualified in their entirety by reference
to the full text of the respective opinions.
Opinion of UBS to National City
UBS ("UBS"), one of National City's financial advisors, delivered its oral
opinion to the National City Board on November 28, 1997, confirmed by its
written opinion dated November 30, 1997, stating that, as of the date of such
opinion and based on the matters set forth in such opinion, the Exchange Rate
was fair, from a financial point of view, to National City. UBS was retained by
the National City Board to express an opinion as to the fairness, from a
financial point of view, to the holders of National City Common of the Exchange
Rate. UBS did not address National City's underlying business decision to
proceed with the Merger and did not make any recommendation to the National City
Board or to the stockholders of National City with respect to any approval of
the Merger.
The full text of the opinion of UBS, which sets forth, among other things,
assumptions made, procedures followed, matters considered and limits on the
review undertaken by UBS, is attached as Appendix C to this Proxy Statement.
Holders of National City Common are urged to read the opinion in its entirety.
UBS'S OPINION IS DIRECTED ONLY TO THE EXCHANGE RATE IN THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY NATIONAL CITY STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE ANNUAL MEETING. The summary set forth in this
Proxy Statement of the opinion of UBS is qualified in its entirety by reference
to the full text of the opinion attached hereto as Appendix C.
In arriving at its opinion, UBS reviewed: (i) the Agreement; (ii) certain
publicly-available information for National City and FOA, including each of the
Annual Reports on Form 10-K for each of the years ended December 31, 1994,
December 31, 1995 and December 31, 1996 of National City and FOA and each of the
quarterly reports of National City and FOA on Form 10-Q for each of the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997; (iii) certain
internal financial analyses, financial forecasts of cost savings and other
synergies, reports and other information concerning National City and FOA
prepared by the respective managements of National City and FOA; (iv) certain
third party analysts' estimates as to the future financial performance of
National City and FOA; (v) discussions that UBS had with certain members of the
managements of each of National City and FOA concerning the historical and
current business operations, financial conditions and prospects of National City
and FOA and such other matters as UBS deemed relevant; (vi) the reported price
and trading histories of the shares of common stock of National City and FOA as
compared to the reported price and trading histories of certain publicly traded
companies that UBS deemed relevant; (vii) the respective financial conditions of
National City and FOA as compared to the financial conditions of certain other
companies that UBS deemed relevant; (viii) certain financial terms of the Merger
as compared to the financial terms of selected other business combinations that
UBS deemed relevant; and (ix) such other information, financial studies,
analyses and investigations and such other factors that UBS deemed relevant for
the purposes of its opinion.
In conducting its review and arriving at its opinion, as contemplated under
the terms of its engagement by National City, UBS, with the consent of National
City, relied, without independent investigation, upon the accuracy and
completeness of all financial and other information provided to it by National
City or FOA, respectively, or publicly available. UBS did not undertake any
responsibility for the accuracy, completeness or reasonableness of, or any
obligation independently to verify, such information. UBS further relied upon
the
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assurance of management of National City that they were unaware of any facts
that would make the information provided or available to UBS incomplete or
misleading in any respect. UBS, with the consent of National City, assumed that
the forecasted cost savings and other synergies that UBS examined were
reasonably prepared by management of National City on bases reflecting the best
currently available estimates and good faith judgments of such management.
National City informed UBS, and UBS assumed, that the Merger would be recorded
as a pooling-of-interests under generally accepted accounting principles. UBS
assumed, with the consent of National City, that the third party analysts
estimates as to the future financial performance of National City and FOA
provide a reasonable basis for its opinion. UBS did not make or obtain any
independent evaluations, valuations or appraisals of the assets or liabilities
of National City or FOA, nor was UBS furnished with such materials. UBS assumed,
without independent verification, that the aggregate allowances for credit
losses for National City and FOA were adequate to cover such losses. UBS's
opinion was necessarily based upon economic and market conditions and other
circumstances as they existed and could be evaluated by UBS on the date thereof.
UBS does not have any obligation to update its opinion, unless requested by
National City in writing to do so, and UBS expressly disclaimed any
responsibility to do so in the absence of any such request.
In connection with rendering its opinion to the Board of Directors of
National City, UBS performed a variety of financial analyses which are
summarized below. UBS believes that its analyses must be considered as a whole
and that selecting portions of its analyses and the factors considered by it,
without consideration of all factors and analyses, could create a misleading
view of the analyses and the processes underlying UBS's opinion. UBS arrived at
its opinion based on the results of all the analyses it undertook assessed as a
whole, and it did not draw conclusions from or with regard to any one method of
analysis. The preparation of a fairness opinion is a complex process involving
subjective judgments, and is not necessarily susceptible to partial analysis or
summary description. With respect to the comparable company analysis and bank
merger transaction analysis summarized below, no public company utilized as a
comparison is identical to National City or FOA, and such analyses necessarily
involve complex considerations and judgments concerning the differences in
financial and operating characteristics of the companies and other factors that
could affect the acquisition or public trading values of the companies
concerned. The financial forecasts of cost savings and other synergies furnished
by management of National City and FOA, and the third party analysts' estimates
as to the future financial performance of National City and FOA, contained in or
underlying UBS's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than such forecasts
and estimates. The forecasts and estimates were based on numerous variables and
assumptions that are inherently uncertain, including without limitation factors
related to general economic and competitive conditions. Estimates of values of
companies or assets do not purport to be appraisals or necessarily reflect the
prices at which companies or their securities actually may be sold. None of the
analyses performed by UBS was assigned a greater significance by UBS than any
other.
The following is a brief summary of the analyses performed by UBS in
connection with its oral opinion dated November 28, 1997 and its written
confirmation dated November 30, 1997:
(a) Analysis of Comparable Merger Transactions. UBS analyzed
commercial bank acquisition transactions announced in 1997 involving
consideration to stockholders in excess of $1.0 billion, excluding
merger-of-equals transactions. The transactions analyzed were: First Union
Corporation/CoreStates Financial; Banc One Corporation/First Commerce
Corporation; NationsBank Corp./Barnett Banks, Inc.; First Union
Corporation/Signet Banking Corporation; Wachovia Corporation/Central
Fidelity Banks; First Bank System/U.S. Bancorp; and Allied Irish
Banks/Dauphin Deposit Corporation. This analysis was based on publicly
announced book values and earnings per share for the 12 months preceding
the announcement of the relevant transaction and the consensus of publicly
available First Call earnings per share estimates for the 12 months
following the announcement of the relevant transaction. First Call is a
data service that monitors and publishes compilations of earnings estimates
produced by selected research analysts regarding companies of interest to
institutional investors. This analysis showed that the Exchange Rate
represented a premium to the closing price of the FOA Common one trading
day prior to announcement of the Merger of 36.3%, compared to a high
premium to market of 46.1%, a mean premium to market of 27.9%, a median
premium to market of 22.4% and a low premium to market of 17.2%. This
analysis also showed that the Exchange Rate represented a multiple of: (i)
3.84x FOA's reported book value per share, compared to a high multiple of
5.39x, a mean multiple of 3.56x, a median multiple of 3.45x and a low
multiple of 2.31x;
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(ii) 4.30x FOA's tangible book value per share, compared to a high multiple
of 5.96x, a mean multiple of 4.07x, a median multiple of 3.67x and a low
multiple of 2.37x; (iii) 24.2x FOA 's latest 12 months fully diluted
normalized earnings per share, compared to a high multiple of 26.1x, a mean
multiple of 22.3x, a median multiple of 22.1x and a low multiple of 18.2x;
and (iv) 22.9x FOA's projected next 12 months fully diluted earnings per
share, compared to a high multiple of 22.0x, a mean multiple of 19.5x, a
median multiple of 20.5x and a low multiple of 17.4x. This analysis further
showed that: (i) National City's projected next 12 month's fully diluted
earnings per share price multiple was 16.9x, compared to a median multiple
for the other acquirors in the analyzed transactions of 14.1x; (ii) the
Exchange Rate represented a multiple of FOA's projected next 12 month's
fully diluted earnings per share price of (a) 22.9x on a stand-alone basis,
compared to a median multiple for the other acquired companies in the
analyzed transaction of 20.5x; and (b) 14.2x giving effect to projected
cost savings and other synergies, compared to a median multiple for the
other acquired companies in the analyzed transaction of 11.6x; and (iii)
the Exchange Rate represented 135.5% on a stand-alone basis and 84.3%
giving effect to projected cost savings and other synergies, of National
City's projected next 12 month's fully diluted earnings per share multiple,
compared to a median of 141.9% and 81.7%, respectively, for all acquirors
in the analyzed transactions. UBS recognized that no transaction reviewed
was identical to the Merger and that, accordingly, any analysis of
comparable transactions necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics
of the parties to the transactions being compared.
(b) Pro Forma Merger Analysis. UBS analyzed the financial impact of
the Merger on the holders of National City Common and FOA Common. This
analysis showed that the Exchange Rate would result in a pro forma
ownership of the combined entity of approximately 67% by stockholders of
National City and approximately 33% by shareholders of FOA, and that
National City would issue approximately 107 million shares of National City
Common in the Merger.
(c) Discounted Cash Flow Analysis. UBS performed discounted cash flow
analyses to determine the present value of FOA through 2007 using the
consensus of publicly available First Call earnings per share estimates for
1998 plus the amortization of original intangibles, and assuming the
long-term First Call growth estimate for FOA. For purposes of these
analyses, UBS assumed the forecasts of cost savings and other synergies
prepared by National City would be realized 33.3% in 1998 and 100.0% each
year thereafter. UBS utilized discount rates ranging from 10.5% to 14.5%,
based on a reasonable range above and below National City's estimated cost
of capital, and terminal values ranging from 15.6x to 17.6x, based on a
reasonable range above and below FOA's 1997 cash earnings (earnings
adjusted to eliminate the amortization of goodwill) multiple of 16.6x.
These analyses showed a range of present values from $6,594.0 million to
$9,326.3 million, and a value of $7,815.7 million assuming a discount rate
of 12.5% and a terminal value of 16.6x (the mid-points of each range),
compared to the Exchange Rate value of $7,147.8 for FOA.
(d) Accretion/(Dilution) Analyses. UBS analyzed the pro forma
financial impact of the Merger, on both a generally accepted accounting
principles basis and a cash basis, on National City's earnings per share.
For purposes of these analyses, UBS utilized the consensus of publicly
available First Call earnings per share estimates for National City and FOA
for 1998 and assumed the long-term First Call growth estimate for National
City and FOA, and assumed that National City's management's forecasted cost
savings and other synergies would be realized 33.3% in 1998 and 100%
thereafter. UBS's analyses of the Merger from National City's perspective
showed that the Merger, compared to continued operation of National City on
a stand-alone basis, would be accretive to National City's estimated
earnings starting in 1999.
(e) Summary Contribution Analysis. UBS computed the contribution of
each of National City and FOA to the combined entity's income statement,
balance sheet and market capitalization. This analysis showed that National
City contributed 73.0% and FOA contributed 27.0% to the combined entity's
net income for the last 12 months and to the combined entity's estimated
1997 net income, that National City contributed 73.6% and FOA contributed
26.4% to the combined entity's forecasted net income for the next 12 months
and 73.6% and 26.4% to the combined entity's forecasted net income in 1998.
This analysis further showed that, at September 30, 1997, National City
contributed 70.8% of total assets, 68.2% of total
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deposits, 71.1% of total tangible equity and 70.4% of total equity of the
combined entity. This analysis further showed that National City
contributed 73.5% of the combined entity's market capitalization at
November 28, 1997, 72.9% of the combined entity's average market
capitalization over the past month and 73.3% of the combined entity's
average market capitalization over the past 12 months.
The National City Board retained UBS based upon the recognized experience
and expertise of UBS's financial institutions group. UBS is an internationally
recognized investment banking and advisory firm. UBS, as a part of its
investment banking and advisory business, is continually engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. National City selected UBS
as its financial adviser because of its reputation and because of its
substantial experience in transactions such as the Merger. In the ordinary
course of business, UBS actively trades the equity securities of FOA and
National City for its own account and for the accounts of its customers and,
accordingly, at any time may hold a long or short position in such securities.
National City and UBS have entered into a letter agreement, dated November
25, 1997 (the "UBS Engagement Letter"), relating to the services to be provided
by UBS in connection with the Merger. National City has agreed to pay UBS fees
as follows: (i) $250,000, payable at the signing of UBS Engagement Letter; (ii)
$1,000,000, payable at the execution of the Merger Agreement; (iii) $1,000,000
payable upon mailing of this Proxy Statement; and (iv) $7,750,000 payable at the
closing of the Merger. In the UBS Engagement Letter, National City also has
agreed to reimburse UBS for the reasonable fees and disbursements of UBS's
counsel and all of UBS's reasonable travel and other out-of-pocket expenses.
Pursuant to an additional letter agreement dated November 25, 1997, National
City also has agreed to indemnify UBS against certain liabilities, including
liabilities under the federal securities laws.
UBS in the past from time to time has provided financial advisory and
investment banking services to National City, for which services UBS has
received customary fees.
Opinion of Montgomery to National City
General: Pursuant to an engagement letter dated November 28, 1997 (the
"Montgomery Engagement Letter"), National City engaged Montgomery to assist
National City with respect to the Merger. Montgomery also agreed to render to
the Board of Directors of National City an opinion with respect to the fairness
of the consideration to be paid by National City from a financial point of view.
Montgomery did not address National City's underlying business decision to
proceed with the Merger and did not make any recommendation to the National City
Board or to the stockholders of National City with respect to any approval of
the Merger. Montgomery is a nationally recognized investment banking firm and,
as part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with merger
transactions and other types of acquisitions, negotiated underwritings, private
placements and valuations for corporate and other purposes. National City
selected Montgomery to render the opinion on the basis of its experience and
expertise in bank merger transactions and its reputation in the banking and
investment communities.
At a meeting of the Board of Directors of National City on November 28,
1997, Montgomery delivered its oral opinion that the consideration to be paid by
National City pursuant to the Agreement was fair to National City from a
financial point of view, as of the date of its opinion. Montgomery's oral
opinion was confirmed in writing as of December 1, 1997.
THE FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO THE BOARD OF DIRECTORS OF
NATIONAL CITY, DATED DECEMBER 1, 1997, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED, AND LIMITATIONS OF THE REVIEW BY MONTGOMERY, IS ATTACHED
HERETO AS APPENDIX D AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING
SUMMARY OF MONTGOMERY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE OPINION, WHICH SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY. IN
FURNISHING SUCH OPINION, MONTGOMERY DOES NOT ADMIT THAT IT IS AN EXPERT WITH
RESPECT TO THE REGISTRATION STATEMENT OF WHICH THIS PROXY STATEMENT IS PART
WITHIN THE MEANING OF THE TERM "EXPERTS" AS USED IN THE SECURITIES ACT AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER NOR DOES IT ADMIT THAT ITS OPINION
CONSTITUTES A REPORT OR VALUATION WITHIN THE MEANING OF SECTION 11 OF THE
SECURITIES ACT. MONTGOMERY'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF
NATIONAL CITY, COVERS ONLY THE FAIRNESS OF THE CONSIDERATION TO BE PAID BY
NATIONAL CITY FROM A FINANCIAL
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POINT OF VIEW AS OF THE DATE OF THE OPINION AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF NATIONAL CITY COMMON AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE ANNUAL MEETING.
In connection with its November 28, 1997 presentation to the Board of
Directors of National City, Montgomery, among other things: (i) reviewed certain
publicly available financial and other data with respect to FOA and National
City, including the consolidated financial statements for recent years and
interim periods to September 30, 1997 and certain other relevant financial and
operating data relating to FOA and National City made available to Montgomery
from published sources and from the internal records of National City; (ii)
reviewed the financial terms and conditions of the Merger Agreement; (iii)
reviewed certain publicly available information concerning the trading of, and
the trading market for, FOA Common and National City Common; (iv) compared FOA
and National City from a financial point of view with certain other companies in
the banking industry that Montgomery deemed to be relevant; (v) considered the
financial terms, to the extent publicly available, of selected recent business
combinations of companies in the banking industry that Montgomery deemed to be
comparable, in whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of National City certain information of a
business and financial nature regarding National City, furnished to Montgomery
by such management, including financial forecasts of synergies for the Merger;
(vii) reviewed third party analysts' estimates as to the future financial
performance of National City and FOA; (viii) made inquiries regarding and
discussed the Merger and the Merger Agreement and other matters related thereto
with National City's counsel; and (ix) performed such other analyses and
examinations as Montgomery deemed appropriate.
In connection with its review, Montgomery did not assume any obligation
independently to verify the foregoing information and relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts regarding potential cost savings resulting from the Merger provided to
Montgomery by management of National City, Montgomery assumed for purposes of
its opinion, with National City's consent, that such forecasts were reasonably
prepared on bases reflecting the best available estimates and judgment of such
management and that they provided a reasonable basis upon which Montgomery could
form its opinion. Montgomery assumed with the consent of National City that the
third party analysts' estimates as to the future financial performance of
National City and FOA provide a reasonable basis upon which Montgomery could
form an opinion. Montgomery assumed that there were no material changes in
National City's or FOA's assets, financial condition, results of operations,
business or prospects since the respective dates of their last financial
statements made available to Montgomery. Montgomery relied on advice of counsel
and independent accountants to National City as to all legal and financial
matters with respect to National City, the Merger and the Agreement. Montgomery
assumed that the Merger will be consummated in a manner that complies in all
respects with the applicable provisions of the 1933 Act, the Exchange Act and
all other applicable federal and state statutes, rules and regulations.
Montgomery is not an expert in the evaluation of loan portfolios for purposes of
assessing the adequacy of the allowances for losses with respect thereto and
assumed, with National City's consent, that such allowances for each of National
City and FOA were in the aggregate adequate to cover such losses. In addition,
Montgomery did not assume responsibility for reviewing any individual credit
files, or making an independent evaluation, appraisal or physical inspection of
any of the assets or liabilities (contingent or otherwise) of National City or
FOA, nor was Montgomery furnished with any such appraisals. National City
informed Montgomery, and Montgomery assumed, that the Merger will be recorded as
a pooling of interests under generally accepted accounting principles. Finally,
Montgomery's opinion was based on economic, monetary and market and other
conditions as in effect on, and the information made available to Montgomery as
of, the date of the opinion. Accordingly, although subsequent developments may
affect the opinion, Montgomery has not assumed any obligation to update, revise
or reaffirm its opinion.
Set forth below is a brief summary of the presentation made by Montgomery
to the Board of Directors of National City on November 28, 1997 in connection
with its opinion. For purposes of this presentation, Montgomery assumed
approximately 89 million fully diluted shares of FOA Common outstanding,
approximately 107 million shares to be issued by National City in the Merger for
100% of the shares outstanding and FOA's balance sheet figures as of September
30, 1997.
Analysis of Selected Merger Transactions: Montgomery reviewed the
consideration paid in selected categories of bank transactions. Specifically,
Montgomery reviewed 1997 announced bank transactions (i) larger
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than $1 billion, (ii) larger than $3 billion and (iii) larger than $5 billion.
For each transaction, Montgomery analyzed data illustrating, among other things,
purchase price to book value, purchase price to tangible book value, purchase
price as a percentage of deposits, the ratio of the premium (i.e., purchase
price in excess of tangible book value) as a percentage of core deposits,
purchase price as a percentage of deposits, purchase price to estimated 1998
("FWD") earnings and purchase price to last 12-months ("LTM") earnings.
A summary of the median multiples in the analysis is as follows:
<TABLE>
<CAPTION>
PRICE TO PRICE TO PREMIUM PRICE TO PRICE TO
TRANSACTION BOOK TAN. BK. PRICE TO TO CORE PRICE TO FWD LTM # OF
CATEGORIES VALUE VALUE DEPOSITS DEPOSITS ASSETS EPS EARN. TRANS.
- ------------------------------------- -------- -------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mergers L $1 billion................. 3.5x 3.6x 41.1% 30.9% 28.0% 20.4x 21.4x 7
Mergers L $3 billion................. 3.5x 4.0x 41.3% 39.0% 32.9% 20.5x 22.8x 5
Mergers L $5 billion................. 4.0x 5.8x 46.5% 42.4% 35.3% 20.4x 22.2x 3
</TABLE>
As summary of the results of Montgomery's analysis concerning the Merger is
as follows:
<TABLE>
<CAPTION>
PRICE TO PRICE TO PREMIUM PRICE TO PRICE TO
BOOK TAN. BK. PRICE TO TO CORE PRICE TO FWD LTM
VALUE VALUE DEPOSITS DEPOSITS ASSETS EPS EARN.
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Offer Multiples............................. 3.8x 4.3x 42.4% 36.9% 32.2% 22.4x 22.8x
</TABLE>
Market Premiums Paid Analysis: Montgomery used a group of 23 U.S. bank
acquisitions with announced deal values greater than $1 billion since 1993,
where pricing information was available to analyze premiums paid compared to
acquired banks' stock price at various times prior to the announcement of the
acquisition. These figures produced: (i) a median premium to acquired banks'
stock price one month prior to announcement of 31%; (ii) a median premium to
acquired banks' stock price six days prior to announcement of 25%; and (iii) a
median premium to acquired banks' stock price the day prior to announcement of
22%. In comparison, National City's offer of $80.10 per share based on National
City's stock price of $66.75 per share exceeded FOA's stock price one month
prior to the announcement by 48%, FOA's stock price six days prior to the
announcement of the Agreement by 40% and FOA's stock price one day prior to the
announcement of the Agreement by 36%.
Contribution Analysis: Montgomery analyzed the contribution of each of
National City and FOA to loans, assets, deposits, stockholders' equity, LTM net
income, and calendar year projected 1997, 1998 and 1999 net income. Projected
net income was determined by taking third party analyst estimates of earnings
per share and multiplying by fully diluted shares outstanding. This analysis
showed, among other things, that based on pro forma combined balance sheets and
income statements for National City and FOA at September 30, 1997, FOA would
have contributed 28% of the loans, 29% of assets, 32% of deposits, 30% of
equity, 29% of last 12 months net income, 27% of 1997 estimated net income, 26%
of 1998 projected net income and 26% of 1999 projected net income. Based on
National City's stock price of $66.75 per share and an offer price of $80.10,
holders of FOA Common would own approximately 33% of the combined entity.
Dilution Analysis: Using third party earnings estimates and projected
growth rates for National City and FOA, Montgomery compared estimated reported
earnings per share ("Reported EPS") of National City on a stand-alone basis to
the estimated Reported EPS of the pro forma combined entity for the calendar
year ending December 31, 1999. Montgomery noted that, based upon management
estimates after giving effect to management's pretax cost savings estimates and
certain assumptions as to, among other things, the merger consideration, the
Merger would be accretive to National City's Reported EPS for the year ending
December 31, 1999. These estimates were used for purposes of this analysis only
and are not necessarily indicative of expected results or plans of National
City, or the combined institution.
Present Value Analysis: Montgomery analyzed the current valuation of FOA's
stock price in comparison to a discounted valuation assuming variations to third
party estimates of FOA's long term growth rate. In addition, the present value
of estimated synergies were added to the present value of the stock price to
determine an "affiliated" valuation. Based on this analysis, FOA's affiliated
valuation was deemed to be between $79.85 and $85.97 per share.
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Internal rate of Return Analysis: Using a targeted 6% tangible
equity/tangible assets ratio, Montgomery conducted a ten year internal rate of
return analysis. Assuming third party growth estimates and National City
management expectations of synergies, along with a purchase price reflective of
the Exchange Rate, Montgomery
determined that the internal rate of return on the acquisition of FOA would
exceed National City's cost of capital.
The summary set forth above does not purport to be a complete description
of the analyses performed by Montgomery. The preparation of a fairness opinion
is not necessarily susceptible to partial analysis or summary description.
Montgomery believes that its analyses and the summary set forth above must be
considered as a whole and that selecting a portion of its analyses and factors,
without considering all analyses and factors, would create an incomplete view of
the process underlying the analyses set forth in its presentation to National
City's Board. In addition, Montgomery may have given various analyses more or
less weight than other analyses, and may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations resulting
from any particular analysis described above should not be taken to be
Montgomery's view of the actual value of National City or the combined
companies. The fact that any specific analysis has been referred to in the
summary above is not meant to indicate that such analysis was given greater
weight than any other analysis.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of National City or FOA. The
analyses performed by Montgomery are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Montgomery's analysis of the fairness of the consideration to be paid by
National City in the Merger. The analyses do not purport to be appraisals or to
reflect the prices at which National City might actually be sold or the prices
at which any securities may trade at the present time or any time in the future.
The forecasts used by Montgomery in certain of its analyses are based on
numerous variables and assumptions which are inherently unpredictable and must
be considered not certain of occurrence as projected. Accordingly, actual
results could vary significantly from those contemplated in such forecasts.
As described above under "Merger -- Background of and Reasons for the
Merger -- National City," Montgomery's opinion and presentation to National
City's Board were among the many factors taken into consideration by National
City's Board in making its determination to approve the Merger Agreement.
Pursuant to the Montgomery Engagement Letter, National City paid Montgomery
a fee of $250,000 upon execution of the engagement agreement. Montgomery also
received a fee of $1,000,000 upon execution of the Agreement and a fee of
$1,000,000 upon the mailing of this Proxy Statement. Montgomery will receive an
additional fee of $7,750,000 upon consummation of the Merger. Accordingly, a
significant portion of Montgomery's fee is contingent upon the closing of the
Merger. National City has also agreed to reimburse Montgomery for its reasonable
out-of-pocket expenses, including any fees and disbursements for Montgomery's
legal counsel and other experts retained by Montgomery. National City has agreed
to indemnify Montgomery, its affiliates, and other respective partners,
directors, officers, agents, consultants, employees and controlling persons
against certain liabilities, including liabilities under the federal securities
laws.
TERMS OF THE MERGER
The Agreement provides for the merger of FOA into National City. Upon
consummation of the Merger, (a) the separate corporate existence of FOA will
cease, (b) National City will be the surviving corporation (the "Surviving
Corporation") and will continue to be governed by the DGCL, (c) National City's
Certificate and National City's By-laws in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation and the By-laws of the
Surviving Corporation, (d) the directors and officers of National City
immediately prior to the Effective Time will be the directors and officers of
the Surviving Corporation from and after the Effective Time until their
successors have been duly elected or appointed and qualified, and (e) promptly
after the Effective Time, in accordance with National City's By-laws, the Board
of Directors of National City shall increase its size to such number as is
necessary to create five vacancies and shall elect five FOA directors to fill
such vacancies. It is anticipated that Jon E. Barfield, John W. Brown, Richard
F. Chormann, Clifford L. Greenwalt and Dorothy A. Johnson, who now serve as
directors of FOA, will become directors of National City.
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Following the Merger, FOA's systems and procedures will be converted to
National City's. This conversion will enable the combined company to realize
various efficiencies and economies of scale and will also allow National City
products and services to be offered in FOA's markets. Such products and services
would include, but are not limited to, consumer auto leases, student loans,
asset-based lending, investment banking services, syndicated lending, and
corporate payment outsourcing services. Branch closures and consolidations
resulting from the Merger are anticipated to be minimal due to the lack of
significant overlap in the two companies' branch networks.
CONVERSION OF SHARES OF FOA COMMON
Conversion of Shares of FOA Common. At the Effective Time, (a) each then
outstanding share of FOA Common other than shares not owned by National City or
any direct or indirect wholly owned subsidiary of National City (except for any
such shares of FOA Common held by National City in trust accounts, managed
accounts or in any similar manner as trustee or in a fiduciary capacity ("Trust
Account Shares") or acquired in satisfaction of debt previously contracted ("DPC
Shares")), will be cancelled, retired and converted into the right to receive
1.2 shares of National City Common; and each then outstanding share of FOA
Common owned by National City or any direct or indirect wholly owned subsidiary
of National City (except for any shares that are Trust Account Shares or DPC
Shares) will be cancelled and retired. If between November 30, 1997 and the
Effective Time, the shares of National City Common are changed into a different
number of shares by reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or if a stock dividend thereon shall be
declared with a record date within such period, the Exchange Rate will be
adjusted accordingly.
No Fractional Shares. No fractional Shares of National City Common will be
issued in the Merger. In lieu thereof, each holder of FOA Common who otherwise
would have been entitled to a fractional share of National City Common will
receive cash in an amount determined by the average of the per share closing
price on the NYSE of National City Common for the 20 consecutive trading days
ending at the end of the third day immediately preceding the Effective Time.
Manner of Exchanging FOA Certificates for National City
Certificates. National City has designated National City Bank to act as exchange
agent (the "Exchange Agent") and First of America Bank, N.A. to act as
forwarding agent in connection with the Merger. Promptly after the Effective
Time, the Exchange Agent will mail to each holder of record of a certificate (a
"Certificate"), which immediately prior to the Effective Time represented
outstanding shares of FOA Common, a notice advising the holder of the
effectiveness of the Merger accompanied by a letter of transmittal. The letter
of transmittal will contain instructions with respect to the procedures to be
followed in effecting the surrender of the Certificate for exchange therefor and
will specify that delivery will be effected, and risk of loss and title to such
Certificate will pass, only upon proper delivery of the Certificate to the
Exchange Agent. Upon surrender to the Exchange Agent of a Certificate, together
with such letter of transmittal duly executed and completed in accordance with
the instructions thereon, and such other documents as may reasonably be
requested, the Exchange Agent promptly will deliver to the person entitled
thereto a certificate(s) representing 1.20 shares of National City Common for
each share of FOA Common so represented by the Certificate surrendered by such
holder thereof, and such Certificate will then be cancelled. If delivery of all
or part of the shares of National City Common is to be made to a person other
than the person in whose name a surrendered Certificate is registered, it will
be a condition to such delivery or exchange that the Certificate so surrendered
shall be properly endorsed or otherwise in proper form for transfer and that the
person requesting such delivery or exchange shall have paid any transfer and
other taxes required by reason of such delivery or exchange in a name other than
that of the registered holder of the Certificate so surrendered or shall have
established to the reasonable satisfaction of the Exchange Agent that such tax
either has been paid or is not payable.
CERTIFICATES FOR SHARES OF FOA COMMON SHOULD NOT BE FORWARDED TO THE
EXCHANGE AGENT UNTIL YOU HAVE RECEIVED A TRANSMITTAL LETTER AND SHOULD NOT BE
RETURNED WITH THE ENCLOSED PROXY.
Right to Shares of National City Common. Until surrendered and exchanged in
accordance with the procedures set forth in the letter of transmittal, after the
Effective Time, each Certificate shall represent solely the right to receive
1.20 shares of National City Common, multiplied by the number of shares of FOA
Common evidenced by such Certificate, together with any dividends or other
distributions as provided in "Distributions
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with Respect to Unexchanged Certificates" below, and shall have no other rights.
One hundred eighty (180) days following the Effective Time, the Exchange Agent
will deliver to National City any shares of National City Common and funds
(including any interest received with respect thereto) which National City has
made available to the Exchange Agent and which have not been disbursed to
holders of Certificates, and thereafter such holders shall be entitled to look
to National City (subject to abandoned property, escheat or other similar laws)
with respect to the shares of National City Common deliverable or payable upon
due surrender of their Certificates. Neither the Exchange Agent, National City
nor FOA shall be liable to any holder of shares of FOA Common for any shares of
National City Common (or dividends, distributions or interest with respect
thereto) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
Distributions with Respect to Unexchanged Certificates. Whenever a dividend
or other distribution is declared by National City on the National City Common,
the record date for which is at or after the Effective Time, the declaration
will include dividends or other distributions on all shares issuable in the
Merger, provided that no dividends or other distributions declared or made with
respect to National City Common will be paid to the holder of any unsurrendered
Certificate with respect to the shares of National City Common represented
thereby until the holder of such Certificate has surrendered such Certificate in
accordance with the instructions set forth in the letter of transmittal.
National City will pay any dividends or make any other distributions with a
record date prior to the Effective Time which may have been declared or made by
FOA on FOA Common in accordance with the terms of the Agreement on or prior to
the Effective Time and which remain unpaid at the Effective Time.
No dividends or distributions of National City will be payable on or with
respect to any fractional share and any such fractional share interest will not
entitle the owner thereof to vote as to any rights of stockholders of National
City. In lieu thereof, each holder of FOA Common who otherwise would have been
entitled to a fractional share of National City Common will receive cash in an
amount determined by multiplying the fractional share interest to which such
holder would otherwise be entitled by the average of the per share closing price
on the NYSE of National City Common for the 20 consecutive trading days ending
at the end of the third trading day immediately preceding the Effective Time.
Voting With Respect to Unexchanged Certificates. Holders of unsurrendered
Certificates will not be entitled to vote at any meeting of National City
stockholders.
Lost Certificates. Any FOA shareholder who has lost or misplaced a
Certificate for any of his or her shares of FOA Common should immediately call
the Exchange Agent (telephone number: (800) 622-6757) for information regarding
the procedures to be followed for replacing the lost certificate.
TREATMENT OF EMPLOYEE AND DIRECTOR STOCK OPTIONS
Each stock option or right to acquire FOA Common granted pursuant to The
Restated First of America Bank Corporation 1987 Stock Option Plan, the First of
America Bank Corporation Director Stock Compensation Plan and the FOA Stock
Compensation Plan (collectively, the "FOA Option Plans") which is outstanding
and unexercised, whether or not then exercisable, immediately prior to the
Effective Time, will cease to represent the right to acquire shares of FOA
Common and shall be converted into the right to acquire that number of National
City Common shares equal to (a) the number of shares of FOA Common subject to
the unexercised option multiplied by (b) the Exchange Rate. The exercise price
per share of National City Common under such option shall be equal to the
exercise price per share of the FOA Common which was purchasable under each
unexercised option divided by the Exchange Rate (rounded to the nearest whole
cent) necessary to assure that the rights and benefits of the optionee under
such option shall not be increased or decreased by reason of this conversion.
The duration and other terms and conditions of the options shall be the same,
except that references to FOA shall be deemed to be references to National City.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligations. The respective obligations of each
of National City and FOA to effect the Merger are subject to the fulfillment or
waiver of certain conditions, including, but not limited to, the following
conditions:
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(a) the Agreement shall have been adopted by the stockholders of
National City and approved by the shareholders of FOA;
(b) the National City Common issuable in the Merger shall have been
authorized for listing on the NYSE, upon official notice of issuance;
(c) all material authorizations, consents, orders or approvals of, and
all expirations of waiting periods imposed by, all or any government
agency, including, without limitation, the FRB and the applicable state
regulators, which are necessary for the consummation of the Merger, shall
have been obtained or shall have occurred and shall be in full force and
effect at the Effective Time;
(d) the Registration Statement shall have become effective in
accordance with the provisions of the 1933 Act, and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and remain in effect;
(e) National City and FOA shall have received a letter from Ernst &
Young LLP National City's independent accountants to the effect that, for
financial reporting purposes, the Merger qualifies for pooling-of-interests
accounting treatment under generally accepted accounting principles if
consummated in accordance with the Agreement;
(f) no temporary restraining order, preliminary or permanent
injunction or other order by any federal or state court in the United
States which prevents the consummation of the Merger shall have been issued
and remain in effect; and
(g) Wachtell, Lipton, Rosen & Katz shall have delivered to FOA and
National City their opinion substantially to the effect that, on the basis
of facts, representations and assumptions set forth in such opinion which
are consistent with the state of facts existing at the Effective Time, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. See "MERGER -- Certain
Federal Income Tax Consequences."
Conditions to FOA's Obligations. The obligation of FOA to effect the Merger
also is subject to the fulfillment or waiver of additional conditions,
including, but not limited to, the following conditions:
(a) National City shall have performed in all material respects its
covenants contained in the Agreement required to be performed by it at or
prior to the Effective Time;
(b) The representations and warranties of National City contained in
the Agreement shall be true and correct when made and the representations
and warranties shall be true and correct as of the Effective Time as if
made at and as of the Effective Time, except as expressly contemplated or
permitted by the Agreement, except for representations and warranties
relating to a time or times other than the Effective Time which were or
will be true and correct at such time or times and except where the failure
or failures of said representations and warranties to be so true and
correct, individually or in the aggregate, does not result or would not
result in a material adverse effect; and
(c) FOA shall have received all officers' certificates of National
City required by the Agreement.
Conditions to National City's Obligations. The obligation of National City
to effect the Merger also is subject to the fulfillment or waiver of additional
conditions, including, but not limited to, the following conditions:
(a) FOA shall have performed in all material respects its covenants
contained in the Agreement required to be performed by it at or prior to
the Effective Time;
(b) The representations and warranties of FOA contained in the
Agreement shall be true and correct when made and the representations and
warranties shall be true and correct as of the Effective Time as if made at
and as of the Effective Time, except as expressly contemplated or permitted
by the Agreement, except for representations and warranties relating to a
time or times other than the Effective Time which were or will be true and
correct at such time or times and except where the failure or failures of
said representations and warranties to be so true and correct, individually
or in the aggregate, does not result or would not result in a material
adverse effect; and
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(c) National City shall have received all officers' certificates of
FOA required by the Agreement.
REGULATORY APPROVALS
The Merger is subject to approval by the FRB under the BHCA. The BHCA
prohibits the FRB from approving the Merger if (a) it would result in a
monopoly; (b) it would be in furtherance of any combination or conspiracy to
monopolize the business of banking in any part of the United States; (c) its
effect in any section of the country may be substantially to lessen competition
or to tend to create a monopoly; or (d) it would be in any other manner in
restraint of trade, unless the FRB finds that any anticompetitive effects of the
Merger are clearly outweighed in the public interest by the probable effect of
the transaction in meeting the convenience and needs of the communities to be
served. The Merger may not be consummated until after the 30th day after
approval by the FRB unless reduced in the FRB order to 15 days, during which
time the Merger may be challenged on antitrust grounds by the Department of
Justice.
In addition, the BHCA requires that the FRB take into consideration, among
other facts, the financial and managerial resources and future prospects of the
institutions and the convenience and needs of the communities to be served. The
FRB has the authority to deny an application if it concludes that the combined
organization would have an inadequate capital position or if the acquiring
organization does not meet the requirements of the Community Reinvestment Act of
1977.
The FRB approved the Merger on February 11, 1998, and the 15-day Department
of Justice waiting period provided for in the FRB order will expire on February
26, 1998.
The Merger is also subject to the approval of various state regulatory
authorities. There can be no assurance that any such approvals or action can be
obtained or that such approval or action would not be conditioned in a manner
that would cause National City or FOA to abandon the Merger.
The Office of Banks and Real Estate, state of Illinois approved the change
of control for the First of America Trust Company on February 10, 1998.
WAIVER; AMENDMENT; TERMINATION
Waiver. Either party to the Agreement may, by written notice to the other
party thereto, (a) extend the time for the performance of any of the obligations
or other actions of the other party under the Agreement; (b) waive any
inaccuracies in the representations or warranties of the other party contained
in the Agreement or in any document delivered pursuant to the Agreement; (c)
waive compliance with any of the conditions or covenants of the other party
contained in the Agreement; or (d) waive or modify performance of any of the
obligations of the other party under the Agreement. Notwithstanding these
provisions, the Merger cannot be consummated unless the approval of the FRB is
obtained and unless the stockholders of National City adopt, and the
shareholders of FOA approve, the Agreement by the requisite affirmative votes.
See "MERGER -- Regulatory Approval" and "VOTING -- Record Dates and Voting
Rights."
Amendment. Subject to the applicable provisions of the DGCL and the MBCA,
the Agreement may be amended or supplemented upon the written agreement of
National City and FOA at any time, provided that an amendment may not be made
after any stockholder or shareholder adoption or approval, as applicable, of the
Agreement which reduces or changes the form or amount of the Merger
consideration without further stockholder or shareholder adoption or approval,
as applicable.
Termination. The Agreement may be terminated at any time prior to the
Effective Time, whether before or after the adoption by the National City
stockholders or the approval by shareholders of FOA, under the following
circumstances:
(a) by the mutual consent of the Board of Directors of National City
and the Board of Directors of FOA;
(b) by either National City or FOA if the Merger shall not have been
consummated on or before June 30, 1998 or if the Agreement is not adopted
by the National City stockholders at the Annual Meeting or
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not approved by the FOA shareholders at the Special Meeting (provided the
terminating party is not otherwise in material breach of its obligations
under the Agreement);
(c) by FOA if any of the conditions to FOA's obligation to effect the
Merger have not been met or waived by FOA at such time as such conditions
can no longer be satisfied. See "MERGER -- Conditions to the Merger --
Conditions to Each Party's Obligations" and "Conditions to FOA's
Obligations"; and
(d) by National City if any of the conditions to National City's
obligation to effect the Merger have not been met or waived by National
City at such time as such conditions can no longer be satisfied. See
"MERGER -- Conditions to the Merger -- Conditions to Each Party's
Obligations" and "Conditions to National City's Obligations".
Expenses. (a) If the Merger is consummated, it is estimated that the costs
and expenses incurred in connection with the Agreement, and the transactions
contemplated thereby will be $50.0 million in the aggregate.
(b) Each party will bear all expenses incurred by it in connection with the
Agreement and the transactions contemplated by the Agreement, except the
printing expenses and SEC filing and registration fees shall be shared equally
between FOA and National City.
Assignment. Without the prior written consent of the other parties to the
Agreement, neither National City nor FOA may assign any of its rights or
delegate any of its obligations under the Agreement.
EFFECTIVE TIME
As soon as practicable after satisfaction or waiver of all conditions to
the Merger under the Agreement, National City and FOA shall cause a certificate
of merger complying with the requirements of the DGCL (the "Delaware Certificate
of Merger") to be filed with the Secretary of State of the State of Delaware and
a certificate of merger complying with the requirements of the MBCA (the
"Michigan Certificate of Merger") to be filed with the Michigan Department of
Consumer and Industry Services, respectively. The Merger will become effective
at the later of the times at which such filings are made with the Secretary of
State of the State of Delaware and the State of Michigan Department of Consumer
and Industry Services (the "Effective Time"). National City and FOA currently
anticipate that the Merger will be completed during the first half of 1998. In
the event the Merger is not consummated on or before June 30, 1998, either
National City or FOA may terminate the Agreement. See "MERGER -- Waiver;
Amendments; Termination -- Termination."
CONDUCT OF NATIONAL CITY'S BUSINESS PENDING THE MERGER
The Agreement requires that from November 30, 1997 to the Effective Time,
National City will not, without the prior written consent of FOA, declare or pay
any extraordinary or special dividend on the National City Common or take any
action that would (a) materially delay or adversely affect the ability of
National City to obtain any approvals of any governmental agencies required to
permit consummation of the Merger or (b) materially adversely affect its ability
to perform its obligations under the Agreement or to consummate the transactions
contemplated thereby.
CONDUCT OF FOA'S BUSINESS PENDING THE MERGER
General. The Agreement requires that from November 30, 1997 to the
Effective Time, FOA and its subsidiaries conduct their respective businesses
only in, and not take any action except in, the ordinary course of business
consistent with past practice. FOA has covenanted to use reasonable efforts to
preserve intact the business organization of FOA and each of its subsidiaries,
to keep available the services of its and their present key officers and
employees and to preserve the goodwill of those having business relationships
with FOA or its subsidiaries. In addition, the Agreement restricts FOA and its
subsidiaries from engaging in certain transactions during the interim period
from November 30, 1997 to the Effective Time, unless approved in writing by
National City, including, among other things, (a) incurring any indebtedness for
borrowed money (other than in the ordinary course of business, including, the
creation of deposit liabilities, purchase of federal funds, borrowings pursuant
to existing lines of credit, sales of certificates of deposit and entering into
repurchase agreements), assuming, guaranteeing, endorsing or otherwise as an
accommodation becoming responsible for the obligations
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of any other person or entity, or making any loan or advance other than in the
ordinary course of business consistent with past practice; (b) making any change
or amendment to their respective articles of incorporation or Bylaws (or
comparable governing instruments) in a manner that would materially and
adversely effect with National City's or FOA's ability to consummate the Merger
or realize the economic benefits of the Merger; (c) issuing or selling any
shares of capital stock or any other securities (other than pursuant to the
outstanding exercisable options granted pursuant to the FOA Option Plans) or
issuing any securities convertible into or exchangeable for, or options,
warrants to purchase, scrip, rights to subscribe for, calls or commitments of
any character whatsoever relating to, or entering into any contract,
understanding or arrangement with respect to the issuance of, any shares of
capital stock or any other securities of any of the foregoing (other than
pursuant to the FOA Option Plans) or entering into any arrangement or contract
with respect to the purchase or voting of shares of their capital stock, or
adjusting, splitting, combining or reclassifying any of their capital stock or
other securities or making any other changes in their capital structures; (d)
granting any additional options under any of the FOA Option Plans except for
stock option grants made in accordance with existing elections by participants
in the FOA Director Stock Compensation Plan; (e) declaring, setting aside,
paying or making any dividend or other distribution or payment (whether in cash,
stock or property) with respect to, or purchasing or redeeming, any shares of
their capital stock, other than (i) regular quarterly cash dividends on FOA
Common in an amount not to exceed 35 cents per share of FOA Common payable on
FOA's regular historical payment dates (the parties agreeing that they will
cooperate so that there will not be any duplication or omission of a dividend
payment to FOA shareholders) and (ii) dividends paid by any FOA subsidiary to
another FOA subsidiary or FOA with respect to its capital stock between November
30, 1997 and the Effective Time; (f) adopting or amending (except as required by
law) any bonus, profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation, employment or other employee
benefit agreements, trusts, plans, funds or other arrangements for the benefit
or welfare of any director, officer or employee, or (except for normal merit
increases in the ordinary course of business consistent with past practice)
increasing the compensation or fringe benefits of any director, officer or
employee or paying any benefit not required by any existing plan or arrangement
(including, without limitation, the granting of stock options or stock
appreciation rights) or taking any action or granting any benefit not required
under the terms of any existing agreements, trusts, plans, funds or other such
arrangements or entering into any contract, agreement, commitment or arrangement
to do any of the foregoing.
Certain Policies. The Agreement requires FOA to use its best efforts to
modify and change its loan, litigation and real estate valuation policies and
practices (including loan classifications and level of reserves) prior to the
Effective Time so as to be consistent on a mutually satisfactory basis with
those of National City and generally accepted accounting principles; provided,
however, that FOA shall not be required to modify or change any such policies or
practices until (a) such time as National City acknowledges that all conditions
to its obligation to consummate the Merger have been waived or satisfied or (b)
immediately prior to the Effective Time. FOA's representations, warranties or
covenants contained in the Agreement shall not be deemed to be untrue or
breached in any respect for any purpose as a consequence of any such
modifications or changes. FOA does not currently anticipate that such changes or
modifications, assuming the Merger is consummated during the first quarter of
1998, will in the aggregate result in any material change in the valuation of
FOA's assets.
Acquisition Proposals. The Agreement provides that each of FOA and its
subsidiaries shall not, and shall instruct and otherwise use its best efforts to
cause their respective officers, directors, employees, agents or advisors or
other representatives or consultants not to, directly or indirectly, (a) solicit
or initiate any proposals or offers from any other person or entity relating to
any acquisition or purchase of all or a material amount of the assets of, or any
securities of, or any merger, consolidation or business combination with, FOA or
any of its subsidiaries (each such transaction an "Acquisition Transaction") or
(b) except to the extent that the Board of Directors of FOA is required in the
exercise of its fiduciary duties in accordance with applicable law, to
participate in any discussion or negotiations regarding, or furnish to any other
person or entity any information with respect to, an Acquisition Transaction.
FOA has agreed to cease any existing activities, discussions or negotiations
with any other parties conducted prior to the execution of the Agreement with
respect to any Acquisition Transaction. FOA has agreed to notify National City
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, FOA.
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EMPLOYEE MATTERS
The Agreement provides that upon consummation of the Merger, FOA employees
shall have benefits that in the aggregate are not less favorable than the
benefits enjoyed generally by National City employees working in similar
business lines. National City shall credit employees of FOA and its
subsidiaries, who become employees of National City as a result of the Merger,
with all service with FOA or any of its subsidiaries for purposes of eligibility
and vesting under its retirement plans as if such service had been performed for
National City but not for purposes of benefit accrual; provided, however, that
such provision will not change the treatment under the National City
Non-Contributory Retirement Plan and Trust of service with National City or any
of its subsidiaries prior to the Closing Date. Further, National City shall
honor, on and after the Effective Time, without deduction, counterclaims,
interruptions or deferment (other than withholding under applicable law), all
vested benefits of any person under all of FOA's employee plans or agreements.
From and after the Effective Time, National City will (1) cause any pre-existing
condition limitations under any health plans to be waived with respect to FOA
employees and the eligible dependents to the extent that such conditions were
covered by FOA's health plans and (2) to the extent FOA employees and their
eligible dependents have, before the Effective Time, satisfied in whole or in
part any annual deduction or paid any out of pocket or co-payment expense under
an applicable plan of FOA, credit such individuals with corresponding plans of
National City in which such individual participates after the Effective Time.
INDEMNIFICATION AND INSURANCE
The Agreement provides that, from and after the Effective Time, National
City will assume and honor any obligation as provided for and permitted by
applicable federal and state law FOA had immediately prior to the Effective Time
with respect to the indemnification of each person who was on November 30, 1997,
or has been at any time prior to November 30, 1997, or who becomes prior to the
Effective Time, a director or officer of FOA or any of its subsidiaries or was
serving at the request of FOA as a director or officer of any domestic or
foreign corporation joint venture, trust, employee benefit plan or other
enterprise (collectively, the "Indemnities") arising out of FOA's Articles of
Incorporation or FOA's Bylaws or any indemnification (to the maximum extent
available thereunder and permitted by applicable law or regulation) against any
and all losses in connection with or arising out of any claim which is based
upon, arises out of or in any way relates to any actual or alleged act or
omission occurring at or prior to the Effective Time in the Indemnitee's
capacity as a director or officer (whether elected or appointed) of FOA or any
of its subsidiaries. The Agreement further provides that, for a period of six
years after the Effective Time, National City will use all reasonable efforts to
cause to be maintained in effect current directors' and officers' liability
insurance in an aggregate limit of at least equal to the aggregate limits of
FOA's insurance in place on November 30, 1997 which will insure FOA's directors
and officers for events which occurred before the Effective Time but were
undiscovered at the Effective Time; provided, however, that the Agreement does
not obligate National City to expend, in order to maintain or provide insurance
coverage pursuant to the Agreement, any amount per annum in excess of 200% of
the amount of the annual premium paid as of the date of the Agreement by
National City for its current directors and officers liability insurance.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In the Merger, (i) each director of FOA, (ii) each executive officer of
FOA, and (iii) each person who holds five percent or more of the FOA Common
outstanding will receive, in exchange for the FOA Common beneficially owned by
them, shares of National City Common to the same extent as other shareholders of
FOA. Certain members of FOA's management and the Board of Directors of FOA may
be deemed to have certain interests in the Merger that were in addition to their
interests as shareholders of FOA generally. These additional interests may be
deemed to arise from certain actions National City has agreed to take regarding
the employment and severance arrangements of certain FOA executive officers and
the compensation and indemnification of FOA directors. FOA estimates the
aggregate value of such interests to be approximately $26.9 million. The
aggregate value of the benefits to be received by Mr. Chormann is estimated to
be approximately $9,343,000. The aggregate value of such benefits to be received
by each of Messrs. Cole, Kenney, Lambert, Rapp, Spears, Washburn and Wirt is
estimated to be $2,519,200, $2,354,700, $2,552,400, $2,432,500, $2,418,900
$2,933,700 and $2,350,500, respectively. The Boards of Directors of FOA and of
National City were aware of these interests and considered them, among other
matters, in approving the Merger.
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Retirement and Health Plans
For purposes of crediting periods of service for eligibility and vesting,
but not for benefit accrual purposes, under all employee benefit plans, programs
or arrangements maintained or contributed to by National City, National City
shall credit employees of FOA and FOA's Subsidiaries who become employees of
National City as a result of the Merger ("FOA Employees") all service with FOA
or FOA's Subsidiaries as if such service had been performed for National City.
From and after the Effective Time, National City has agreed to cause any
and all pre-existing condition limitation under any health plan to be waived
with respect to FOA Employees and their respective eligible dependents, to the
extent such conditions were covered under FOA's health plans. To the extent that
any FOA Employees and their eligible dependents have, before the Effective Time,
satisfied in whole or in part any out of pocket or co-payment expenses under the
applicable FOA benefit plan, such FOA Employee shall be credited for such
amounts under the corresponding benefit plan of National City in which the FOA
Employee participates after the Effective Time.
Employment and Other Agreements.
FOA entered into a Management Continuity Agreement with Richard F. Chormann
as of November 20, 1996 for a term ending November 20, 2001, which currently
provides for a base salary of not less than $700,000 per year. Mr. Chormann
shall be eligible to participate in any compensation and benefit plans generally
available to executive employees of FOA of like grade and salary, including, but
not limited to retirement plans, group life, disability, accidental death and
dismemberment, travel and accident, health and dental insurance plans, incentive
compensation plans, stock compensation plans, deferred compensation plans,
supplemental retirement plans and excess benefit plans. Mr. Chormann's
management continuity agreement provides that if there is a change in control of
FOA and (a) within the period commencing three months prior to the date of the
change in control and ending two years following the date of the change in
control (the "Firm Term") Mr. Chormann's employment is terminated without cause;
(b) Mr. Chormann resigns from his employment during the Firm Term following a
material change in his title, authority or duties, a reduction in his
compensation or benefits, or a change in his principal place of employment
without his consent to a city that is different from the city that is his
principal place of employment immediately prior to the change in control; or (c)
Mr. Chormann terminates his employment for any reason during the thirty day
period following the first anniversary of a change in control, then Mr. Chormann
is entitled to receive his salary and the aforementioned compensation and
benefit plan coverages, or the value of such coverages, for the three year
period following his termination of employment. In such cases, Mr. Chormann is
also entitled to receive the value of three annual incentive compensation awards
and his target long-term incentive compensation award for the performance period
ending in the year in which the change in control occurs. In the event any of
the aforementioned payments result in Mr. Chormann being subject to the excise
tax applicable to excess parachute payments pursuant to Section 280G of the
Internal Revenue Code of 1986, the management continuity agreement provides for
an additional payment to Mr. Chormann in the amount necessary for Mr. Chormann
to retain the same amount that he would have retained had the excise tax not
applied. The transactions contemplated by the Merger Agreement provides that
immediately after the Effective Time, National City shall pay to Mr. Chormann in
a lump sum payment all amounts due under his management continuity agreement as
if his employment had been terminated without cause. Assuming that the Merger is
consummated on March 31, 1998, the total payment to Mr. Chormann pursuant to his
management continuity agreement is estimated to be $9,343,000. The foregoing
estimate assumes that (a) Mr. Chormann's 1998 base salary is $750,000; (b) the
applicable federal tax rates for March, 1998 will be the same as the December,
1997 applicable federal tax rates; (c) the value of a share of National City
Common as of March 31, 1998 is $65.00. A change in any of these assumptions may
increase or decrease the amount payable to Mr. Chormann.
FOA has entered into Management Continuity Agreements that contain the same
terms and conditions as Mr. Chormann's Management Continuity Agreement, except
for the amount of compensation and benefits payable, with William R. Cole,
Donald J. Kenney, Thomas W. Lambert, John B. Rapp, Richard R. Spears, Richard V.
Washburn and David B. Wirt. The Agreement provides that immediately after the
Effective Time, National City shall pay to each of these individuals in a lump
sum payment all amounts due under his management continuity agreement as if his
employment had been terminated without cause. Assuming that the Merger is
consummated on March 31, 1998, the total payment to each individual pursuant to
his management
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continuity agreement is estimated to be $2,519,200 to Mr. Cole, $2,354,700 to
Mr. Kenney, $2,552,400 to Mr. Lambert, $2,432,500 to Mr. Rapp, $2,418,900 to Mr.
Spears, $2,933,700 to Mr. Washburn and $2,350,500, to Mr. Wirt. The foregoing
estimate assumes that (a) each executive's 1998 base salary is 4% higher than
his 1997 base salary; (b) the applicable federal rates for March, 1998 will be
the same as the December, 1997 applicable federal tax rates; (c) the value of a
share of National City Common as of March 31, 1998 is $65.00. A change in any of
these assumptions may increase or decrease the amount payable to each executive.
FOA has entered into management continuity agreements with certain
management employees other than those discussed above (i.e. Messrs. Chormann,
Cole, Kenney, Lambert, Rapp, Spears, Washburn and Wirt) that contain similar
terms and conditions as the aforementioned Management Continuity Agreements,
except that salary payments and compensation and benefit plan payments are to be
made for an eighteen month period following a covered termination of employment
during the Firm Term and no additional payment is to be made to the executive in
the event the executive is subject to the excise tax applicable to excess
parachute payments pursuant to Section 280G of the Internal Revenue Code of
1986. National City has agreed to honor these agreements.
FOA has adopted a Management Employee Severance Pay Plan covering any FOA
Employee with a total compensation grade of 20 or higher ("Management
Employees"). The plan provides for severance payments in the event of a change
in control and within the one year period following the date of the change in
control (a) the Management Employees's employment is terminated without cause;
or (b) the Management Employee resigns from his employment following a material
change in his authority or duties, a reduction in his compensation, a material
reduction in benefits, or a change in his principal place of employment without
his consent to a city that is different from the city that is his principal
place of employment immediately prior to the change in control, then the
Management Employee is entitled to a cash payment equal to the product of (i)
two, (ii) the Management Employee's years of service and (iii) the Management
Employee's weekly compensation rate, except that the minimum amount payable to a
Management Employee shall be 50% of his annual compensation rate and the maximum
amount payable to a Management Employee shall be 150% of his annual compensation
rate, and the continuation of health and dental benefits for the number of weeks
equal to the product of two and the Management Employee's years of service. The
Agreement provides that National City shall honor the terms of this plan. The
Agreement also provides that notwithstanding the terms of the severance plan,
certain management employees shall receive severance upon a qualifying
termination under the plan of no less than 100% of annual compensation
regardless of their actual years of service with FOA. No FOA Employee who is a
party to a Management Continuity Agreement is entitled to receive payments under
this plan.
In order to facilitate the consolidation of FOA into National City and
assure Mr. Chormann's ongoing services, National City has entered into an
agreement to employ Mr. Chormann as vice chairman of National City for a term of
three years, which will become effective as of the Effective Time. The
employment agreement provides that Mr. Chormann's base salary and bonus will
equal the greater of his 1997 base salary and bonus or 90% of the National City
chief executive officer's base salary and bonus. The employment agreement also
provides that at the Effective Time, Mr. Chormann will be issued 75,000
restricted shares of National City Common, and options to acquire 150,000 shares
of National City Common, all such shares and options to vest ratably over the
three-year term of the employment agreement. The employment agreement also
provides that upon termination of employment for any reason, Mr. Chormann will
receive an annual retirement benefit for his life of $1,250,000 reduced by any
benefit payable pursuant to National City's and FOA's qualified retirement plan
and in lieu of any benefit payable under FOA's supplemental retirement plan or
any National City nonqualified retirement plan (the "Retirement Benefit"). If
Mr. Chormann dies and is survived by his current spouse, she shall be entitled
to an annual payment equal to 75% of the Retirement Benefit. In the event both
Mr. Chormann and his current spouse die prior to the tenth anniversary of the
commencement of Retirement Benefit payments, then Retirement Benefit payments
shall continue to be made to Mr. Chormann's or his spouse's beneficiaries, as
the case may be, until such tenth anniversary. The employment agreement also
provides that to the extent not previously provided by FOA, National City shall
provide Mr. Chormann with a split-dollar life insurance arrangement providing
for a death benefit of $10,000,000. The Merger Agreement also authorizes FOA to
provide this split dollar benefit to Mr. Chormann prior to the Effective Time.
The employment agreement also provides that Mr. Chormann shall receive other
benefit plan coverages no less favorable than those provided to National City's
chief executive officer. In the event payments to Mr. Chormann pursuant to the
employment
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agreement result in Mr. Chormann being subject to the excise tax applicable to
excess parachute payments pursuant to Section 280G of the Internal Revenue Code
of 1986, the employment agreement provides for an additional payment to Mr.
Chormann in the amount necessary for Mr. Chormann to retain the same amount that
he would have retained had the excise tax not applied, unless the total payments
due under the employment agreement do not exceed 110% of the greatest amount
(the "Reduced Amount") that could be paid such that the amount payable to Mr.
Chormann would not give rise to any excise tax, in which case, Mr. Chormann
would be paid the reduced amount. If, prior to the expiration of the employment
agreement's term Mr. Chormann's employment is terminated by National City
without cause, or Mr. Chormann resigns following a diminution in his position or
responsibilities, the failure by National City to pay agreed upon compensation,
the requirement that Mr. Chormann's office be based at a location more than 35
miles from Kalamazoo, Michigan, the termination of employment other than as
expressly provided by the employment agreement or the failure to require a
successor of National City to honor the terms of the employment agreement, then
Mr. Chormann shall, in addition to the aforementioned Retirement Benefit (a)
receive a lump sum payment equal to the sum of any amounts accrued, but unpaid
under the employment agreement and the amounts that would have been paid for the
remainder of the employment agreement; (b) be entitled to lifetime medical
benefits for himself and his spouse on the same basis as provided to him
immediately prior to his termination of employment; (c) become vested in the
restricted stock awards and stock options provided for in the employment
agreement; (d) be entitled to any other benefits that he is otherwise entitled
to as an employee of National City. Assuming that the Merger is consummated on
March 31, 1998, and assuming further that Mr. Chormann's employment is
terminated immediately following the Effective Time other than for cause, death
or disability or by Mr. Chormann for one of the reasons enumerated above, the
total payment to Mr. Chormann pursuant to his employment agreement is estimated
to be $8,597,000.
The Agreement provides that National City shall enter into employment
agreements with each of William R. Cole, Donald J. Kenney, Thomas W. Lambert and
Richard R. Spears to employ each individual as an Executive Vice President of a
National City significant banking subsidiary with responsibilities and job
grades equivalent to an Executive Vice President of First of America Bank, N.A.
The employment agreements with Mr. Kenney and Mr. Spears shall have a term of
three years from the Effective Time. The employment agreements with Mr. Lambert
and Mr. Cole shall have a term of one year from the Effective Time. Each
agreement shall provide for annual salary not less than the individual's 1997
annual salary and an annual bonus commensurate with the Executive Vice
President's job grade. The employment agreement shall also provide that each
Executive Vice President shall be offered a change in control agreement with the
same terms and conditions and in the same form as the change in control
agreements existing between National City and peer executives of National City.
The employment agreements shall also provide that each Executive Vice President
shall be granted the option to purchase 25,000 shares of National City Common
pursuant to the terms of National City's stock incentive plan with a purchase
price equal to the fair market value of the stock subject thereto on the date of
the grant, and such options shall vest immediately upon an involuntary
termination of the Executive Vice President's employment without cause or upon
termination of employment by the Executive Vice President following a breach of
the obligation to enter into the employment agreement described above, a breach
of the Executive Vice President's employment agreement, or upon the Executive
Vice President's death or disability.
The Agreement provides that FOA shall enter into an agreement with each of
Richard V. Washburn and John B. Rapp such that (a) the aggregate retirement
benefit accrued by Mr. Washburn under FOA's Supplemental Retirement Plan, FOA's
Excess Benefit Plan and First of America's Employees' Retirement Plan shall be
equal to the aggregate benefit that he would have accrued under such plans had
he terminated employment at age 65 with 15 years of service; and (b) the
aggregate retirement benefit accrued by Mr. Rapp under FOA's Supplemental
Retirement Plan, FOA's Excess Benefit Plan and FOA's Employees' Retirement Plan
shall be equal to the aggregate benefit that he would have accrued under such
plans had he terminated employment with 35 years of service. Assuming that the
Merger is consummated on March 31, 1998, the value of such additional retirement
benefit as of that date is $594,214 with respect to Mr. Washburn and $251,034
with respect to Mr. Rapp.
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Executive Management Trust
The Agreement provides that prior to the Effective Time, FOA shall fund its
Executive Management Plans Trust, which is intended to provide funding for
payment pursuant to various director, executive and management compensation and
nonqualified retirement plans of FOA.
First of America Options
The Agreement provides that immediately prior to the Effective Time, each
outstanding option granted under the FOA Option Plans shall cease to represent
the right to acquire shares of FOA Common and shall be converted into the option
to purchase shares of National City Common, as described under "MERGER --
Treatment of Options."
The following table sets forth, with respect to the executive officers and
directors of FOA: (a) the number of FOA Common shares subject to options held by
such persons; (b) the number of shares of National City Common subject to the
options upon conversion of options to purchase FOA Common; and (c) the aggregate
value of the options to purchase National City Common, based on the per share
closing price of National City Common of $64.56 as of February 17, 1998 and the
exercise price associated with each option:
<TABLE>
<CAPTION>
VALUE OF
# OF NATIONAL NATIONAL
OPTION HOLDER # OF OPTION SHARES CITY SHARES CITY OPTIONS
- ------------------------------------------------- ------------------ ------------- -------------
<S> <C> <C> <C>
Richard F. Chormann.............................. 371,375.0 445,650.0 $ 28,771,164
William R. Cole.................................. 158,700.0 190,440.0 12,294,806
Dorothy A. Johnson............................... 3,596.5 4,315.8 278,628
Donald J. Kenney................................. 141,550.0 169,860.0 10,966,162
Thomas W. Lambert................................ 136,125.0 163,350.0 10,545,876
John B. Rapp..................................... 123,775.0 148,530.0 9,589,097
Daniel R. Smith.................................. 223,425.0 268,110.0 17,309,182
Richard R. Spears................................ 125,100.0 150,120.0 9,691,747
Richard V. Washburn.............................. 107,675.0 129,210.0 8,341,798
David B. Wirt.................................... 125,325.0 150,390.0 9,709,178
</TABLE>
FOA has entered into agreements with its executive officers pursuant to the
FOA Stock Compensation Plan, which provide for the issuance of shares of
restricted stock in the event that for two consecutive quarters FOA's return on
equity and efficiency ratio equal or exceed certain preestablished performance
objectives. In the event these performance criteria are satisfied prior to the
consummation of the Merger, 30,000 shares of restricted stock will be issued to
Mr. Chormann, and 9,000 shares of restricted stock will be awarded to each of
Mr. Cole, Mr. Kenney, Mr. Lambert, Mr. Rapp, Mr. Spears, Mr. Washburn and Mr.
Wirt. Each individual becomes vested in the shares of restricted stock three
years following the award of restricted stock. If a termination of a restricted
stock holder's employment occurs and, pursuant to the terms of the Management
Continuity Agreements described above, such termination would result in the
payment of compensation and benefits to the executive, vesting in the restricted
stock awards is accelerated to the date of such termination. Each executive also
becomes vested in previously awarded but unvested restricted stock upon
termination of employment by reason of retirement, disability or death.
Each stock option or right to acquire FOA Common granted pursuant to the
FOA Option Plans which is outstanding and unexercised, whether or not then
exercisable, immediately prior to the Effective Time, will cease to represent
the right to acquire shares of FOA Common and shall be converted into the right
to acquire that number of National City Common shares equal to (a) the number of
shares of FOA Common subject to the unexercised option multiplied by (b) the
Exchange Rate. The exercise price per share of National City Common under such
option shall be equal to the exercise price per share of the FOA Common which
was purchasable under each unexercised option divided by the Exchange Rate
(rounded to the nearest whole cent) necessary to assure that the rights and
benefits of the optionee under such option shall not be increased or decreased
by reason of this conversion. The duration and other terms and conditions of the
options shall be the same, except that references to FOA shall be deemed to be
references to National City.
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Other Interests
Promptly after the Effective Time, the Board of Directors of National City
will increase the size of the Board of Directors of National City to such number
as is necessary to create five vacancies, and it is anticipated that Jon E.
Barfield, John W. Brown, Richard F. Chormann, Clifford L. Greenwalt and Dorothy
A. Johnson, who now serve as directors of FOA, will become directors of National
City.
National City has agreed to indemnify the directors and officers of FOA and
its subsidiaries following the Merger for any liability they incur as a result
of acts and omissions occurring prior to the Merger to the same extent that they
were entitled to indemnification by FOA prior to the Merger. Further, National
City has agreed to maintain for six years following the Merger, directors and
officers liability insurance covering the former directors and officers of FOA
and its subsidiaries for events that occurred prior to the Merger, provided that
such insurance is available at a cost which is not in excess of 200% of the
annual premium paid by National City as of November 30, 1997 for its directors
and officers liability insurance. (See "Merger Indemnification and Insurance").
Neither FOA nor National City is aware of any material relationship between
FOA, its directors or executive officers or their affiliates and National City
or its directors or executive officers or their affiliates, except as
contemplated by the Agreement or as described herein. In the ordinary course of
business and from time to time, FOA may do business with National City, FOA may
enter into banking transactions with certain of National City's directors,
executive officers and their affiliates, and National City may enter into
banking transactions with certain of FOA's directors, executive officers and
their affiliates.
As of December 31, 1997, FOA Trust Company, a subsidiary of FOA, may be
deemed to beneficially own 700 shares (.0003%) of National City Common as to
which it exercises, solely in a fiduciary capacity, sole voting and investment
power.
As of December 31, 1997 National City Bank, a subsidiary of National City,
may be deemed to beneficially own 529,950 shares (0.6%) of FOA Common as to
which it exercises, solely in a fiduciary capacity, sole voting and investment
power.
MANAGEMENT AFTER THE MERGER
Following the Merger, the directors and officers of National City at the
Effective Time will continue as the directors and officers of National City.
Promptly after the Effective Time, (a) the Board of Directors of National City
shall increase its size to such number as is necessary to create five vacancies,
and it is anticipated that Jon E. Barfield, John W. Brown, Richard F. Chormann,
Clifford L. Greenwalt and Dorothy A. Johnson, who now serve as directors of FOA,
will become directors of National City.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated U.S. federal income
tax consequences of the Merger to holders of FOA Common who hold such stock as a
capital asset. The summary is based on the Code, Treasury regulations
thereunder, and administrative rulings and court decisions in effect as of the
date hereof, all of which are subject to change at any time, possibly with
retroactive effect. This summary is not a complete description of all of the
consequences of the Merger and, in particular, may not address U.S. federal
income tax considerations applicable to shareholders subject to special
treatment under U.S. federal income tax law (including, for example, non-U.S.
persons, financial institutions, dealers in securities, insurance companies or
tax-exempt entities, holders who acquired FOA Common pursuant to the exercise of
an employee stock option or right or otherwise as compensation, and holders who
hold FOA Common as part of a hedge, straddle or conversion transaction). In
addition, no information is provided herein with respect to the tax consequences
of the Merger under applicable foreign, state or local laws. HOLDERS OF FOA
COMMON ARE URGED TO CONSULT WITH THEIR TAX ADVISORS REGARDING THE TAX
CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE EFFECTS OF FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS.
National City and FOA have received an opinion of Wachtell, Lipton, Rosen &
Katz, Special counsel to FOA dated the date of this Proxy Statement, to the
effect that, under currently applicable law, the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and, accordingly, for United States federal income tax
purposes:
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(i) no gain or loss will be recognized by National City or FOA as a
result of the Merger;
(ii) no gain or loss will be recognized by the shareholders of FOA who
exchange their shares of FOA Common solely for shares of National City
Common pursuant to the Merger (except with respect to cash received in lieu
of fractional share interest in National City Common);
(iii) the tax basis of shares of National City Common received by
shareholders of FOA who exchange all of their shares of FOA Common solely
for shares of National City Common in the Merger will be the same as the
tax basis of the shares of FOA Common surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest for which
cash is received); and
(iv) the holding period of the shares of National City Common received
in the Merger will include the period during which the shares of FOA Common
surrendered in exchange therefor were held, provided such shares of FOA
Common were held as capital assets at the Effective Time.
The opinion of Wachtell, Lipton, Rosen & Katz described above is based on
facts, representations and assumptions set forth in such opinion, and
certificates of officers of FOA and National City.
The obligations of the parties to consummate the Merger are conditioned
upon the receipt by each of National City and FOA of an opinion of Wachtell,
Lipton, Rosen & Katz, dated the day of the Effective Time, substantially to the
foregoing effect. Such opinion will be based upon facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts existing at the Effective Time. In rendering such opinion, Wachtell,
Lipton, Rosen & Katz may require and rely upon representations contained in
certificates of officers of FOA, National City and others.
Cash received by a holder of FOA Common in lieu of a fractional share
interest in National City Common will be treated as received in redemption of
such fractional share interest, and an FOA shareholder should generally
recognize capital gain or loss for federal income tax purposes measured by the
difference between the amount of cash received and the portion of the tax basis
of the share of FOA Common allocable to such fractional share interest. Such
gain or loss should be a long-term capital gain or loss if the holding period
for such share of FOA Common is greater than one year at the Effective Time. In
the case of individual FOA shareholder, such capital gain will be taxed at a
maximum rate of 28%, if such FOA shareholder's holding period is more than one
year but not more than 18 months, and at a maximum rate of 20% if such holding
period is more than 18 months. The holding period of a share of National City
Common received in the Merger (including a fractional share interest deemed
received and redeemed as described above) will include the holder's holding
period in the FOA Common surrendered in exchange therefor.
ACCOUNTING TREATMENT
The Merger, if completed as proposed, will qualify as a
pooling-of-interests for accounting and financial reporting purposes. Under the
pooling-of-interests method of accounting, the historical basis of the assets
and liabilities of National City and FOA will be retroactively combined for the
entire fiscal period in which the Merger occurs and for all periods prior to the
Merger at historically recorded amounts. See "PRO FORMA COMBINED CONSOLIDATED
FINANCIAL INFORMATION (UNAUDITED)." In order to qualify for the
pooling-of-interests method of accounting, National City will need to issue
approximately 11.1 million shares of National City Common, prior to the
Effective Time to cure tainted shares.
The obligations of National City and FOA to effect the Merger are
conditioned, among other things, upon their receipt from Ernst & Young LLP of a
letter, dated the day of the Effective Time, to the effect that, for financial
accounting purposes, the Merger qualifies for pooling-of-interests accounting
treatment under generally accepted accounting principles if consummated in
accordance with the Agreement. See "MERGER -- Conditions to the Merger --
Conditions to Each Party's Obligations." The Agreement further provides that
neither National City nor FOA shall intentionally take or cause to be taken any
action, whether before or after the Effective Time, which would disqualify the
Merger as a pooling-of-interests for accounting purposes. In this connection,
National City has agreed to not directly or indirectly to retire or reacquire
all or a part of the stock to be issued to effect the combination. Each of the
board of directors of National City and FOA have rescinded their respective
outstanding share repurchase authorizations.
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RESALES BY AFFILIATES
The shares of National City Common issued to FOA shareholders pursuant to
the Agreement will have been registered under the 1933 Act, but such
registration does not cover resales by shareholders of FOA who may be deemed to
be "affiliates" of FOA, as that term is used in paragraphs (c) and (d) of Rule
145 promulgated under the 1933 Act. In addition, there are limitations on
resales by affiliates of FOA necessary in order for the Merger to qualify for
pooling-of-interests accounting treatment. Pursuant to the Agreement, prior to
the Effective Time, FOA shall identify to National City all persons who were, at
the time of the Special Meeting, possible "affiliates" of FOA. The Agreement
further provides that FOA shall use reasonable efforts to obtain from each
person it identifies to National City as a possible "affiliate" of FOA a
commitment that such person will not sell, pledge, transfer or otherwise dispose
of any shares of FOA Common held by such "affiliate" or shares of National City
Common received by such "affiliate" in the Merger: (a) in the case of National
City Common only, except in compliance with the applicable provisions of the
1933 Act and the rules and regulations promulgated thereunder, and (b) during
the periods during which any such sale, pledge, transfer or other disposition
would, under generally accepted accounting principles or the rules, regulations
or interpretations of the Commission, disqualify the Merger for
pooling-of-interests treatment. SEC guidelines indicate that the
pooling-of-interests method of accounting generally will not be challenged on
the basis of sales by "affiliates" of the acquiring or acquired company if such
"affiliates" do not dispose of any of the shares of the acquired or acquired
company they owned prior to the consummation of a merger or shares of the
acquiring corporation they receive in connection with a merger during the period
beginning 30 days before the merger and ending when financial results covering
at least 30 days of post-merger operations of the combined entity have been
published.
APPRAISAL AND DISSENTERS' RIGHTS
National City. Section 262(b)(1) of the DGCL provides that no appraisal
rights under the DGCL shall be available for the holders of shares of any class
or series of stock which, at the record date fixed to determine the stockholders
entitled to receive notice of and vote at the meeting of stockholders to act
upon an agreement of merger, were either listed on a national securities
exchange or held of record by more than 2,000 stockholders. Because National
City Common is listed on the NYSE and is held of record by more than 2,000
stockholders, stockholders of National City are not entitled to appraisal or
dissenters' rights in connection with the Merger.
FOA. Section 762 of the MBCA provides that no appraisal rights under the
MBCA shall be available for the holders of shares of any class or series if, on
the date fixed to determine the shareholders entitled to receive notice of and
vote at the meeting of shareholders at which a merger is to be acted on, the
shares of that class or series were listed on a national securities exchange.
Because FOA Common is traded on NYSE, shareholders of FOA are not entitled to
appraisal rights in connection with the Merger.
THE OPTIONS
NATIONAL CITY OPTION AGREEMENT
As a condition to National City's entering into the Agreement, and in
consideration therefor, FOA entered into the National City Option Agreement,
pursuant to which FOA granted National City the National City Option on November
30, 1997. The National City Option Agreement is intended to increase the
likelihood that the Merger will be consummated by making it more difficult and
more expensive for another party to obtain control of or acquire FOA.
Grant of Option. The National City Option entitles National City to
purchase up to 16,813,611 fully paid and non-assessable shares of FOA Common,
representing 19.6% of the shares of FOA Common issued and outstanding as of
November 30, 1997 without giving effect to any shares subject or issued pursuant
to the National City Option Agreement, at a price of $58.75 per share; provided,
however, that in the event FOA issues or agrees to issue any shares of FOA
Common at a price less than $58.75 per share (as adjusted as described below),
such price shall be equal to such lesser price (such price, as adjusted if
applicable, the "National City Option Price"); provided further, that in no
event may the number of shares for which the National City Option is exercisable
at any time together with shares owned by National City exceed 19.9% of the
issued and outstanding shares of FOA Common without giving effect to any shares
subject or issued pursuant to the National City Option. The aggregate purchase
price for the shares of FOA Common that may be purchased upon the exercise of
the National City Option at the original National City Option Price is
$987,799,640.
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Triggering Events; Exercise of Option. The National City Option Agreement
provides that National City may exercise the National City Option, in whole or
in part, if both an Initial Triggering Event (as defined below) and a Subsequent
Triggering Event (as defined below) shall have occurred prior to the occurrence
of an Exercise Termination Event (as defined below), provided that National City
shall have sent to FOA written notice of such exercise within 30 days following
such Subsequent Triggering Event (or such later date as is necessary to obtain
all regulatory approvals for the exercise of the National City Option and for
the expiration of all statutory waiting periods, and to avoid liability under
Section 16(b) of the Exchange Act by reason of such exercise).
For purposes of the National City Option Agreement:
(a) The term "Initial Triggering Event" means any of the following events
or transactions occurring after November 30, 1997:
(i) FOA, or any of its subsidiaries, without having received National
City's prior written consent, shall have entered into an agreement to
engage in an Acquisition Transaction (as defined below) with any person
(the term "person" for purposes of the National City Option Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act and the rules and regulations promulgated thereunder), or the
Board of Directors of FOA shall have recommended that the shareholders of
FOA approve or accept any Acquisition Transaction other than the Merger.
For purposes of the National City Option Agreement, the term "Acquisition
Transaction" means (A) a merger or consolidation, or any similar
transaction, involving FOA or any of its subsidiaries, (B) a purchase,
lease or other acquisition of all or substantially all of the assets of FOA
or any FOA subsidiary, or (C) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) of securities
representing 10% or more of the voting power of FOA or any FOA subsidiary;
provided, however, the term "Acquisition Transaction" specifically does not
include any merger or consolidation among FOA and/or its subsidiaries;
(ii) The Board of Directors of FOA does not recommend that the
shareholders of FOA approve the Agreement or publicly withdraws or
modifies, or publicly announces its intention to withdraw or modify, in any
manner adverse to National City, its recommendation that its shareholders
approve the Agreement in anticipation of engaging in an Acquisition
Transaction;
(iii) Any person other than National City or any subsidiary of
National City or any FOA Subsidiary acting in a fiduciary capacity who,
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of FOA Common (the term
"beneficial ownership" for purposes of the National City Option Agreement
having the meaning assigned thereto in Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder);
(iv) Any person other than National City or any subsidiary of National
City shall have made a bona fide proposal to FOA or its shareholders by
public announcement or written communication that is or becomes the subject
of public disclosure to engage in an Acquisition Transaction;
(v) After a proposal is made by a third party to FOA or its
shareholders to engage in an Acquisition Transaction, FOA shall have
breached any covenant or obligation contained in the Agreement and such
breach (A) would entitle National City to terminate the Agreement and (B)
shall not have been cured prior to the date of the notice of the exercise
of the National City Option; or
(vi) Any person other than National City or any subsidiary of National
City, other than in connection with a transaction to which National City
has given its prior written consent, shall have filed an application with
the FRB or other governmental agency for approval to engage in an
Acquisition Transaction.
(b) The term "Subsequent Triggering Event" means either of the following
events or transactions occurring after November 30, 1997:
(i) The acquisition by any person, other than any FOA subsidiary or
any National City subsidiary acting in a fiduciary capacity, of beneficial
ownership of 15% or more of the then outstanding shares of FOA Common; or
(ii) The occurrence of the Initial Triggering Event described above in
clause (a)(i), except that the percentage referred to in subclause
(a)(i)(c) shall be 15%.
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(c) Each of the following events constitutes an "Exercise Termination
Event":
(i) immediately prior to the Effective Time;
(ii) termination of the Agreement in accordance with the provisions
thereof (other than a termination resulting from a willful breach by FOA of
a provision of the Agreement) if such termination occurs prior to the
occurrence of an Initial Triggering Event; or
(iii) the passage of twelve months after termination of the Agreement
if such termination follows the occurrence of an Initial Triggering Event;
provided, that if an Initial Triggering Event continues or another Initial
Triggering Event occurs beyond such termination, the Exercise Termination
Event shall be twelve months from the expiration of the Last Triggering
Event but in no event more than 18 months after such termination. For
purposes of the National City Option Agreement, the term "Last Triggering
Event" means the last Initial Triggering Event to occur.
As of the date hereof, no Initial Triggering Event or Subsequent Triggering
Event has occurred.
The Agreement may be terminated at any time prior to the Effective Time by
either National City or FOA if the Merger is not approved at either the Annual
Meeting or the Special Meeting (provided that the terminating party is not
otherwise in material breach of its obligations under the Agreement).
Accordingly, if no Initial Triggering Event has occurred, in the event that
either the National City stockholders do not adopt the Agreement at the Annual
Meeting or the FOA shareholders do not approve the Agreement at the Special
Meeting, and either National City or FOA terminates the Agreement as a result
thereof, the National City Option shall terminate.
In the event of any change in FOA Common by reason of a stock dividend,
split-up, merger, recapitalization, combination, subdivision, conversion,
exchange of shares or similar transaction, the type and number of shares of FOA
Common subject to the National City Option and the purchase price therefor will
be adjusted appropriately.
Whenever the number of shares of FOA Common purchasable upon exercise of
the National City Option is adjusted as provided in the preceding paragraph, the
National City Option Price shall be adjusted by multiplying the National City
Option Price by a fraction, the numerator of which shall be equal to the number
of shares of FOA Common purchasable prior to the adjustment and the denominator
of which shall be equal to the number of shares of FOA Common purchasable after
the adjustment.
Repurchase of the National City Option. Upon the occurrence of a Subsequent
Triggering Event that occurs prior to an Exercise Termination Event, at the
request of National City, delivered within 30 days of the Subsequent Triggering
Event (or such later date as is necessary to obtain all regulatory approvals and
for the expiration of all statutory waiting periods, and to avoid liability
under Section 16(b) of the Exchange Act), FOA (a) shall repurchase the National
City Option from National City at a price (the "National City Option Repurchase
Price") equal to (i) the amount by which (A) the market/offer price (as defined
below) exceeds (B) the National City Option Price, multiplied by the number of
shares for which the National City Option may then be exercised, plus (ii)
National City's Out-of-Pocket Expenses (as defined below) (to the extent not
previously reimbursed) and (b) shall repurchase such number of shares of FOA
Common issued upon total or partial exercise of the National City Option (the
"National City Option Shares") from National City as National City shall
designate at a price (the "National City Option Share Repurchase Price") equal
to (i) the market/offer price multiplied by the number of National City Option
Shares so designated plus (ii) National City's Out-of-Pocket Expenses (to the
extent not previously reimbursed).
For purposes of the National City Option Agreement:
(a) The term "Out-of-Pocket Expenses" means National City's reasonable
out-of-pocket expenses incurred in connection with the transactions contemplated
by the Agreement and the Plan of Merger, including, without limitation, legal,
accounting and investment banking fees.
(b) The term "market/offer price" means the highest of
(i) the price per share of FOA Common at which a tender offer or
exchange offer therefor has been made after November 30, 1997;
(ii) the price per share of FOA Common to be paid by any third party
pursuant to an agreement with FOA;
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(iii) the highest closing price for shares of FOA Common within the
30-day period immediately preceding the date National City gives notice of
the required repurchase of the National City Option or the National City
Option Shares, as the case may be; or
(iv) in the event of a sale of all or substantially all of FOA's
assets, the sum of the price paid in such sale for such assets and the
current market value of the remaining assets of FOA as determined by a
nationally recognized investment banking firm selected by National City,
divided by the number of shares of FOA Common outstanding at the time of
such sale.
In determining the market/offer price, the value of consideration other
than cash will be determined by a nationally recognized investment banking firm
selected by National City, whose determination will be conclusive and binding on
all parties.
Substitute Option. The National City Option Agreement provides that in the
event that prior to an Exercise Termination Event, FOA enters into an agreement
(a) to consolidate or merge with any person, other than National City or one of
its subsidiaries, and FOA is not the continuing or surviving corporation of such
consolidation or merger, (b) to permit any person, other than National City or
one of its subsidiaries, to merge into FOA and FOA is the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of FOA Common are changed into or exchanged for stock or other securities
of any other person or cash or any other property or the then outstanding shares
of FOA Common after such merger represent less than 50% of the outstanding
shares and share equivalents of the merged company, or (c) to sell or otherwise
transfer all or substantially all of its assets to any person, other than
National City or one of its subsidiaries, then, and in each such case, the
agreement governing such transaction must make proper provision so that the
National City Option shall, upon the consummation of any such transaction, be
converted into, or exchanged for, an option (the "Substitute National City
Option"), at the election of National City, of either (i) the Acquiring
Corporation (as defined below) or (ii) any person that controls the Acquiring
Corporation. For purposes of the National City Option Agreement, the term
"Acquiring Corporation" means (A) the continuing or surviving corporation of a
consolidation or merger with FOA (if other than FOA), (B) FOA in a merger in
which FOA is the continuing or surviving corporation, and (C) the transferee of
all or substantially all of FOA's assets.
The Substitute National City Option shall have the same terms as the
National City Option; provided, however, that if the terms of the Substitute
National City Option cannot, for legal reasons, be the same as the National City
Option, such terms shall be as similar as possible and in no event less
advantageous to National City. The National City Option Agreement provides that
FOA may not enter into any transaction described above triggering a Substitute
National City Option unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assumes in writing all the obligations of FOA
under the National City Option Agreement. The National City Option Agreement
further provides that the issuer of the Substitute National City Option shall
enter into an agreement with National City in substantially the same form as the
National City Option Agreement, which agreement shall be applicable to the
Substitute National City Option and shall provide for the repurchase of the
Substitute National City Option and any shares of the issuer issued pursuant
thereto on terms similar to the repurchase of the National City Option and the
National City Option Shares.
The Substitute National City Option will be exercisable for such number of
shares of common stock of the issuer of the Substitute National City Option
("Substitute Common Stock") as is equal to the market/offer price multiplied by
the number of shares of FOA Common for which the National City Option is then
exercisable, divided by the Average Price. For purposes of the National City
Option Agreement, the term "Average Price" means the average closing price of a
share of Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of a share of Substitute Common Stock on the day preceding such
consolidation, merger or sale; provided, however, that if FOA is the issuer of
the Substitute National City Option, the Average Price will be computed with
respect to a share of common stock issued by the person merging into FOA or by
any company which controls or is controlled by such person, as National City may
elect. The exercise price of the Substitute National City Option per share of
Substitute Common Stock will then be equal to the National City Option Price
multiplied by a fraction, the numerator of which will be the number of shares of
FOA Common for which the National City Option is then exercisable and the
denominator of which will be the number of shares of Substitute Common Stock for
which the Substitute National City Option is exercisable.
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The National City Option Agreement provides that the Substitute National
City Option may not be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute National
City Option. In the event that the Substitute National City Option would be
exercisable for more than 19.9% of the shares of Substitute Common Stock
outstanding prior to exercise, the issuer of the Substitute National City Option
will be required to make a cash payment to National City equal to the excess of
(a) the value of the Substitute National City Option without giving effect to
the foregoing limitation over (b) the value of the Substitute National City
Option after giving effect to the foregoing limitation. Such difference in value
will be determined by a nationally recognized investment banking firm selected
by National City.
Registration Rights. Within 30 days after the occurrence of a Subsequent
Triggering Event (or such later date as is necessary to obtain all regulatory
approvals and for the expiration of all statutory waiting periods, and to avoid
liability under Section 16(b) of the Exchange Act), National City may request
FOA to prepare and file a registration statement with the SEC if such
registration is necessary to permit the sale or other disposition of the shares
of FOA Common purchased upon exercise of the National City Option. FOA is
required to use its best efforts to cause such registration statement to become
effective and then to remain effective for 180 days or such shorter time as may
be reasonably necessary to effect such sales or dispositions. National City has
the right to demand two such registrations. FOA also will permit National City
to include the sale of shares of FOA Common purchased upon exercise of the
National City Option in certain registration statements initiated by FOA.
Assignment of National City Option. Neither National City nor FOA may
assign any of its rights or obligations under the National City Option Agreement
or the National City Option to any other person without the express written
consent of the other party, except that in the event a Subsequent Triggering
Event occurs prior to an Exercise Termination Event, National City may assign,
in whole or in part, its rights and obligations under the National City Option
Agreement or the National City Option within 30 days following such Subsequent
Triggering Event (or such later date as is necessary to obtain all regulatory
approvals and for the expiration of all statutory waiting periods, and to avoid
liability under Section 16(b) of the Exchange Act); provided, however, that
until the date 30 days following the date at which the FRB approves an
application by National City under the BHCA to acquire the shares of FOA Common
subject to the National City Option, National City may not assign its rights
under the National City Option except in (a) a widely dispersed public
distribution, (b) a private placement in which no one party acquires the right
to purchase in excess of 2% of the voting shares of FOA, (c) an assignment to a
single party (e.g., a broker or investment banker) for the purpose of conducting
a widely dispersed public distribution on National City's behalf, or (d) any
other manner approved by the FRB.
Termination of the National City Option. The National City option will
terminate upon the occurrence of an Exercise Termination Event. In the event
that the holder of the National City Option or the owner of National City Option
Shares or any affiliate thereof is a person making an offer or proposal to
engage in an Acquisition Transaction (other than the Merger), then (a) in the
case of a holder of the National City Option or any affiliate thereof, the
National City Option held by it will immediately terminate, and (b) in the case
of an owner of National City Option Shares or any affiliate thereof, the
National City Option Shares held by it will be immediately repurchasable by FOA
at the National City Option Price.
Additional Provisions. Certain rights and obligations of National City and
FOA under the National City Option Agreement are subject to receipt of required
regulatory approvals. Among other things, the approval of the FRB is required
for the acquisition by National City of more than 5% of the outstanding shares
of FOA Common. Accordingly, an application for FRB approval of the exercise of
the National City Option was filed as part of the application referred to on
page 63 and approval has been received.
FOA OPTION AGREEMENT
As a condition to FOA's entering into the Agreement, and in consideration
therefor, National City entered into the FOA Option Agreement, pursuant to which
National City granted FOA the FOA Option on November 30, 1997. The FOA Option
Agreement is intended to provide assurance to FOA shareholders that they will
receive National City Common in exchange for their FOA Common at the
consummation of the Merger by making the acquisition of National City by a third
party prior to consummation of the Merger more expensive.
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Grant of FOA Option. The FOA Option entitles FOA to purchase up to
21,110,884 fully paid and non-assessable shares of National City Common,
representing 10% of the shares of National City Common issued and outstanding as
of November 30, 1997 without giving effect to any shares subject or issued
pursuant to the FOA Option, at a price of $66.75 per share; provided, however,
that in the event National City issues or agrees to issue any shares of National
City Common at a price less than $66.75 per share (as adjusted as described
below), such price shall be equal to such lesser price (such price, as adjusted
if applicable, the "FOA Option Price"); provided further, that in no event may
the number of shares for which the FOA Option is exercisable at any time exceed
10% of the issued and outstanding shares of National City Common without giving
effect to any shares subject or issued pursuant to the FOA Option. The aggregate
purchase price for the shares of National City Common that may be purchased upon
the exercise of the FOA Option at the original FOA Option Price is
$1,409,151,500.
Triggering Events; Exercise of FOA Option. The FOA Option Agreement
provides that FOA may exercise the FOA Option, in whole or in part, if both an
Initial Triggering Event (as defined below) and a Subsequent Triggering Event
(as defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below), provided that FOA shall have sent to
National City written notice of such exercise within 30 days following such
Subsequent Triggering Event (or such later date as is necessary to obtain all
regulatory approvals for the exercise of the FOA Option and for the expiration
of all statutory waiting periods, and to avoid liability under Section 16(b) of
the Exchange Act by reason of such exercise).
For purposes of the Option Agreement:
(a) The term "Initial Triggering Event" means any of the following events
or transactions occurring after November 30, 1997:
(i) National City, or any of its subsidiaries, without having received
FOA's prior written consent, shall have entered into an agreement to engage
in an Acquisition Transaction (as defined below) with any person (the term
"person" for purposes of the FOA Option Agreement having the meaning
assigned thereto in Sections 3(a)(9) and 13(d)(3) of the Exchange Act and
the rules and regulations promulgated thereunder), or the Board of
Directors of National City shall have recommended that the shareholders of
National City approve or accept any Acquisition Transaction other than the
Merger. For purposes of the FOA Option Agreement, the term "Acquisition
Transaction" means (A) a merger or consolidation, or any similar
transaction, involving National City or any of its subsidiaries where
National City or any National City subsidiary is not the surviving entity
(each a "Significant Subsidiary"), (B) a purchase, lease or other
acquisition of all or substantially all of the assets of National City or
any National City Subsidiary, or (C) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
securities representing 20% or more of the voting power of National City;
provided, however, the term "Acquisition Transaction" specifically does not
include any merger or consolidation among National City and/or its
subsidiaries; or
(ii) The Board of Directors of National City does not recommend that
the stockholders of National City approve the Agreement or publicly
withdraws or modifies, or publicly announces its intention to withdraw or
modify, in any manner adverse to FOA, its recommendation that its
stockholders approve the Agreement in anticipation of engaging in an
Acquisition Transaction.
(iii) Any person other than FOA, any subsidiary of FOA or any
subsidiary of National City acting in a fiduciary capacity shall have
acquired beneficial ownership or the right to acquire beneficial ownership
of 20% or more of the outstanding shares of National City Common (the term
"beneficial ownership" for purposes of the National City Option Agreement
having the meaning assigned thereto in Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder);
(b) The term "Subsequent Triggering Event" means either of the following
events or transactions occurring after November 30, 1997:
(i) The acquisition by any person of beneficial ownership of 30% or
more of the then outstanding shares of National City;
(ii) The occurrence of the Initial Triggering Event described above in
clause (a)(i), except that the percentage referred to in subclause
(a)(i)(C) shall be 30%.
(c) Each of the following events constitutes an "Exercise Termination
Event":
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(i) immediately prior to the Effective Time;
(ii) termination of the Agreement in accordance with the provisions
thereof (other than a termination resulting from a willful breach by
National City of any provision of the Agreement) if such termination occurs
prior to the occurrence of an Initial Triggering Event; or
(iii) the passage of twelve months after termination of the Agreement
if such termination follows the occurrence of an Initial Triggering Event;
provided, that if an Initial Triggering Event continues or another Initial
Triggering Event occurs beyond such termination, the Exercise Termination
Event shall be twelve months from the expiration of the Last Triggering
Event but in no event more than 18 months after such termination. For
purposes of the FOA Option Agreement, the term "Last Triggering Event"
means the last Initial Triggering Event to occur.
As of the date hereof, no Initial Triggering Event or Subsequent Triggering
Event has occurred.
The Agreement may be terminated at any time prior to the Effective Time by
either National City or FOA if the Merger is not approved at either the Annual
Meeting or the Special Meeting (provided that the terminating party is not
otherwise in material breach of its obligations under the Agreement).
Accordingly, if no Initial Triggering Event has occurred, in the event that
either the National City stockholders do not adopt the Agreement at the Annual
Meeting or the FOA shareholders do not approve the Agreement at the Special
Meeting, and either National City or FOA terminates the Agreement as a result
thereof, the FOA Option shall terminate.
In the event of any change in National City Common by reason of a stock
dividend, split-up, merger, recapitalization, combination, subdivision,
conversion, exchange of shares or similar transaction, the type and number of
shares of National City Common subject to the FOA Option and the purchase price
therefor will be adjusted appropriately.
Whenever the number of shares of National City Common purchasable upon
exercise of the FOA Option is adjusted as provided in the preceding paragraph,
the FOA Option Price shall be adjusted by multiplying the FOA Option Price by a
fraction, the numerator of which shall be equal to the number of shares of
National City Common purchasable prior to the adjustment and the denominator of
which shall be equal to the number of shares of National City Common purchasable
after the adjustment.
Repurchase of FOA Option. Upon the occurrence of a Subsequent Triggering
Event that occurs prior to an Exercise Termination Event, at the request of FOA,
delivered within 30 days of the Subsequent Triggering Event (or such later date
as is necessary to obtain all regulatory approvals and for the expiration of all
statutory waiting periods, and to avoid liability under Section 16(b) of the
Exchange Act), National City (a) shall repurchase the FOA Option from FOA at a
price (the "FOA Option Repurchase Price") equal to (i) the amount by which (A)
the market/offer price (as defined below) exceeds (B) the FOA Option Price,
multiplied by the number of shares for which the FOA Option may then be
exercised, plus (ii) FOA's Out-of-Pocket Expenses (as defined below) (to the
extent not previously reimbursed) and (b) shall repurchase such number of shares
of National City Common issued upon total or partial exercise of the FOA Option
(the "FOA Option Shares") from FOA as FOA shall designate at a price (the "FOA
Option Share Repurchase Price") equal to (i) the market/offer price multiplied
by the number of FOA Option Shares so designated plus (ii) FOA's Out-of-Pocket
Expenses (to the extent not previously reimbursed).
For purposes of the FOA Option Agreement:
(a) The term "Out-of-Pocket Expenses" means FOA's reasonable out-of-pocket
expenses incurred in connection with the transactions contemplated by the
Agreement and the Plan of Merger, including, without limitation, legal,
accounting and investment banking fees.
(b) The term "market/offer price" means the highest of
(i) the price per share of National City Common at which a tender
offer or exchange offer therefor has been made after November 30, 1997;
(ii) the price per share of National City Common to be paid by any
third party pursuant to an agreement with National City;
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(iii) the highest closing price for shares of National City Common
within the 30-day period immediately preceding the date FOA gives notice of
the required repurchase of the FOA Option or the FOA Option Shares, as the
case may be; or
(iv) in the event of a sale of all or substantially all of National
City's assets, the sum of the price paid in such sale for such assets and
the current market value of the remaining assets of National City as
determined by a nationally recognized investment banking firm selected by
FOA, divided by the number of shares of National City Common outstanding at
the time of such sale. In determining the market/offer price, the value of
consideration other than cash will be determined by a nationally recognized
investment banking firm selected by FOA, whose determination will be
conclusive and binding on all parties.
Substitute Option. The FOA Option Agreement provides that in the event that
prior to an Exercise Termination Event, National City enters into an agreement
(a) to consolidate or merge with any person, other than FOA or one of its
subsidiaries, and National City is not the continuing or surviving corporation
of such consolidation or merger, (b) to permit any person, other than FOA or one
of its subsidiaries, to merge into National City and National City is the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of National City Common are changed into or exchanged
for stock or other securities of any other person or cash or any other property
or the then outstanding shares of National City Common after such merger
represent less than 50% of the outstanding shares and share equivalents of the
merged company, or (c) to sell or otherwise transfer all or substantially all of
its assets to any person, other than FOA or one of its subsidiaries, then, and
in each such case, the agreement governing such transaction must make proper
provision so that the FOA Option shall, upon the consummation of any such
transaction, be converted into, or exchanged for, an option (the "Substitute FOA
Option"), at the election of FOA, of either (i) the Acquiring Corporation (as
defined below) or (ii) any person that controls the Acquiring Corporation. For
purposes of the FOA Option Agreement, the term "Acquiring Corporation" means (A)
the continuing or surviving corporation of a consolidation or merger with
National City (if other than National City), (B) National City in a merger in
which National City is the continuing or surviving corporation, and (C) the
transferee of all or substantially all of National City's assets.
The Substitute FOA Option shall have the same terms as the FOA Option;
provided, however, that if the terms of the Substitute FOA Option cannot, for
legal reasons, be the same as the FOA Option, such terms shall be as similar as
possible and in no event less advantageous to FOA. The FOA Option Agreement
provides that National City may not enter into any transaction described above
triggering a Substitute FOA Option unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assumes in writing all the
obligations of National City under the FOA Option Agreement. The FOA Option
Agreement further provides that the issuer of the Substitute FOA Option shall
enter into an agreement with FOA in substantially the same form as the FOA
Option Agreement, which agreement shall be applicable to the Substitute FOA
Option and shall provide for the repurchase of the Substitute FOA Option and any
shares of the issuer issued pursuant thereto on terms similar to the repurchase
of the FOA Option and the FOA Option Shares.
The Substitute FOA Option will be exercisable for such number of shares of
common stock of the issuer of the Substitute FOA Option ("Substitute Common
Stock") as is equal to the market/offer price multiplied by the number of shares
of National City Common for which the FOA Option is then exercisable, divided by
the Average Price. For purposes of the FOA Option Agreement, the term "Average
Price" means the average closing price of a share of Substitute Common Stock for
the one year immediately preceding the consolidation, merger or sale in
question, but in no event higher than the closing price of a share of Substitute
Common Stock on the day preceding such consolidation, merger or sale; provided,
however, that if National City is the issuer of the Substitute FOA Option, the
Average Price will be computed with respect to a share of common stock issued by
the person merging into National City or by any company which controls or is
controlled by such person, as FOA may elect. The exercise price of the
Substitute FOA Option per share of Substitute Common Stock will then be equal to
the FOA Option Price multiplied by a fraction, the numerator of which will be
the number of shares of National City Common for which the FOA Option is then
exercisable and the denominator of which will be the number of shares of
Substitute Common Stock for which the Substitute FOA Option is exercisable.
The FOA Option Agreement provides that the Substitute FOA Option may not be
exercisable for more than 10% of the shares of Substitute Common Stock
outstanding prior to exercise of the Substitute FOA Option. In the
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event that the Substitute FOA Option would be exercisable for more than 10% of
the shares of Substitute Common Stock outstanding prior to exercise, the issuer
of the Substitute FOA Option will be required to make a cash payment to FOA
equal to the excess of (a) the value of the Substitute FOA Option without giving
effect to the foregoing limitation over (b) the value of the Substitute FOA
Option after giving effect to the foregoing limitation. Such difference in value
will be determined by a nationally recognized investment banking firm selected
by FOA.
Registration Rights. Within 30 days after the occurrence of a Subsequent
Triggering Event (or such later date as is necessary to obtain all regulatory
approvals and for the expiration of all statutory waiting periods, and to avoid
liability under Section 16(b) of the Exchange Act), FOA may request National
City to prepare and file a registration statement with the SEC if such
registration is necessary to permit the sale or other disposition of the shares
of National City Common purchased upon exercise of the FOA Option. National City
is required to use its best efforts to cause such registration statement to
become effective and then to remain effective for 180 days or such shorter time
as may be reasonably necessary to effect such sales or dispositions. FOA has the
right to demand two such registrations. National City also will permit FOA to
include the sale of shares of National City Common purchased upon exercise of
the FOA Option in certain registration statements initiated by National City.
Assignment of FOA Option. Neither National City nor FOA may assign any of
its rights or obligations under the FOA Option Agreement or the FOA Option to
any other person without the express written consent of the other party, except
that in the event a Subsequent Triggering Event occurs prior to an Exercise
Termination Event, FOA may assign, in whole or in part, its rights and
obligations under the FOA Option Agreement or the FOA Option within 30 days
following such Subsequent Triggering Event (or such later date as is necessary
to obtain all regulatory approvals and for the expiration of all statutory
waiting periods, and to avoid liability under Section 16(b) of the Exchange
Act); provided, however, that until the date 30 days following the date at which
the FRB and, if applicable, the OTS approves an application by FOA under the
BHCA to acquire the shares of National City Common subject to the FOA Option,
FOA may not assign its rights under the FOA Option except in (a) a widely
dispersed public distribution, (b) a private placement in which no one party
acquires the right to purchase in excess of 2% of the voting shares of National
City, (c) an assignment to a single party (e.g., a broker or investment banker)
for the purpose of conducting a widely dispersed public distribution on FOA's
behalf, or (d) any other manner approved by the FRB.
Termination of the FOA Option. The FOA Option will terminate upon the
occurrence of an Exercise Termination Event. In the event that the holder of the
FOA Option or the owner of FOA Option Shares or any affiliate thereof is a
person making an offer or proposal to engage in an Acquisition Transaction
(other than the Merger), then (a) in the case of a holder of the FOA Option or
any affiliate thereof, the FOA Option held by it will immediately terminate, and
(b) in the case of an owner of FOA Option Shares or any affiliate thereof, the
FOA Option Shares held by it will be immediately repurchasable by National City
at the FOA Option Price.
Additional Provisions. Certain rights and obligations of FOA and National
City under the FOA Option Agreement are subject to receipt of required
regulatory approvals. Among other things, the approval of the FRB is required
for the acquisition by FOA of more than 5% of the outstanding shares of National
City Common.
RECENT DEVELOPMENTS
FORT WAYNE NATIONAL CORPORATION ACQUISITION
On January 12, 1998 National City Corporation and Fort Wayne National
Corporation announced they had executed an Agreement and Plan of Merger dated
January 12, 1998 ("FWNC Agreement") whereby FWNC will be merged into National
City Corporation. National City expects to account for the FWNC/National City
merger on a purchase accounting basis.
FWNC is a regional multibank holding company registered under BHCA, and is
incorporated under the laws of the State of Indiana. As of December 31, 1997,
FWNC owned all of the outstanding shares of seven commercial banks in Indiana,
had consolidated total assets of $3.4 billion and consolidated total deposits of
$2.6 billion.
Pursuant to the FWNC Agreement, FWNC will merge into National City, and
National City will be the surviving corporation. At the time the FWNC/National
City merger is consummated, each outstanding share of FWNC common stock without
par value, not owned by National City or any direct or indirect wholly-owned
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subsidiary of National City (except for any shares of FWNC held in trust
accounts, managed accounts or in a fiduciary capacity or acquired in
satisfaction of debts previously contracted) will be converted into the right to
receive 0.75 shares of National City Common.
Consummation of the FWNC merger is subject to satisfaction of a number of
conditions and regulatory approvals similar to those of the Merger.
In order for the Merger to qualify for the pooling-of-interests method of
accounting, National City needs to issue approximately 11.1 million shares of
National City Common prior to the Effective Time to cure tainted shares. See
"MERGER -- Accounting Treatment." In connection with the FWNC/National City
merger National City will issue approximately 12.8 million shares of National
City Common. Accordingly National City expects to cure the tainted shares by
consummating the FWNC/National City merger prior to the Effective Time.
YEAR 2000
National City initiated the process of preparing its computer systems and
applications for the Year 2000 in January 1995. This process involves modifying
or replacing certain hardware and software maintained by National City as well
as communicating with external service providers to ensure that they are taking
the appropriate action to remedy their Year 2000 issues. Management expects to
have substantially all of the system and application changes completed by the
end of 1998 and believes that its level of preparedness is appropriate.
National City estimates that the total cumulative cost of the project will
be approximately $40 million, which includes both internal and external
personnel costs related to modifying the systems as well as the cost of
purchasing or leasing certain hardware and software. Purchased hardware and
software will be capitalized in accordance with normal policy. Personnel and all
other costs related to the project are being expensed as incurred.
The costs of the project and the expected completion dates are based on
management's best estimates.
PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The unaudited pro forma financial information on the following pages
presents (a) the historical consolidated balance sheets of National City and FOA
at December 31, 1997 and the unaudited pro forma combined consolidated balance
sheet as of December 31, 1997, giving effect to the merger of National City and
FOA as if it had occurred on that date on a pooling-of-interests accounting
basis; (b) the historical consolidated balance sheet of FWNC at December 31,
1997 and the unaudited pro forma combined consolidated balance sheet as of
December 31, 1997, giving effect to the merger of National City and FOA as if it
had occurred on that date on pooling-of-interests accounting basis and the
merger of National City and FWNC as if the merger with FWNC had occurred on that
date on a purchase accounting basis; (c) the historical consolidated statements
of income of National City and FOA and the unaudited pro forma combined
consolidated statements of income for the years ended December 31, 1997, 1996
and 1995, giving effect to the merger of National City and FOA on a
pooling-of-interests accounting basis; and (d) the historical consolidated
statement of income of FWNC and the unaudited pro forma combined consolidated
statement of income for the year ended December 31, 1997, giving effect to the
merger of National City and FOA as if the merger with FOA had occurred on
January 1, 1997 on a pooling-of-interests accounting basis and the merger of
National City and FWNC as if the merger with FWNC had occurred on January 1,
1997 on a purchase accounting basis. National City will issue approximately 13
million treasury shares to consummate the merger of FWNC. The issuance of the
shares will allow National City to account for the merger with FOA on a
pooling-of-interests accounting basis.
The unaudited pro forma financial information assumes all of the
outstanding shares of FOA Common and FWNC Common are converted into shares of
National City Common and the outstanding shares of FWNC Preferred are converted
into National City Preferred. The unaudited pro forma financial information is
based on the historical financial statements, giving effect to the merger of
National City and FOA under the pooling-of-interests method of accounting and
the merger with FWNC under the purchase method of accounting. The pro forma
statements exclude the estimated effect of potential expense savings associated
with the consolidation of operations of National City, FOA and FWNC, and may not
be indicative of the results that actually would have occurred had the mergers
been consummated on the date(s) indicated, or which may be attained in the
future.
82
<PAGE> 89
NATIONAL CITY CORPORATION
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
NATIONAL
PRO FORMA NATIONAL PRO FORMA CITY, FOA,
NATIONAL CITY FOA ADJUSTMENTS CITY AND FOA FWNC ADJUSTMENTS AND FWNC
------------- ----------- ----------- ------------ ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and demand balances
due from banks.......... $ 2,967,181 $ 1,180,883 $ $ 4,148,064 $ 181,481 $ $ 4,329,545
Loans, net of unearned
income.................. 39,573,125 13,669,486 53,242,611 2,049,697 55,292,308
Allowance for loan
losses.................. (698,405) (243,469) (941,874) (29,487) (971,361)
----------- ----------- -------- ----------- ---------- -------- -----------
Net loans............. 38,874,720 13,426,017 -- 52,300,737 2,020,210 -- 54,320,947
Securities available for
sale, at market......... 8,865,063 4,941,969 13,807,032 970,291 14,777,323
Federal funds sold and
security resale
agreements.............. 535,576 7,461 543,037 57,615 600,652
Other short term
investments............. 63,974 155,269 219,243 2,649 221,892
Properties and
equipment............... 660,057 378,726 1,038,783 57,894 1,096,677
Customers' acceptance
liability............... 45,243 580 45,823 45,823
Accrued income and other
assets.................. 2,671,707 988,749 110,000 (B) 3,770,456 103,331 582,393 (C) 4,472,180
16,000 (D)
----------- ----------- -------- ----------- ---------- -------- -----------
TOTAL ASSETS.......... $54,683,521 $21,079,654 $ 110,000 $75,873,175 $3,393,471 $ 598,393 $79,865,039
=========== =========== ======== =========== ========== ======== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits in domestic
offices:
Noninterest bearing..... $ 7,378,009 $ 2,912,070 $ $10,290,079 $ 429,822 $ $10,719,901
Interest bearing........ 27,746,708 12,847,224 40,593,932 2,149,364 42,743,296
Deposits in overseas
office.................. 1,736,419 -- 1,736,419 1,736,419
----------- ----------- -------- ----------- ---------- -------- -----------
Total deposits........ 36,861,136 15,759,294 -- 52,620,430 2,579,186 -- 55,199,616
Federal funds borrowed and
security repurchase
agreements.............. 4,425,346 385,607 4,810,953 328,049 5,139,002
Other borrowed funds...... 3,096,042 1,168,514 4,264,556 35,179 4,299,735
Long-term debt............ 4,810,417 1,486,777 6,297,194 117,551 6,414,745
Acceptances outstanding... 45,243 580 45,823 45,823
Accrued expenses and other
liabilities............. 1,163,986 401,973 350,000 (B) 1,915,959 35,709 50,000 (D) 2,001,668
----------- ----------- -------- ----------- ---------- -------- -----------
TOTAL LIABILITIES..... 50,402,170 19,202,745 350,000 69,954,915 3,095,674 50,000 73,100,589
----------- ----------- -------- ----------- ---------- -------- -----------
STOCKHOLDERS' EQUITY
Preferred stock........... -- -- -- -- 36,999 -- 36,999
Common stock.............. 844,391 871,664 (453,265)(A) 1,262,790 18,999 32,298 (C) 1,314,087
Capital surplus........... 618,841 36,814 453,265 (A) 1,108,920 47,455 744,439 (C) 1,900,814
Retained earnings......... 2,818,119 968,431 (240,000)(B) 3,546,550 194,344 (194,344)(C) 3,512,550
(34,000)(D)
----------- ----------- -------- ----------- ---------- -------- -----------
TOTAL STOCKHOLDERS'
EQUITY.............. 4,281,351 1,876,909 (240,000) 5,918,260 297,797 548,393 6,764,450
----------- ----------- -------- ----------- ---------- -------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY.............. $54,683,521 $21,079,654 $ 110,000 $75,873,175 $3,393,471 $ 598,393 $79,865,039
=========== =========== ======== =========== ========== ======== ===========
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
83
<PAGE> 90
NATIONAL CITY CORPORATION
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
NATIONAL
(IN THOUSANDS EXCEPT PER SHARE PRO FORMA NATIONAL PRO FORMA CITY, FOA,
DATA) NATIONAL CITY FOA ADJUSTMENTS CITY AND FOA FWNC ADJUSTMENTS AND FWNC
------------- ---------- ----------- ------------ -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans and loans held for sale,
including fees................ $ 3,204,969 $1,285,970 -- $4,490,939 $174,360 -- $4,665,299
Securities:
Taxable....................... 524,761 269,454 -- 794,215 47,905 842,120
Exempt from Federal income
taxes....................... 19,187 26,819 -- 46,006 11,595 57,601
Other interest income........... 27,223 8,534 -- 35,757 2,415 38,172
---------- ---------- -------- ---------- -------- -------- ----------
Total interest income....... 3,776,140 1,590,777 -- 5,366,917 236,275 -- 5,603,192
INTEREST EXPENSE
Deposits........................ 1,252,467 563,798 -- 1,816,265 92,564 1,908,829
Other borrowings................ 323,455 89,243 -- 412,698 19,875 432,573
Long-term debt.................. 257,390 65,814 -- 323,204 6,289 329,493
---------- ---------- -------- ---------- -------- -------- ----------
Total interest expense...... 1,833,312 718,855 -- 2,552,167 118,728 -- 2,670,895
Net interest income......... 1,942,828 871,922 -- 2,814,750 117,547 -- 2,932,297
Provision for loan losses....... 139,660 85,707 -- 225,367 4,587 229,954
---------- ---------- -------- ---------- -------- -------- ----------
Net interest income after
provision for loan
losses.................... 1,803,168 786,215 -- 2,589,383 112,960 -- 2,702,343
NONINTEREST INCOME
Item processing revenue......... 393,115 -- -- 393,115 828 393,943
Trust fees...................... 195,815 103,270 -- 299,085 14,258 313,343
Service charges on deposit
accounts...................... 228,986 117,095 -- 346,081 7,667 353,748
Card-related fees............... 137,931 79,761 -- 217,692 4,113 221,805
Mortgage banking revenue........ 124,538 34,564 -- 159,102 678 159,780
Other........................... 212,037 155,823 -- 367,860 4,353 372,213
---------- ---------- -------- ---------- -------- -------- ----------
Total fees and other
income.................... 1,292,422 490,513 -- 1,782,935 31,897 -- 1,814,832
Security gains (losses)......... 83,514 (3,384) -- 80,130 232 80,362
---------- ---------- -------- ---------- -------- -------- ----------
Total noninterest income.... 1,375,936 487,129 -- 1,863,065 32,129 -- 1,895,194
NONINTEREST EXPENSE
Salaries and other personnel.... 987,696 459,699 -- 1,447,395 47,200 1,494,595
Net occupancy................... 132,725 60,268 -- 192,993 7,622 200,615
Equipment....................... 144,459 56,140 -- 200,599 7,027 207,626
Other........................... 745,697 225,732 -- 971,429 28,487 $ 31,703 (C) 1,031,619
---------- ---------- -------- ---------- -------- -------- ----------
Total noninterest expense... 2,010,577 801,839 -- 2,812,416 90,336 31,703 2,934,455
---------- ---------- -------- ---------- -------- -------- ----------
Income before income taxes...... 1,168,527 471,505 -- 1,640,032 54,753 (31,703) 1,663,082
Income tax expense.............. 361,094 156,744 -- 517,838 17,907 (3,597)(C) 532,148
---------- ---------- -------- ---------- -------- -------- ----------
NET INCOME.................. $ 807,433 $ 314,761 $ -- $1,122,194 $ 36,846 $ (28,106) $1,130,934
========== ========== ======== ========== ======== ======== ==========
EARNINGS PER COMMON SHARE(F)
Basic......................... $ 3.73 $ 3.57 $ 3.48 $ 1.98 $ 3.37
Diluted....................... 3.66 3.53 3.42 1.92 3.31
AVERAGE COMMON SHARES
OUTSTANDING(F)
Basic......................... 216,430 88,170 322,234 17,457 335,326
Diluted....................... 220,690 89,202 327,733 19,214 342,143
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
84
<PAGE> 91
NATIONAL CITY CORPORATION
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
(IN THOUSANDS EXCEPT PER SHARE DATA) NATIONAL CITY FOA COMBINED
------------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans and loans held for sale, including fees........... $ 3,059,041 $1,366,083 $4,425,124
Securities:
Taxable............................................... 543,006 270,647 813,653
Exempt from Federal income taxes...................... 24,114 16,434 40,548
Other interest income................................... 29,174 10,390 39,564
------------- ---------- ----------
Total interest income......................... 3,655,335 1,663,554 5,318,889
INTEREST EXPENSE
Deposits................................................ 1,216,089 645,995 1,862,084
Other borrowings........................................ 299,335 79,988 379,323
Long-term debt.......................................... 197,335 35,083 232,418
------------- ---------- ----------
Total interest expense........................ 1,712,759 761,066 2,473,825
Net interest income........................... 1,942,576 902,488 2,845,064
Provision for loan losses............................... 146,480 93,456 239,936
------------- ---------- ----------
Net interest income after provision for loan
losses...................................... 1,796,096 809,032 2,605,128
NONINTEREST INCOME
Item processing revenue................................. 364,512 -- 364,512
Trust fees.............................................. 177,124 94,377 271,501
Service charges on deposit accounts..................... 214,659 112,516 327,175
Card-related fees....................................... 123,306 73,900 197,206
Mortgage banking revenue................................ 81,145 28,525 109,670
Other................................................... 170,539 110,511 281,050
------------- ---------- ----------
Total fees and other income................... 1,131,285 419,829 1,551,114
Securities gains (losses)............................... 108,146 (515) 107,631
------------- ---------- ----------
Total noninterest income...................... 1,239,431 419,314 1,658,745
NONINTEREST EXPENSE
Salaries and other personnel............................ 923,764 454,170 1,377,934
Net occupancy........................................... 132,143 64,871 197,014
Equipment............................................... 135,139 58,462 193,601
Other................................................... 786,037 267,500 1,053,537
------------- ---------- ----------
Total noninterest expense..................... 1,977,083 845,003 2,822,086
Income before income taxes.............................. 1,058,444 383,343 1,441,787
Income tax expense...................................... 321,814 126,457 448,271
------------- ---------- ----------
NET INCOME.................................... $ 736,630 $ 256,886 $ 993,516
========== ========= =========
EARNINGS PER COMMON SHARE(F)
Basic................................................. $ 3.34 $ 2.79 $ 3.00
Diluted............................................... 3.27 2.77 2.95
AVERAGE COMMON SHARES OUTSTANDING(F)
Basic................................................. 219,095 92,044 329,548
Diluted............................................... 225,353 92,663 336,549
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
85
<PAGE> 92
NATIONAL CITY CORPORATION
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST OF
NATIONAL CITY AMERICA BANK PRO FORMA
(IN THOUSANDS EXCEPT PER SHARE DATA) CORPORATION CORPORATION COMBINED(E)
------------- ------------ -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans and loans held for sale, including fees.......... $ 2,910,070 $1,473,210 $4,383,280
Securities:
Taxable.............................................. 617,635 304,145 921,780
Exempt from Federal income taxes..................... 30,675 13,317 43,992
Other interest income.................................. 45,651 5,852 51,503
------------- ------------ -----------
Total interest income........................ 3,604,031 1,796,524 5,400,555
INTEREST EXPENSE
Deposits............................................... 1,249,698 725,161 1,974,859
Other borrowings....................................... 365,734 100,684 466,418
Long-term debt......................................... 160,254 46,683 206,937
------------- ------------ -----------
Total interest expense....................... 1,775,686 872,528 2,648,214
Net interest income.......................... 1,828,345 923,996 2,752,341
Provision for loan losses.............................. 113,482 91,488 204,970
------------- ------------ -----------
Net interest income after provision for loan
losses..................................... 1,714,863 832,508 2,547,371
NONINTEREST INCOME
Item processing revenue................................ 327,929 -- 327,929
Trust fees............................................. 167,224 82,539 249,763
Service charges on deposit accounts.................... 196,474 100,281 296,755
Card-related fees...................................... 98,806 60,449 159,255
Mortgage banking revenue............................... 66,821 31,505 98,326
Other.................................................. 146,587 71,264 217,851
------------- ------------ -----------
Total fees and other income.................. 1,003,841 346,038 1,349,879
Securities gains....................................... 42,365 62 42,427
------------- ------------ -----------
Total noninterest income..................... 1,046,206 346,100 1,392,406
NONINTEREST EXPENSE
Salaries and other personnel........................... 878,615 430,977 1,309,592
Net occupancy.......................................... 125,072 64,108 189,180
Equipment.............................................. 127,612 59,322 186,934
Other.................................................. 784,625 260,864 1,045,489
------------- ------------ -----------
Total noninterest expense.................... 1,915,924 815,271 2,731,195
Income before income taxes............................. 845,145 363,337 1,208,482
Income tax expense..................................... 253,685 126,629 380,314
------------- ------------ -----------
Net income............................................. $ 591,460 $ 236,708 $ 828,168
========== ========== ==========
EARNINGS PER COMMON SHARE(F)
Basic................................................ $ 2.71 $ 2.50 $ 2.49
Diluted.............................................. 2.64 2.49 2.45
AVERAGE COMMON SHARES OUTSTANDING(F)
Basic................................................ 212,392 94,831 326,190
Diluted.............................................. 223,937 95,251 338,238
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
86
<PAGE> 93
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(A) The pro forma combined consolidated balance sheet gives effect to the
merger of National City and FOA at December 31, 1997 on a pooling-of-interests
accounting basis. The capital accounts have been adjusted to reflect the
issuance of 104,599,651 shares of National City Common in exchange for all of
the outstanding shares of FOA Common. The number of shares that is expected to
actually be issued to effect the merger of National City and FOA may be greater
due to the exercise of options under the provisions of FOA's option plans prior
to consummation of the Merger. As of December 31, 1997, there were 2,934,925
unexercised options outstanding under FOA's option plans.
(B) A liability of $350 million has been recorded in the pro forma combined
consolidated balance sheet to reflect National City management's estimate of
anticipated expenses related to the merger of FOA and National City. This
liability resulted in a $240 million after-tax adjustment to retained earnings
and a $110 million adjustment to deferred taxes in the pro forma combined
consolidated balance sheet. The following table provides detail of the estimated
expenses:
<TABLE>
<CAPTION>
(IN MILLIONS, PRE-TAX)
<S> <C>
Personnel related........................................................ $175
Facilities and other assets.............................................. 90
Investment banker and other professional fees............................ 50
Other.................................................................... 35
----
Total.................................................................... $350
====
</TABLE>
Personnel related costs consist primarily of expenses related to employment
contracts, severance, and certain retention payments to employees. Facilities
and other assets consists of estimated costs associated with the write-down of
certain assets, including disposal of certain facilities, computer hardware, and
computer software determined to be incompatible or duplicative in nature. Other
expenses primarily consist of conversion related and other miscellaneous fees
and expenses. It is anticipated that the majority of the expenses will be
recognized within a short period after consummation of the merger of FOA and
National City and that all of the expenses will be recognized by December 31,
1998. Management continues to review these estimates and there can be no
assurance that the actual costs will not differ in amount and type from the
amounts provided above.
(C) The unaudited pro forma combined consolidated financial statements give
effect to the merger of National City and FWNC on a purchase accounting basis.
The pro forma combined consolidated balance sheet gives effect to the merger of
National City and FWNC as if the transaction had occurred on December 31, 1997.
The pro forma combined consolidated income statement for the year ended December
31, 1997 gives effect to the merger of National City and FWNC as if the
transaction had occurred on January 1, 1997. The pro forma combined consolidated
balance sheet adjustments include amounts to bring the historical balance sheet
of FWNC to estimated fair value in accordance with the provisions of APB Opinion
No. 16. The ultimate fair values of all assets and liabilities will be
determined at consummation of the merger. The capital accounts have been
adjusted to reflect the issuance of 12,824,199 shares of National City Common in
exchange for all of the outstanding shares of FWNC Common based upon an exchange
rate of .75 shares of National City Common for each share of FWNC Common. The
number of shares that is expected to actually be issued to effect the merger of
National City and FWNC may be greater due to the exercise of options under the
provisions of FWNC's option plans prior to consummation of the merger. As of
December 31, 1997, there were 955,986 unexercised options outstanding under
FWNC's option plans. For purposes of purchase price allocation, it was assumed
that the shares of National City Common were issued at the December 31, 1997
market price of $65.75 per share. The capital accounts also reflect the exchange
of all of the shares of FWNC's preferred stock for shares of National City's
preferred stock based on an exchange rate of 1.0 share of National City's
preferred stock for each share of FWNC's preferred stock. The excess of the
value of National City Common issued over the fair value of the net assets
acquired of $608 million was allocated between goodwill ($536 million) and core
deposit intangible ($72 million), net of $25 million of deferred taxes recorded
in relation to the core deposit intangible. The pro forma combined consolidated
income statement adjustments reflect the amortization expense related to the
goodwill and core deposit intangible, based upon expected lives of twenty-five
and seven years, respectively.
87
<PAGE> 94
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(D) A liability of $50 million has been recorded in the pro forma combined
consolidated balance sheet to reflect National City management's estimate of
anticipated costs related to the merger of National City and FWNC. This
liability resulted in a $34 million after-tax adjustment to retained earnings
and a $16 million adjustment to deferred taxes in the pro forma combined
consolidated balance sheet. The following table provides detail of the nature of
the estimated costs:
<TABLE>
<CAPTION>
(IN MILLIONS, PRE-TAX)
<S> <C>
Personnel related........................................................ $ 20
Facilities and other assets.............................................. 10
Investment banker and other professional fees............................ 5
Other.................................................................... 15
---
Total.................................................................... $ 50
===
</TABLE>
The types of costs that are expected to be incurred within each of the
above line items are consistent with the types of costs that are expected to be
incurred in relation to the merger of National City and FOA as described in (B)
above. Management continues to review these costs and there can be no assurance
that the actual costs will not differ in amount and type from the amounts
provided above.
(E) Effective January 1, 1995 FOA adopted Statement of Financial Accounting
Standards (SFAS) No. 122, Accounting for Mortgage Servicing Rights. National
City did not adopt SFAS No. 122 until January 1, 1996. Because the impact of
FOA's 1995 adoption is not material to the pro forma combined consolidated
financial results, pro forma adjustments are not included in the pro forma
combined consolidated financial information to conform the timing of FOA's
adoption to that of National City's.
(F) The historical per common share data of FOA has been adjusted to
reflect the 3 for 2 stock split effected in the form of a dividend, distributed
May 30, 1997.
88
<PAGE> 95
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
Bank holding companies and banks are extensively regulated under both
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. A change in
applicable law or regulation may have a material effect on the business of
National City or FOA.
As bank holding companies, National City and FOA are subject to regulation
under the BHCA and its examination and reporting requirements. Under the BHCA,
bank holding companies may not (subject to certain limited exceptions) directly
or indirectly acquire the ownership or control of more than 5% of any class of
voting shares or substantially all of the assets of any company, including a
bank, without the prior written approval of the FRB. In addition, bank holding
companies are generally prohibited under the BHCA from engaging in nonbanking
activities, subject to certain exceptions.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
amended Section 3(d) of the BHCA by authorizing the FRB to approve on or after
September 29, 1995 the acquisition by a bank holding company of more than 5% of
any class of the voting shares of, or substantially all the assets of, any bank
(or its holding company) located outside of the state in which the operations of
such acquiring bank holding company's banking subsidiaries are principally
conducted on the date such company became a bank holding company, regardless of
whether the acquisition would be prohibited by state law. However the amendment
to Section 3(d) of the BHCA provides that the FRB may only approve the
acquisition applications of bank holding companies that are "adequately
capitalized" and "adequately managed". In addition, the FRB may not approve an
out of state bank holding company's application to acquire a bank (or its
holding company) in another state that has not existed for a minimum period of
time, if any, required by the "host state". In no event shall the "host state's"
law require that a bank have existed more than five years. Also the FRB may not
approve a bank holding company's application, if the applicant, including its
insured depository affiliates, controls or would control, more than ten (10)
percent of the total amount of deposits of insured depository institutions in
the United States. Furthermore, amended Section 3(d) prohibits the FRB's
approval of an acquisition if the applicant, including all insured depository
affiliates, would control 30 percent or more of the deposits of all insured
depository institutions in an affected State. In determining whether to approve
an application, the FRB is required to comply with its responsibilities under
Section 804 of the Community Reinvestment Act of 1977, and consider the
applicants compliance with state community reinvestment laws.
PAYMENT OF DIVIDENDS
Each of National City and FOA is a legal entity separate and distinct from
its banking and other subsidiaries. Most of National City's and FOA's revenues
result from dividends paid to it by its bank subsidiaries. There are statutory
and regulatory requirements applicable to the payment of dividends by subsidiary
banks as well as by National City to its stockholders and FOA to its
shareholders.
Each state bank subsidiary that is a member of the Federal Reserve System
and each national banking association is required by federal law to obtain the
prior approval of the FRB or the Comptroller of the Currency (the
"Comptroller"), as the case may be, for the declaration and payment of dividends
if the total of all dividends declared by the board of directors of such bank in
any year will exceed the total of (a) such bank's net profits (as defined and
interpreted by regulation) for that year plus (b) the retained net profits (as
defined and interpreted by regulation) for the preceding two years, less any
required transfers to surplus. In addition, these banks may only pay dividends
to the extent that retained net profits (including the portion transferred to
surplus) exceed bad debts (as defined by regulation).
In 1997, National City's subsidiary banks, without obtaining governmental
approvals, could declare aggregate dividends of approximately $1,116.2 million
from retained net profits. During 1997, National City's subsidiary banks
declared $422.0 million in dividends. As of January 1, 1998, the subsidiary
banks could initiate dividend payments, without prior regulatory approval, of
$471.1 million.
89
<PAGE> 96
In 1997, FOA's subsidiary banks, without obtaining governmental approvals,
could not declare dividends from retained net profits. During 1997, FOA's
subsidiary banks paid $242 million in dividends. As of January 1, 1998, the
subsidiary banks could initiate dividend payments, without prior regulatory
approval, of $30.1 million.
The payment of dividends by National City and FOA and their respective bank
subsidiaries are also affected by various regulatory requirements and policies,
such as the requirement to maintain adequate capital. In addition, if, in the
opinion of the applicable regulatory authority, a bank under its jurisdiction is
engaged in or is about to engage in an unsafe or unsound practice (which,
depending on the financial condition of the bank, could include the payment of
dividends), such authority may require, after notice and hearing, that such bank
cease and desist from such practice. The FRB and the Comptroller have each
indicated that paying dividends that deplete a bank's capital base to an
inadequate level would be an unsafe and unsound banking practice. The FRB, the
Comptroller and the Federal Deposit Insurance Corporation (the "FDIC") have
issued policy statements which provide that bank holding companies and insured
banks should generally only pay dividends out of current operating earnings.
CERTAIN TRANSACTIONS BY BANK HOLDING COMPANIES WITH THEIR AFFILIATES
There are also various legal restrictions on the extent to which National
City, FOA and most of their respective nondepository subsidiaries can borrow or
otherwise obtain credit from, or engage in certain other transactions ("covered
transactions") with, its depository institution subsidiaries. Such borrowings
and other transactions by an insured depository institution with their
nondepository affiliates are limited to the following amounts: (a) in the case
of any one such affiliate, the aggregate amount of covered transactions of the
insured depository institution and its subsidiaries cannot exceed 10% of the
capital stock and surplus of the insured depository institution; and (b) in the
case of all affiliates, the aggregate amount of covered transactions of the
insured depository institution and its subsidiaries cannot exceed 20% of the
capital stock and surplus of the insured depository institution. In addition,
such extensions of credit must be collateralized in prescribed amounts.
Furthermore, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
CAPITAL
National City and FOA are each subject to capital adequacy guidelines of
the FRB. Under the FRB's capital guidelines, a holding company's capital is
divided into two tiers, Tier 1 and Tier 2. The respective components of Tier 1
and Tier 2 capital are described in materials incorporated herein by reference.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE". The minimum guideline for
the ratio of Total Capital (Tier 1 plus Tier 2 capital) to risk-adjusted assets
is 8%, of which half (4%) must be Tier 1 capital. In addition the FRB requires a
leverage ratio (Tier 1 capital to average total consolidated assets) of at least
3% for bank holding companies that meet specified criteria, including having the
highest regulatory rating. To be considered well capitalized, the Tier 1 capital
ratio, the Total Capital ratio and the leverage ratio must be at least 6%, 10%,
and 5%, respectively.
The following table sets forth the ratio of Tier 1 capital to risk-adjusted
assets, Total Capital to risk-adjusted assets and Tier 1 capital to average
total consolidated assets for National City and FOA individually, National City
and FOA on a pro forma combined basis, FWNC individually, and National City, FOA
and FWNC on a pro forma combined basis as of December 31, 1997 (in each case
calculated pursuant to the current risk-based capital guidelines).
<TABLE>
<CAPTION>
NATIONAL PRO FORMA PRO FORMA
CITY FOA COMBINED FWNC COMBINED
-------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
TIER 1 RISK-BASED CAPITAL...................... 8.12% 11.33% 8.57% 12.09% 8.77%
TOTAL RISK-BASED CAPITAL....................... 12.65 14.74 12.79 13.34 12.89
LEVERAGE....................................... 7.01 8.74 7.18 7.98 7.28
</TABLE>
Each of National City's, FOA's and FWNC's subsidiary banks is subject to
similar capital requirements established by the subsidiary's primary federal
regulator. At December 31, 1997, all of National City's, FOA's FWNC's subsidiary
banks were considered well-capitalized.
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Effective January 17, 1995, the FRB and the other federal banking agencies
amended the risk-based capital standards to consider risk from concentrations of
credit and the risks of nontraditional activities, as well as an institution's
ability to manage these risks, as important factors in determining the adequacy
of an institution's capital. Institutions with higher than desired levels of
risk will be expected to maintain a higher capital ratio or minimum levels of
capital. The federal banking agencies also issued an amendment to the capital
standards, effective September 1, 1995, which requires the banking agencies to
consider an institution's exposure to interest rate risk when assessing the
adequacy of capital. This amendment does not codify a measurement framework for
assessing the level of interest rate exposure. It is anticipated that at some
future date the federal banking agencies will establish an explicit capital
charge for interest rate risk that will be based upon an institution's measured
interest rate risk exposure.
Under federal banking laws, failure to meet the minimum regulatory capital
requirements could subject a banking institution to a variety of enforcement
remedies including the possible termination of deposit insurance by the FDIC and
seizure of the institution.
HOLDING COMPANY SUPPORT OF SUBSIDIARY BANKS
Under FRB policy, National City and FOA are expected to act as a source of
financial strength to each of its subsidiary banks and to commit resources to
support each of such subsidiaries. This support may be required at times when,
absent such FRB policy, National City or FOA would not otherwise be required to
provide it. In addition, any capital loans by National City or FOA to a
subsidiary bank would be subordinate in right of payment to deposits and to
certain other indebtedness of such bank. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a subsidiary bank will be
assumed by the bankruptcy trustee and entitled to a priority of payment. This
priority apparently would apply to guarantees of capital restoration plans under
the Federal Deposit Insurance Corporation Improvement Act of 1991.
A depository institution insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (a) the default of a commonly controlled FDIC-insured depository
institution, or (b) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution in danger of default.
FDIC INSURANCE ASSESSMENTS
National City's and FOA's subsidiary banks are subject to FDIC deposit
insurance assessments. Currently FDIC premiums are such that the highest rated
institutions are paying an annual premium of $0.01256 per $100.00 of eligible
bank insurance fund deposits subject to a statutory annual minimum of $2,000.00.
DESCRIPTION OF NATIONAL CITY CAPITAL STOCK
COMMON STOCK
General. National City has 700,000,000 authorized shares of National City
Common, of which 211,097,837 shares were issued and outstanding on December 31,
1997, and an additional 16,836,539 shares were reserved for issuance in
connection with National City's stock option plans (options to purchase
13,747,432 of such shares have been granted and are outstanding) and the
National City Restricted Stock Plans (awards of 507,552 of such shares have been
granted and are outstanding). The shares of National City Common to be issued in
connection with the Merger will be validly issued, fully paid and nonassessable.
National City Common is listed on the NYSE and trades under the symbol NCC. As
of December 31, 1997 there were 34,108 National City Common stockholders of
record. The transfer agent, registrar and dividend disbursing agent for shares
of National City Common is National City Bank, Cleveland.
Dividend and Liquidation Rights. Holders of National City Common are
entitled to such dividends as may be declared by Board of Directors of National
City out of funds legally available therefor. In the event of liquidation,
holders of National City Common will be entitled to receive pro rata any assets
distributable to stockholders in respect of the number of shares held by them.
The dividend and liquidation rights of National City Common are subject to the
rights of any preferred stock of National City.
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Voting, Preemptive, Conversion and Redemption Rights. Holders of National
City Common are entitled to one vote per share on all matters submitted to
stockholders and are not entitled to cumulative voting rights in the election of
directors or to preemptive rights for the purchase of additional shares of any
class of National City's stock. National City Common has no conversion or
redemption rights.
PREFERRED STOCK
General. Under National City's Certificate, the Board of Directors of
National City is authorized without further stockholder action to provide for
the issuance of up to 5,000,000 shares of preferred stock, without par value, in
one or more series as the Board of Directors of National City may determine, and
to fix the relative powers, preferences and rights (including voting rights) of
each such series of preferred stock in relation to the powers, preferences and
rights of any other series of preferred stock. Voting rights, if any, may be
general, special, conditional or limited. The Board of Directors of National
City also has the discretion to determine the number of votes per share which
each holder of a share of a series of the preferred stock will have, but in no
event may any holder of any series of National City preferred stock be entitled
to more than one vote per share. Additionally, the Board of Directors of
National City is authorized to permit the holders of a series of preferred stock
to vote separately or together with the holders of one or more other series of
preferred stock on all or some matters as a separate voting group. National City
may, at its option, elect to offer depositary shares evidenced by depositary
receipts, each representing a fractional interest in a share of the particular
series of the National City preferred stock issued and deposited with a
depositary selected by National City.
Generally, the issuance of preferred stock by National City could (a)
result in a class of securities outstanding that will have certain preferences
regarding distributions in a liquidation over National City Common and might
provide for certain rights (whether general, special, conditional or limited)
that could dilute the voting rights of National City Common and (b) result in
dilution of the net income per share and net book value per share relating to
National City Common. Further, the issuance of any additional shares of National
City Common, pursuant to any conversion rights granted holders of any preferred
stock, may also result in dilution of the voting rights, net income per share
and net book value of National City Common.
DESCRIPTION OF FOA CAPITAL STOCK
The following description of the capital stock of FOA is qualified in its
entirety by reference to FOA's Articles and FOA's Bylaws.
GENERAL
FOA's Articles provide for authorized capital stock consisting of
10,000,000 shares of FOA preferred stock, without par value, ("FOA Preferred
Stock") and 200,000,000 shares of FOA Common, par value $10.00 per share. As of
December 31, 1997, there were 87,166,376 shares of FOA Common outstanding. No
shares of FOA Preferred Stock were outstanding on that date. In addition, as of
December 31, 1997, there were outstanding options to purchase 2,934,925 shares
of FOA Common under the FOA Option Plans. FOA Common is listed for trading on
the NYSE under the symbol FOA. There were 29,141 shareholders of record of FOA
Common on December 31, 1997. The transfer agent, registrar and dividend
disbursing agent for FOA Common is Norwest Bank Minnesota, N.A., Minneapolis,
Minnesota.
FOA COMMON
The rights of the holders of FOA Common described below are subject to any
rights and preferences pertaining to any series of FOA Preferred Stock, if and
when issued, to the extent set forth in the resolution of the Board of Directors
of FOA for such series.
Voting Preemptive, Conversion and Redemption Rights. Holders of FOA Common
are entitled to one vote per share on each matter submitted to a vote of
shareholders. Directors of FOA are elected by a plurality of the votes cast at
an election. Other matters submitted to a vote of FOA shareholders are
authorized by a majority of the votes cast on the matter, unless a greater
plurality is required by FOA's Articles, Bylaws or the MBCA. Holders of FOA
Common have no cumulative voting rights in the election of directors and no
preemptive rights
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to subscribe for or purchase additional shares of any FOA capital stock the
Board of Directors of FOA may, in its discretion, from time to time cause to be
issued. FOA Common is neither convertible or redeemable.
Dividend and Liquidation Rights. Dividends may be declared and paid on FOA
Common at the discretion of the Board of Directors of FOA out of any funds
legally available therefor. Under the MBCA, dividends may not be paid if FOA is
at the time insolvent or would be insolvent after payment of such dividend. In
the event of a voluntary, involuntary or automatic dissolution, holders of FOA
Common are entitled to receive pro rata upon liquidation and winding up of the
affairs of FOA distribution of the assets of FOA remaining after proper payment
of or provision for FOA's debts, obligations and liabilities.
FOA PREFERRED STOCK
General. The Board of Directors of FOA is authorized, without further
action by FOA shareholders, to issue FOA Preferred Stock from time to time in
one or more series, with whatever rights, designations, preferences,
qualifications, limitations, and restrictions, if any, including without
limitation, dividend rights, conversion rights, voting rights and redemption
rights, as are specified by the Board of Directors of FOA in the resolution
fixing the terms of and establishing the series.
Generally, the issuance of preferred stock by FOA could (a) result in a
class of securities outstanding which will have certain preferences regarding
distributions in a liquidation over FOA Common and might provide for certain
rights (whether general, special, conditional or limited) that could dilute the
voting rights of FOA Common and (b) result in dilution of the net income per
share and net book value per share relating to FOA Common. Further, the issuance
of any additional shares of FOA Common, pursuant to any conversion rights
granted holders of any preferred stock, may also result in dilution of the
voting rights, net income per share and net book value of FOA Common.
FOA Shareholder Rights Plan. FOA has reserved 500,000 shares of preferred
stock for issuance as Series A Junior Participating Preferred Stock ("Series A
Preferred") upon the exercise of certain preferred stock purchase rights (each a
"Right" and in the aggregate "Rights") issued to holders of and in tandem with
all outstanding shares of FOA Common. The description and terms of the Rights
are set forth in a Rights Agreement (the "Rights Agreement") dated as of July
18, 1990, between FOA and First of America Bank, N.A., as Rights Agent and the
Amendment to Rights Agreement, dated as of November 30, 1997, between FOA and
the Rights Agent (the "Amendment"). The Rights Agreement was filed with the
Commission as an exhibit to FOA's Registration Statement, dated July 18, 1990,
on Form 8-A under the Exchange Act and the Amendment was filed as an exhibit to
Amendment No. 1 to such Form 8-A Registration Statement, dated December 12,
1997, also as filed with the Commission under the Exchange Act. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement and the Amendment.
Generally, the Rights Agreement provides as follows. The Rights are not
exercisable until a Distribution Date, which occurs ten days after a person or
group (an "Acquiring Person") publicly announces acquisition of or commences a
tender offer which may result in the acquisition of beneficial ownership of 10%
or more of the outstanding shares of FOA Common (a "Stock Acquisition Date").
If, following a Stock Acquisition Date, FOA is merged with or engages in a
business combination transaction with the Acquiring Person or the Acquiring
Person increases its beneficial ownership of FOA Common by more than one percent
or engages in self dealing, then holders of Rights, other than the Acquiring
Person, will receive upon exercise of each Right, FOA Common or common stock of
the entity surviving the merger or business combination or other consideration
with a value of two times the exercise price of the Right.
In connection with its execution of the Agreement, FOA adopted the
Amendment, which provides that the Merger Agreement and the FOA Option will not
trigger the ability of holders to exercise the Rights.
FOA may, at its option, at any time after a Stock Acquisition Date and
before an Acquiring Person becomes the beneficial owner of more than 50% of the
outstanding shares of FOA Common, elect to exchange all outstanding Rights for
shares of FOA Common at an exchange ratio of one share of FOA Common per Right,
subject to adjustment to prevent dilution. At any time until 20 days following
the Stock Acquisition Date, FOA may redeem the Rights in whole, but not in part,
at a price of $.01 per Right. Until a Right is exercised, the holder thereof, as
such, will have no rights as a shareholder of FOA, including, without
limitation, the right to vote or to
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receive dividends. Other than those provisions relating to the principal
economic terms of the Rights, any of the provisions of the Rights Agreement may
be amended by the Board of Directors of FOA prior to the Distribution Date.
Each share of Series A Preferred shall be entitled to 100 votes on all
matters submitted to a vote of the shareholders of FOA. Additionally, in the
event FOA fails to pay dividends on the Series A Preferred for four full
quarters, holders of the Series A Preferred have certain rights to elect
additional directors of FOA. Except as described above, holders of the Series A
Preferred have no preemptive rights to subscribe for additional securities that
FOA may issue. The Series A Preferred will not be redeemable. Each share of
Series A Preferred will, subject to the rights of any FOA Preferred Stock
ranking on a parity with or senior to the Series A Preferred, if any, be
entitled to preferential quarterly dividends equal to the greater of $10.00, or
subject to certain adjustments, 100 times the dividend declared per share of FOA
Common. Upon liquidation of FOA, holders of Series A Preferred will, subject to
the rights of senior securities, be entitled to a preferential liquidation
payment equal to $95.00 per share, plus accrued and unpaid dividends. In the
event of any merger, consolidation or other transaction in which shares of FOA
Common are exchanged, each share of Series A Preferred will, subject to the
rights of senior securities, be entitled to receive 100 times the amount
received per share of FOA Common. The rights of the Series A Preferred are
protected by customary antidilution provisions.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire FOA without
conditioning the offer on a substantial number of Rights being acquired or
redemption of the Rights by FOA. The Rights should not interfere with any
merger, such as the Merger, or other business combination approved by the Board
of Directors of FOA since the Board of Directors of FOA may, at its option, at
any time until 20 days following the Stock Acquisition Date, redeem all but not
less than all of the then outstanding Rights at the redemption price.
GENERAL COMPARISON OF NATIONAL CITY AND FOA CAPITAL STOCK
GENERAL
If the shareholders of FOA approve, and the stockholders of National City
adopt, the Agreement and the Merger is subsequently consummated, all
shareholders of FOA will become stockholders of National City. National City is
a corporation organized under, and governed by, the DGCL, whereas FOA is a
corporation organized under, and governed by, the MBCA.
The following is a brief summary of certain differences between the
Delaware corporate laws applicable to National City and the Michigan corporate
laws applicable to FOA and certain differences between National City's
Certificate and By-laws and FOA's Articles and Bylaws. The purpose of this
summary is to briefly indicate the differences between holding National City
capital stock and FOA capital stock to the extent such differences are created
by the state corporation laws applicable to National City and FOA or arise
because of differences between National City's Certificate and By-laws and FOA's
Articles and Bylaws. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE DGCL, THE MBCA, NATIONAL CITY'S CERTIFICATE AND BYLAWS AND FOA'S ARTICLES
AND BYLAWS.
DIRECTORS
National City's Bylaws provide that the number of directors of National
City shall be determined by resolution of the Board of Directors of National
City, that such directors shall be elected at the annual meeting of the
stockholders of National City, and that each director elected shall hold office
until his or her successor is duly elected and shall qualify. The number of
directors as of the Annual Meeting is set at 15. Section 141 of the DGCL
provides that any director or the entire board of directors may be removed, with
or without cause, by the holders of a majority of shares then entitled to vote
at an election of directors.
FOA's Articles provide that directors of FOA are divided into three
classes, and at each annual meeting of shareholders, one class is elected for a
three-year term. Under FOA's Articles, the number of directors is fixed from
time to time by resolution adopted by a number of directors constituting not
less than 80% for the number of directorships constituting the full Board of
Directors of FOA. The current number of directors constituting the full Board is
12. Subject to the rights of holders of any particular class or series of equity
securities of FOA, any
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newly created directorship resulting from an increase in the total number of
authorized directors may be filled by an 80% vote of the directors then in
office, or by a sole remaining director, or by a majority vote of the
shareholders. Any vacancy resulting from death, resignation, retirement,
disqualification, removal from office, or other cause may be filled only by an
80% vote of the directors then in office, or by a sole remaining director. Any
director elected to fill any newly created directorship or vacancy shall serve
for the remainder of the full term of the class to which such director has been
elected. FOA's Articles provide that directors may be removed only for cause and
only by the affirmative vote of holders of not less than 66 2/3% of the
outstanding shares of capital stock of FOA entitled to vote generally in the
election of directors ("FOA Voting Stock"). FOA's Bylaws provide that nomination
of directors by shareholders may be made only in person or by proxy at a meeting
at which the nominating shareholder is entitled to vote, and only if written
notice of such shareholder's intent to make such nomination has been received by
FOA at least 30 days but not more than 90 days before the anniversary date of
the record date for determination of shareholders entitled to vote at the
immediately preceding annual meeting of shareholders. The notice must contain
certain information specified in FOA's Bylaws. FOA's Bylaws set forth certain
qualifications for any nominee to be eligible to be elected or to serve on the
Board of Directors of FOA. These qualifications include the requirement that the
nominee have a history of conducting his or her own personal and business
affairs in a safe and sound manner, in a safe and sound condition, and in
accordance with applicable laws and regulations, and without substantial
conflicts of interest. FOA's Bylaws require that all nominees complete a
qualification, eligibility and disclosure questionnaire in the form approved by
the Board of Directors of FOA. FOA's Bylaws also set forth procedures pursuant
to which the Nominating and Compensation Committee of the Board of Directors of
FOA shall determine whether nominees are eligible to serve as directors pursuant
to the qualifications set forth in the Bylaws.
LIMITATION OF DIRECTOR LIABILITY IN CERTAIN CIRCUMSTANCES
As permitted by the DGCL, Article Seventh of National City's Certificate
provides that directors of National City shall not be liable personally to
National City or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability arising out of (a) any breach of the
director's duty of loyalty to National City or its stockholders, (b) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) payment of a dividend or approval of a stock repurchase in
violation of Section 174 of the DGCL or (d) any transaction from which the
director derived an improper personal benefit. This provision protects National
City directors against personal liability for monetary damages from breaches of
their duty of care. Under Delaware law, absent adoption of Article Seventh,
directors can be held liable for gross negligence in connection with decisions
made on behalf of the corporation in the performance of their duty of care, but
may not be liable for simple negligence. Although Article Seventh provides
National City directors with protection from certain awards of monetary damages
for breaches of their duty of care, it does not eliminate the director's duty of
care. Accordingly, Article Seventh has no effect on the availability of
equitable remedies, such as an injunction or rescission, based upon a director's
breach of his duty of care. Article Seventh does not apply to officers of
National City who are not directors of National City.
As permitted by the MBCA, FOA's Articles provide that no director of FOA
shall be personally liable to FOA or its shareholders for monetary damages for
breach of the director's fiduciary duty other than the director's duty of
loyalty to FOA or its shareholders or any other act or omission as to which the
MBCA prohibits such limitation of liability.
INDEMNIFICATION AND INSURANCE
National City. Under Section 145 of the DGCL, directors, officers,
employees and other individuals may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation -- a "derivative action") if they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the corporation, and, regarding any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions. The DGCL requires court approval before
there can be any indemnification where the person seeking indemnification
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has been found liable to the corporation. To the extent that a person otherwise
eligible to be indemnified is successful on the merits of any claim or defense
described above, indemnification for expenses (including attorneys' fees)
actually and reasonably incurred is mandated by the DGCL.
Article VI of National City's Bylaws provides that National City must
indemnify, to the fullest extent authorized by the DGCL, each person who was or
is made party to, is threatened to be made a party to, or is involved in, any
action, suit or proceeding because he is or was a director, officer or employee
of National City or of any National City subsidiary (or was serving at the
request of National City as a director, trustee, officer, employee or agent of
another entity) while serving in such capacity against all expenses, liabilities
or loss incurred by such person in connection therewith. The amount of any
indemnification to which any person shall otherwise be entitled under Article VI
shall be reduced to the extent that such person shall otherwise be entitled to
valid and collectible indemnification provided by a subsidiary of National City
or any other source.
Article VI also provides that National City may pay expenses incurred in
defending the proceedings specified above in advance of their final disposition.
National City may advance expenses to any director, officer or employee only
upon delivery to National City of an undertaking by the indemnified party
stating that he has reasonably incurred or will reasonably incur actual expenses
in defending an actual civil or criminal suit, action or proceeding in his
capacity as such director, officer or employee, or arising out of his status as
such director, officer or employee, and that he undertakes to repay all amounts
so advanced if it is ultimately determined that the person receiving such
payments is not entitled to be indemnified.
Finally, Article VI provides that National City may maintain insurance, at
its expense, to protect itself and any of its directors, officers, employees or
agents against any expense, liability or loss, regardless of whether National
City has the power or obligation to indemnify that person against such expense,
liability or loss under the provisions of Article VI.
The right to indemnification is not exclusive of any other right which any
person may have or acquire under any statute, provision of National City's
Certificate or Bylaws, or otherwise. Additionally, no amendment to National
City's Certificate can increase the liability of any director or officer for any
act or omission by him prior to such amendment.
FOA. Section 561 through 571 of the MBCA, Article X of FOA's Articles and
Article V of FOA's Bylaws relate to indemnification of FOA's directors and
officers, among others, in a variety of circumstances against liabilities
arising in connection with the performance of their duties. FOA's Articles and
Bylaws generally permit indemnification to the same extent provided by the MBCA.
The MBCA provides for indemnification of directors and officers acting in
good faith in a manner they reasonably believe to be in or not opposed to the
best interest of a Michigan corporation (such as FOA) (and, if a criminal
proceeding, who have no reasonable cause to believe their conduct to be
unlawful) against (i) expenses (including attorney's fees) and amounts paid in
settlement actually and reasonably incurred in connection with any threatened,
pending, or completed action, suit, or proceeding (other than an action by, or
in the right of the corporation) arising out of a position with the corporation
(or with some other entity at the corporation's request) and (ii) expenses
(including attorney's fees) and amounts paid in settlement actually and
reasonably incurred in connection with threatened, pending, or completed actions
or suits by or in the right of the corporation unless the director or officer is
found liable to the corporation and an appropriate court does not determine that
he or she is nevertheless fairly and reasonably entitled to indemnity. The MBCA
requires indemnification for expenses to the extent that a director or officer
is successful in defending against any such action, suit or proceeding, and
otherwise requires in general that the indemnification provided for in (i) and
(ii) above be made only on a determination by a majority vote of a quorum of the
Board of Directors of FOA who were not parties to or threatened to be made
parties to the action, suit, or proceeding, by a majority vote of a committee of
not less than two disinterested directors, by independent legal counsel, by all
independent directors, by independent legal counsel, by all independent
directors not parties to or threatened to be made parties to the action, suit or
proceeding, or by the shareholders, that the applicable standards of conduct
were met. In certain circumstances, the MBCA further permits advances to cover
such expenses before a final determination that indemnification is permissible,
upon receipt of an undertaking, which need not be secured, by or on behalf of
the directors or officers to repay such amounts unless it shall ultimately be
determined that they are entitled to indemnification.
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Indemnification under the MBCA is not exclusive of other rights to
indemnification to which a person may be entitled under a Michigan corporation's
articles, bylaws or a contractual agreement. The MBCA permits FOA to purchase
insurance on behalf of its directors and officers against liabilities arising
out of their positions with FOA, whether or not such liabilities would be within
the foregoing indemnification provisions. Pursuant to this authority, FOA
maintains such insurance on behalf of its directors and officers.
ANTITAKEOVER STATUTES
Delaware Business Combination Statute. Section 203 of the DGCL ("Section
203"), which applies to National City, regulates transactions with major
stockholders after they become major stockholders. Section 203 prohibits a
Delaware corporation from engaging in mergers, dispositions of 10% or more of
its assets, issuances of stock and other transactions ("business combinations")
with a person or group that owns 15% or more of the voting stock of the
corporation (an "interested stockholder"), for a period of three years after the
interested stockholder crosses the 15% threshold. These restrictions on
transactions involving an interested stockholder do not apply if (a) before the
interested stockholder owned 15% or more of the voting stock, the board of
directors approved the business combination or the transaction that resulted in
the person or group becoming an interested stockholder; (b) in the transaction
that resulted in the person or group becoming an interested stockholder, the
person or group acquired at least 85% of the voting stock other than stock owned
by inside directors and certain employee stock plans; (c) after the person or
group became an interested stockholder, the board of directors and at least
two-thirds of the voting stock other than stock owned by the interested
stockholder approves the business combination; or (d) certain competitive
bidding circumstances.
Michigan Fair Price and Control Share Acquisitions Statues. Chapter 7A of
the MBCA, commonly known as the Fair Price statute, provides that a
supermajority of 90% of the shareholders and no less than two-thirds of the
votes of noninterested shareholders must approve a "business combination."
Chapter 7A defines a "business combination" to encompass any merger,
consolidation, share exchange, sale of assets, stock issue, liquidation, or
reclassification of securities involving an "interested shareholder" or certain
of its "affiliates." An "interested shareholder" is generally defined as any
person who owns 10% or more of the outstanding voting shares of the corporation.
An "affiliate" is a person who directly or indirectly controls, is controlled
by, or is under common control with, a specified person.
The supermajority vote required by Chapter 7A does not apply to business
combinations that satisfy certain conditions. These conditions include, among
others, that (1) the purchase price to be paid for the shares of the corporation
is at least equal to the highest of either (a) the market value of the shares or
(b) the highest per share price paid by the interested shareholder within the
preceding two-year period or in the transaction in which the shareholder became
an interested shareholder, whichever is higher; and (2) once becoming an
interested shareholder, the person does not become the beneficial owner of any
additional shares of the corporation except as part of the transaction that
resulted in the interested shareholder becoming an interested shareholder or by
virtue of proportionate stock splits or stock dividends.
The requirements of Chapter 7A do not apply to a business combination with
the interested shareholder that the board of directors has approved or exempted
from the requirements of Chapter 7A by resolution at any time prior to the time
that the interested shareholder first became an interested shareholder.
Under Chapter 7B of the MBCA, commonly known as the Shareholder Equity Act
or the Control Share Acquisitions statute, "control shares" of an "issuing
public company" purchased by a shareholder or group of shareholders may be voted
only to the extent approved (1) by a majority of the outstanding voting shares
and (2) a majority of the outstanding voting shares excluding shares held by the
acquiring person or group and shares held by officers and employees/directors of
the issuing public company. "Control shares" are shares that, when added to
other shares owned by the person or group, would entitle such person or group to
exercise voting power of an issuing public company in the election of directors
within any of the following ranges of voting power; (1) one-fifth or more but
less than one-third of all voting power; (2) one-third or more but less than a
majority of all voting power; or (3) a majority of all voting power. An "issuing
public company" is one that has (1) 100 or more shareholders of record, (2) its
principal place of business, its principal office or substantial assets in
Michigan and (3) either (a) more than 10% of its shareholders of record reside
in Michigan, (b) more than 10% of its shares owned of record by Michigan
residents or (c) 10,000 shareholders of record residing in Michigan.
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As authorized by Chapter 7B, FOA's Bylaws provide that control shares held
by a control shares acquiror who has not filed an acquiring person statement
with FOA are subject to redemption and that control shares that have not been
accorded full voting rights after a vote, as provided in Chapter 7B, are subject
to redemption. The redemption price is the highest price per share that the
control share acquiror has paid for the control shares.
CONSIDERATION OF FACTORS; GENERAL POWERS
FOA's Articles provide that when the Board of Directors of FOA is
evaluating a tender or exchange offer of another person, an offer to merge, or
to purchase all the assets of FOA, it shall consider all relevant factors
including the social and economic effects on employees, customers, suppliers,
and other constituencies and on the communities in which FOA operates or is
located. This provision of FOA's Articles may allow the Board of Directors of
FOA to use the factors stated as a basis for rejecting an offer that, judged
strictly on its financial terms, might be desirable by FOA's shareholders.
ISSUANCE OF PREFERRED STOCK
National City's Certificate and FOA's Articles authorize the Board of
Directors of the respective companies to issue shares of preferred stock, from
time to time, in one or more series as the Boards of Directors may determine,
and to fix the relative powers, preferences and rights (including voting rights)
of each such series of preferred stock in relation to the powers, preferences
and rights of any other series of preferred stock. Voting rights, if any, may be
general, special, conditional or limited. The Boards of Directors of National
City and FOA also have the discretion to determine the number of votes per share
which each holder of a share of a series of the preferred stock will have, but
in no event may any holder of any series of National City preferred stock be
entitled to more than one vote per share. Additionally, the Boards of Directors
of National City and FOA are authorized to permit the holders of a series of
preferred stock to vote separately or together with the holders of one or more
other series of preferred stock on all or some matters as a separate voting
group. Except with respect to the number of votes per share, National City's
Certificate does not materially differ from the provisions of FOA's Articles
with respect to the ability of the Boards of Directors of National City and FOA
to issue preferred stock in one or more series and to fix the relative powers,
preferences and rights of each such series in relation to the powers,
preferences and rights of any other series of preferred stock. The power of the
Boards of Directors of National City and FOA to issue preferred stock with
voting or other powers, preferences and rights may be used to impede or
discourage a takeover attempt. See "DESCRIPTION OF NATIONAL CITY CAPITAL STOCK
- -- Preferred Stock -- General" and "DESCRIPTION OF FOA CAPITAL STOCK --
Preferred Stock -- General."
CUMULATIVE VOTING
Section 214 of the DGCL provides that no cumulative voting rights, in
respect of elections of directors, exist under Delaware Law, unless a
corporation's certificate of incorporation provides otherwise. National City's
Certificate does not provide for cumulative voting in elections of directors.
Section 451 of the MBCA provides that no cumulative voting rights in
respect of elections of directors exist unless a corporation's articles of
incorporation provide otherwise. FOA's articles do not provide for cumulative
voting in election for directors.
ACTION WITHOUT A MEETING
Section 228 of the DGCL permits any action required or permitted to be
taken at a stockholders' meeting to be taken by written consent signed by the
holders of the number of shares that would have been required to effect the
action at an actual meeting of the stockholders. Generally, holders of a
majority of outstanding shares can effect such an action. The DGCL also provides
that a corporation's certificate of incorporation may restrict or even prohibit
stockholders' action without a meeting. National City's Certificate does not
restrict or prohibit stockholders' action without a meeting.
Section 407(1) of the MBCA provides that articles of incorporation of a
Michigan corporation may provide that any action required or permitted by act to
be taken at an annual or special meeting of shareholders may be taken without
meeting, without prior notice and without vote, if consents in writing, setting
forth actions so taken and bearing the date of signature of each shareholder who
signs the consent, are signed by holders of outstanding
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stock having not less than minimum number of votes necessary to authorize or
take such action at a meeting at which all shares entitled to vote therein were
present and voted. FOA's Articles contain no such provision. Therefore, FOA
shareholders may not act by written consent without a meeting unless the
unanimous written consent of all shareholders is obtained, as provided in FOA's
Bylaws.
SPECIAL MEETINGS
Under Section 211(d) of the DGCL, the board of directors or those persons
authorized by the corporation's certificate of incorporation or bylaws may call
a special meeting of the corporation's stockholders. National City's Bylaws
provide that a special meeting may be called by the Chairman of the Board and
must be called by the Chairman of the Board or Secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of National
City issued and outstanding and entitled to vote.
Section 403 of the MBCA provides that special meetings of the shareholders
may be called by the board of directors, by the officers or shareholders as
provided in the corporation's bylaws. FOA's Bylaws provide that special
shareholders meetings may be called by 80% of the full Board of Directors of
FOA, by the Chairman and Chief Executive Officer, or by shareholders holding not
less than 66 2/3% of the FOA Voting Stock. Notwithstanding the FOA Bylaws, under
the MBCA, holders of at least 10% of the FOA Voting Stock may, upon a showing of
good cause, obtain a court order calling a special shareholders meeting.
VOTING, APPRAISAL RIGHTS AND CORPORATE REORGANIZATIONS
The DGCL generally requires a majority vote of stockholders to approve a
merger, sale of assets or similar reorganization transaction. Under Section
251(f) of the DGCL, however, no vote of the stockholders of a corporation
surviving the merger is required if the number of shares to be issued in the
merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the date of the merger and if certain other
conditions are met.
Section 262 of the DGCL does not provide for dissenters' rights of
appraisal for (a) the sale, lease or exchange of all or substantially all of the
assets of a corporation, (b) a merger by a corporation, the shares of which are
either listed on a national securities exchange or held by more than 2,000
stockholders if such stockholders receive shares of the surviving corporation or
of a listed or widely held corporation or (c) stockholders of a corporation
surviving a merger if no vote of such stockholders is required to approve the
merger. See "MERGER -- Appraisal and Dissenters' Rights -- National City."
The MBCA requires that a majority vote of shareholders entitled to vote
thereon to approve a plan of merger or share exchange. The approval of the
Agreement by the affirmative vote of a majority of the shares outstanding of FOA
Common eligible to vote is a condition to the parties' obligation to close.
Under Section 762 of the MBCA, unless the articles or bylaws or a board of
directors resolution provides otherwise, no right to dissent and appraisal is
available as to shares listed on a national securities exchange. See "MERGER --
Appraisal and Dissenters' Rights -- FOA."
AMENDMENT OF ARTICLES AND BYLAWS
Section 109 of the DGCL places the power to adopt, amend or repeal bylaws
in the corporation's shareholders, but permits the corporation, in its
certificate of incorporation, also to vest such power with the board of
directors. National City's Certificate contains such a provision. Although the
Board of Directors of National City has been vested with such authority,
National City's stockholders' power to adopt, amend or repeal Bylaws remains
unrestricted.
As provided by the MBCA, FOA's Articles are subject to alteration,
amendment or repeal, and new provisions thereof may be adopted, by the
affirmative vote of the holders of not less than a majority of the outstanding
FOA Voting Stock, voting together as a single class, at any regular or special
meeting of the shareholders. Notwithstanding the foregoing, the alteration,
amendment or repeal of, or the adoption of any provision inconsistent with,
Article XI (governing amendments), Article XIII (governing election, appointment
and removal of directors, Article XIV (requiring a supermajority shareholder
vote to approve certain business
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combinations) or Article XV (also requiring a supermajority shareholder approval
of certain business combinations) of the Articles of Incorporation requires the
affirmative vote of the holders of not less than 66 2/3% of the voting power of
all shares of the FOA Voting Stock, voting together as a single class, at any
regular or special meeting of the shareholders. A similar 66 2/3% shareholder
supermajority is required by FOA's Articles to adopt a provision of the Articles
permitting shareholder action by less than unanimous written consent.
FOA's Bylaws are subject to alteration, amendment or repeal, and new Bylaws
may be adopted, by the affirmative vote of the holders of not less than a
majority of the outstanding FOA Voting Stock or by the affirmative vote of not
less than a majority of the Board of Directors of FOA. Notwithstanding the
foregoing, any alteration, amendment or repeal, or the adoption of any provision
inconsistent with, Article II, Sections 2, 4 or 8 (governing special shareholder
meetings and notices thereof and shareholder action by consent), or Article III,
Sections 2, 3, 6, 7, 11, or 13 (governing the number, tenure, qualifications,
and nomination of directors, special Board meetings and notice thereof, and
filling vacancies on the Board of Directors of FOA and removal of directors), or
Article XII (governing amendments) of the Bylaws, shall require, in the case of
shareholder action, the affirmative vote of the holders of not less than 66 2/3%
of the FOA Voting Stock or, in the case of action by the Board of Directors of
FOA, the affirmative vote of not less than 80% of FOA's full Board of Directors.
PREEMPTIVE RIGHTS
Under Section 102 of the DGCL, no statutory preemptive rights will exist,
unless a corporation's certificate of incorporation specifies otherwise.
National City's Certificate does not provide for any such preemptive rights.
Section 343 of the MBCA provides that the shareholders of a corporation do
not have a preemptive right to acquire a corporation's unissued shares except to
the extent the articles of incorporation so provide. FOA's Articles do not
provide for any such preemptive rights.
DIVIDENDS
Delaware corporations may pay dividends out of surplus or, if there is no
surplus, out of net profits for the fiscal year in which declared and for the
preceding fiscal year. Section 170 of the DGCL also provides that dividends may
not be paid out of net profits if, after the payment of the dividend, capital is
less than the capital represented by the outstanding stock of all classes having
a preference upon the distribution of assets.
Under the MBCA dividends may not be paid if the corporation is at the time
insolvent or would be insolvent after payment of such dividend.
National City and FOA are subject to the same FRB policies regarding
payment of dividends, which generally limit dividends to operating earnings. See
"CERTAIN REGULATORY CONSIDERATIONS -- Payment of Dividends."
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS AND JOINT PROXY STATEMENT CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS (AS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995)
WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF
NATIONAL CITY FOLLOWING THE CONSUMMATION OF THE MERGER, INCLUDING STATEMENTS
RELATING TO COST SAVINGS, REVENUE ENHANCEMENTS, MERGER-RELATED CHARGES EXPECTED
TO BE INCURRED IN CONNECTION WITH THE MERGER, FUNDING ADVANTAGES THAT ARE
EXPECTED TO BE REALIZED FROM THE MERGER AND THE EXPECTED IMPACT OF THE MERGER ON
NATIONAL CITY'S FINANCIAL PERFORMANCE AND EARNINGS ESTIMATES FOR THE COMBINED
COMPANY IN PORTIONS OF "MERGER -- BACKGROUND AND REASONS FOR THE
MERGER -- NATIONAL CITY;" "MERGER -- OPINION OF FINANCIAL ADVISORS;" AND "PRO
FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION." THESE FORWARD-LOOKING
STATEMENTS MAY INVOLVE SIGNIFICANT RISKS AND UNCERTAINTIES. ALTHOUGH NATIONAL
CITY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS
ARE
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REASONABLE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS
DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. INTERNAL AND EXTERNAL FACTORS
THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO: (1) EXPECTED
COST SAVINGS FROM THE MERGER CANNOT BE FULLY REALIZED OR REALIZED WITHIN THE
EXPECTED TIME FRAME; (2) REVENUES FOLLOWING THE MERGER ARE LOWER THAN EXPECTED;
(3) COMPETITIVE PRESSURES AMONG DEPOSITORY INSTITUTIONS INCREASE SIGNIFICANTLY;
(4) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE BUSINESS ACQUIRED;
(5) CHANGES IN THE INTEREST RATE ENVIRONMENT REDUCE NET INTEREST INCOME; (6)
GENERAL ECONOMIC CONDITIONS DETERIORATE, EITHER NATIONALLY OR IN THE STATES IN
WHICH THE COMBINED COMPANY WILL BE DOING BUSINESS, RESULTING IN, AMONG OTHER
THINGS, A DETERIORATION IN CREDIT QUALITY; (7) LEGISLATION OR REGULATORY CHANGES
ADVERSELY AFFECT THE BUSINESSES IN WHICH THE COMBINED COMPANY WOULD BE ENGAGED;
AND (8) CHANGES IN THE SECURITIES MARKETS.
INFORMATION ABOUT NATIONAL CITY
National City is a registered multi-bank holding company under the BHCA and
is incorporated under the laws of the State of Delaware. As of December 31,
1997, National City owned all of the outstanding stock of 8 commercial banks in
Ohio, Kentucky, Indiana and Pennsylvania and through these financial
institutions, operated 853 offices. National City subsidiaries provide financial
services that meet a wide range of customer needs, including commercial and
retail banking, trust and investment services, item processing, mortgage
servicing and credit card processing. At December 31, 1997, National City, its
affiliate banks and other subsidiaries had consolidated total assets of $55
billion and consolidated total deposits of $37 billion.
National City was organized under Delaware law in 1972, and had, along with
its subsidiaries, 29,841 full-time equivalent employees at December 31, 1997.
As of December 31, 1997, the five largest commercial banking subsidiaries
of National City had offices and total assets, loans, deposits and equity
capital, as follows:
<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS)
--------------------------------------------------------
TOTAL EQUITY
OFFICES ASSETS LOANS DEPOSITS CAPITAL
------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
National City Bank...................... 103 $ 16,540 $ 11,979 $11,057 $1,143
National City Bank of Pennsylvania...... 227 13,430 9,368 10,182 745
National City Bank of Kentucky.......... 135 9,163 6,031 5,565 490
National City Bank of Columbus.......... 114 6,197 4,604 4,455 347
National City Bank of Indiana........... 112 5,639 4,162 4,200 451
</TABLE>
For more detailed information about National City, reference is made to the
National City Annual Report on Form 10-K for the year ended December 31, 1997,
which is incorporated herein by reference. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
INFORMATION ABOUT FOA
FOA is a registered multi-bank holding company under the BHCA. It was
incorporated under the laws of the State of Michigan in 1971. FOA's principal
activity consists of owning and supervising two affiliate banks which operate
general, commercial banking businesses from 517 banking offices and facilities
located in Michigan, Illinois and Indiana. FOA also has divisions and
non-banking subsidiaries which provide mortgage, trust, data processing, pension
consulting, revolving credit, insurance, securities brokerage and underwriting,
and investment advisory services. At December 31, 1997, FOA its affiliate banks
and other subsidiaries had consolidated total assets of $21 billion and
consolidated total deposits of $16 billion. FOA had, along with its
subsidiaries, 10,789 full-time equivalent employees at December 31, 1997.
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As of December 31, 1997, the commercial banking subsidiaries of FOA had
offices, total assets, loans, deposits and equity capital as follows:
<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS)
---------------------------------------------------
TOTAL EQUITY
OFFICES ASSETS LOANS DEPOSITS CAPITAL
------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
First of America Bank, N.A............. 422 $15,200 $9,337 $ 11,252 $ 1,235
(Michigan and Indiana)
First of America Bank-Illinois, N.A.... 123 6,061 4,323 4,618 533
</TABLE>
For more detailed information about FOA, reference is made to FOA's Annual
Report on Form 10-K for the year ended December 31, 1997, which is incorporated
herein by reference. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
EXPERTS
The consolidated financial statements of National City and FWNC as of
December 31, 1997 and 1996 and for each of three years in the period ended
December 31, 1997 appearing in National City's Annual Report on Form 10-K and
FWNC's Annual Report on Form 10-K, respectively, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements included in FOA's Annual Report on
Form 10-K as of December 31, 1997 and 1996 and for each of the years in the
three year period ended December 31, 1997, have been incorporated herein and in
the registration statement in reliance on the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
LEGAL OPINIONS
The Agreement provides as a condition to the parties' obligation to close
that National City and FOA shall have received the opinion of Wachtell, Lipton,
Rosen & Katz, special counsel to FOA, substantially to the effect, among other
things, that no gain or loss will be recognized by the shareholders of FOA who
exchange their shares of FOA Common solely for shares of National City Common
pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in National City Common).
NATIONAL CITY STOCKHOLDER PROPOSALS
Holders of National City Common who wish to make a proposal to be included
in National City's Proxy Statement and Proxy for National City's 1999 Annual
Meeting of Stockholders which, unless changed, is scheduled to be held on April
12, 1999, in Cleveland, Ohio, must cause such proposal to be received by
National City at its principal office not later than October 21, 1998. Each
proposal submitted should be accompanied by the name and address of the
stockholder submitting the proposal, the number of shares of National City
Common owned, and the dates those shares were acquired by the stockholder. If
the proponent is not a stockholder of record, proof of beneficial ownership
should also be submitted. The proponent should also state his or her intention
to appear at National City's 1999 Annual Meeting, either in person or by
representative, to present the proposal. The proxy rules of the Commission
govern the content and form of stockholder proposals and the minimum
stockholding requirement. All proposals must be a proper subject for action at
National City's 1999 Annual Meeting.
TRANSACTIONS WITH MANAGEMENT
Certain of National City's directors, executive officers and associates of
directors or executive officers were customers of or had various transactions
with National City and its subsidiaries in the ordinary course of business in
1997. These transactions cover a wide range of banking and trust services, both
personal and corporate. Without exception, all services were provided to the
directors, executive officers and their associates at market
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rates consistent with published fee schedules. Similar additional transactions
may be expected to take place in the ordinary course of business in the future.
Although various laws and regulations governing National City and its
subsidiaries allow National City and its subsidiaries to make loans to a limited
extent to its executive officers, all loans and loan commitments and sales of
commercial paper involving executive officers, directors or their affiliates
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at that time for comparable transactions with
other persons and, did not involve more than the normal risk of collectibility
or other unfavorable features.
GENERAL
The respective managements of National City and FOA are not aware of any
matters which may be presented for action at the Annual Meeting or the Special
Meeting, as applicable other than the matters herein set forth. If any other
matters come before the Annual Meeting or the Special Meeting or any adjournment
of either, it is the intention of the persons named in the enclosed proxy to
vote the shares represented thereby in accordance with their best judgment
pursuant to the discretionary authority granted in the proxy.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 30, 1997
("Agreement"), is made by and between National City Corporation, a Delaware
corporation ("National City") and First of America Bank Corporation, a Michigan
corporation ("Company").
WHEREAS, National City and Company have each determined that it is in the
best interests of their respective stockholders and shareholders for Company to
merge with and into National City upon the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, the respective Boards of Directors of National City and Company
have each approved this Agreement and the consummation of the transactions
contemplated hereby and approved the execution and delivery of this Agreement;
WHEREAS, for Federal income tax purposes, it is intended that the merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the merger shall be
accounted for as a "pooling-of-interests";
WHEREAS, as a condition to, and contemporaneously with the execution of
this Agreement, the parties have entered into a stock option agreement, with the
Company as issuer and National City as grantee (the "Company Option Agreement")
in the form attached hereto as Exhibit A (as hereinafter defined); and
WHEREAS, as a condition to, and contemporaneously with the execution of
this Agreement, the parties have entered into a stock option agreement, with
National City as issuer and the Company as grantee (the "National City Option
Agreement") in the form attached hereto as Exhibit B.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, the parties hereto
hereby agree as follows:
I. THE MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.3), Company will be merged with and into
National City and the separate corporate existence of the Company will thereupon
cease (the "Merger") in accordance with the applicable provisions of the
Michigan Business Corporation Act ("MBCA") and the Delaware General Corporation
Law ("DGCL").
National City may at any time change the method of effecting the
combination with the Company (including without limitations the provisions of
this Article I) if and to the extent it deems such change to be desirable,
including without limitation to provide for a merger of the Company into a
wholly-owned subsidiary of National City; provided, however, that no such change
shall (A) alter or change the amount or kind of consideration to be issued to
holders of shares of common stock, par value $10.00 per share, of Company
("Company Common Stock") as provided for in this Agreement, (B) adversely affect
the tax treatment of the Company's stockholders as a result of receiving the
Merger Consideration (as hereinafter defined) or (C) materially impede or delay
consummation of the transactions contemplated by this Agreement.
1.2 Effective Time. As soon as practicable after satisfaction or waiver of
all conditions to the Merger and immediately prior to the Closing which shall
occur at the time set forth in Section 6.1, National City and Company (the
"Constituent Corporations") shall cause a certificate of merger complying with
the requirements of the DGCL (the " Delaware Certificate of Merger") to be filed
with the Secretary of State of the State of Delaware and the Certificate of
Merger complying with the requirements of the MBCA to be filed with the Michigan
Department of Consumer and Industry Services("Michigan Certificate of Merger").
The Merger will become effective at the time the later of the following to
occur: (a) the filing of the Delaware Certificate of Merger and (b) the filing
of the Michigan Certificate of Merger or such later time as shall be specified
in such filings ("Effective Time").
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1.3 Effect of Merger. The Merger will have the effects specified in MBCA
and DGCL. Without limiting the generality of the foregoing, National City will
be the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation") and will continue to be governed by the laws of the
State of Delaware, and the separate corporate existence of National City and all
of its rights, privileges, powers and franchises, public as well as private, and
all its debts, liabilities and duties as a corporation organized under the DGCL,
will continue unaffected by the Merger.
1.4 Certificate of Incorporation and By-laws. The Certificate of
Incorporation and By-laws of National City in effect immediately prior to the
Effective Time, which shall be in the form set forth in a disclosure letter
executed by National City and dated and delivered by National City to Company as
of the date hereof ("National City Disclosure Letter"), shall be the Certificate
of Incorporation and By-laws of the Surviving Corporation, until amended in
accordance with applicable law.
1.5 Directors and Officers.
(a) Surviving Corporation. The directors and officers of National City
immediately prior to the Effective Time will be the directors and officers,
respectively, of the Surviving Corporation, from and after the Effective Time,
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the terms
of the Surviving Corporation's Certificate of Incorporation and By-laws and the
DGCL.
(b) National City. Promptly after the Effective Time, in accordance with
the Bylaws of National City, the Board of Directors of National City shall
increase its size to such number as is necessary to create 5 vacancies and shall
elect 5 Company directors to fill such vacancies. The identity of the Company
directors to be elected to National City's Board of Directors shall be mutually
agreed upon by Company and National City prior to the Effective Time.
1.6 Additional Actions. 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 acts are necessary or desirable to
(i) vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Company, or (ii) otherwise carry out the purposes of
this Agreement, Company and its officers and directors shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to execute
and deliver all such deeds, assignments or assurances in law or any other acts
as are necessary or desirable to (i) vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of Company or (ii) otherwise carry
out the purposes of this Agreement, Company and its officers and directors shall
be deemed to have granted to the Surviving Corporation an irrevocable power of
attorney to execute and deliver all such deeds, assignments or assurances in law
and to all acts necessary or proper to vest, perfect or confirm title to and
possession of such rights, properties or assets in the Surviving Corporation and
otherwise to carry out the purposes of this Agreement, and the officers and
directors of the Surviving Corporation are authorized in the name of Company or
otherwise to take any and all such action.
II. CONVERSION OF SHARES
2.1 Conversion of Shares. Subject to Section 2.3, at the Effective Time,
(a) each then-outstanding share of Company Common Stock, including
each attached right issued pursuant to the Rights Agreement between the
Registrant and First of America Bank-Michigan, NA, dated as of July 18,
1990 (Company Rights Agreement), not owned by National City or any direct
or indirect wholly-owned subsidiary of National City (except for any such
shares of Company Common Stock held in trust accounts, managed accounts or
in any similar manner as trustee or in a fiduciary capacity ("Trust Account
Shares") or acquired in satisfaction of debts previously contracted ("DPC
Shares") other than those shares of Company Common Stock held in the
treasury of the Company, will be canceled, retired and converted into 1.2
shares of common stock, par value $4.00 per share, of National City
("National City Common Stock") ( "Conversion Ratio"). The number of shares
of National City Common Stock that each share of Company Common Stock will
be converted into is sometimes referred to herein as the "Merger
Consideration";
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(b) each then-outstanding share of Company Common Stock owned by
National City or any direct or indirect wholly-owned subsidiary of National
City (except for any shares that are Trust Account Shares or DPC Shares)
will be canceled and retired;
(c) each share of Company Common Stock issued and held in Company's
treasury will be canceled and retired; and
(d) each share of National City Common Stock issued and outstanding
immediately prior to the Effective Time shall continue to be an issued and
outstanding share of common stock, par value $4.00 per share, of the
Surviving Corporation from and after the Effective Time.
2.2 Assumption of Employee and Director Stock Options. Except as expressly
provided in this Section 2.2, all rights under any stock option granted by
Company or its predecessors pursuant to The Restated First of America Bank
Corporation 1987 Stock Option Plan, First of America Bank Corporation Director
Stock Compensation Plan ("Director Option Plan") and the First of America Bank
Corporation Stock Compensation Plan, (collectively, the "Company Option Plans")
that remain outstanding and unexercised, whether vested or unvested, immediately
prior to the Effective Time ("Unexercised Options") shall cease to represent a
right to acquire shares of Company Common Stock and shall be converted into the
right to acquire that number of shares of National City Common Stock equal to
(a) the number of shares of Company Common Stock subject to the Unexercised
Option, multiplied by (b) the Conversion Ratio(rounded to the nearest whole
share). The exercise price per share of National City Common Stock under the new
option shall be equal to the exercise price per share of the Company Common
Stock which was purchasable under each Unexercised Option divided by the
Conversion Ratio (rounded to the nearest whole cent) necessary to assure that
the rights and benefits of the optionee under such option shall not be increased
or decreased by reason of this Section 2.2, and, in addition, each option which
is an "incentive stock option" as defined in Section 422 of the Code shall be
adjusted as required by section 424 of the Code and the regulations promulgated
thereunder so as not to constitute a modification, extension or renewal of the
option within the meaning of section 424(h) of the Code. On or before the
Effective Time National City shall file, and maintain the effectiveness of, a
registration statement with the Securities and Exchange Commission covering such
options and the sale of the National City Common Stock issued upon exercise of
such options. At the Effective Time all Company Option Plans shall be terminated
with respect to the granting of any additional options or option rights. The
duration and other terms and conditions of the new options shall be the same as
the original Company options, except that reference to Company shall be deemed
to be references to National City.
2.3 Exchange of Certificates
(a) Exchange Agent. Prior to the Effective Time, National City shall
designate National City Bank to act as exchange agent (the "Exchange
Agent") and First of America Bank -- Michigan NA to act as forwarding agent
in connection with the Merger pursuant to an exchange agent agreement
providing for, among other things, the matters set forth in this Section
2.3. Except as set forth herein, from and after the Effective Time each
holder of a certificate that immediately prior to the Effective Time
represented outstanding shares of Company Common Stock ("Certificate")
shall be entitled to receive in exchange therefor, upon surrender thereof
to the Exchange Agent, the Merger Consideration for each share of Company
Common Stock so represented by the Certificate surrendered by such holder
thereof. The certificates representing shares of National City Common Stock
which constitute the Merger Consideration shall be properly issued and
countersigned and executed and authenticated, as appropriate.
(b) Notice of Exchange. Promptly after the Effective Time, National
City and the Surviving Corporation shall cause the Exchange Agent to mail
and/or make available to each record holder of a Certificate a notice and
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificate shall pass, only upon proper
delivery of the Certificate to the Exchange Agent or its forwarding agent)
advising such holder of the effectiveness of the Merger and the procedures
to be used in effecting the surrender of the Certificate for exchange
therefor. Upon surrender to the Exchange Agent of a Certificate, together
with such letter of transmittal duly executed and completed in accordance
with the instructions thereon, and such other documents as may reasonably
be requested, the Exchange Agent shall promptly deliver to the person
entitled thereto the appropriate Merger Consideration for each share of
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Company Common Stock so represented by the Certificate surrendered by such
holder thereof, and such Certificate shall forthwith be canceled.
(c) Transfer. If delivery of all or part of the Merger Consideration
is to be made to a person other than the person in whose name a surrendered
Certificate is registered, it shall be a condition to such delivery or
exchange that the Certificate surrendered shall be properly endorsed or
shall be otherwise in proper form for transfer and that the person
requesting such delivery or exchange shall have paid any transfer and other
taxes required by reason of such delivery or exchange in a name other than
that of the registered holder of the Certificate surrendered or shall have
established to the reasonable satisfaction of the Exchange Agent that such
tax either has been paid or is not payable.
(d) Right to Merger Consideration. Subject to Subsection 2.3(e), until
surrendered and exchanged in accordance with this Section 2.3, each
Certificate shall, after the Effective Time, represent solely the right to
receive the Merger Consideration, multiplied by the number of shares of
Company Common Stock evidenced by such Certificate, together with any
dividends or other distributions as provided in Sections 2.3(e) and 2.3(f),
and shall have no other rights. From and after the Effective Time, National
City and Surviving Corporation shall be entitled to treat such Certificates
that have not yet been surrendered for exchange as evidencing the ownership
of the aggregate Merger Consideration into which the shares of Company
Common Stock represented by such Certificates may be converted,
notwithstanding any failure to surrender such Certificates. One hundred
eighty (180) days following the Effective Time, the Exchange Agent shall
deliver to the Surviving Corporation any shares of National City Common
Stock and funds (including any interest received with respect thereto)
which National City has made available to the Exchange Agent and which have
not been disbursed to holders of Certificates, and thereafter such holders
shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) with respect to the
shares of National City Common Stock and cash in lieu of fractional shares
deliverable or payable upon due surrender of their Certificates. Neither
Exchange Agent nor any party hereto shall be liable to any holder of shares
of Company Common Stock for any Merger Consideration (or dividends,
distributions or interest with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(e) Distribution with Respect to Unexchanged Certificates. Whenever a
dividend or other distribution is declared by National City on the National
City 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 issuable pursuant to this Agreement, provided that no dividends or
other distributions declared or made with respect to National City Common
Stock shall be paid to the holder of any unsurrendered Certificate with
respect to the share of National City Common Stock represented thereby
until the holder of such Certificate shall surrender such Certificate in
accordance with this Article II. The Surviving Corporation shall pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by the Company on
Company Common Stock in accordance with the terms of this Agreement on or
prior to the Effective Time and which remain unpaid at the Effective Time.
(f) Lost or Destroyed Exchanged Certificates. In the event that any
Certificate shall have been lost, stolen or destroyed, the Exchange Agent
shall deliver in exchange for such lost, stolen or destroyed certificate,
upon the making of an affidavit of that fact by the holder thereof in form
satisfactory to the Exchange Agent, the Merger Consideration, as may be
required pursuant to this Agreement; provided, however, that the Exchange
Agent may, in its sole discretion and as a condition precedent to the
delivery of the Merger Consideration to which the holder of such
certificate is entitled as a result of the Merger, require the owner of
such lost, stolen or destroyed certificate to deliver a bond in such sum as
it may direct as indemnity against any claim that may be made against
Company, National City or the Exchange Agent or any other party with
respect to the certificate alleged to have been lost, stolen or destroyed.
(g) Voting With Respect to Unexchanged Certificates. Holders of
unsurrendered Certificates will not be entitled to vote at any meeting of
National City stockholders.
(h) No Fractional Shares. No certificates or scrip representing
fractional shares of National City Common Stock shall be issued upon the
surrender for exchange of a Certificate or Certificates. No dividends or
distributions of National City shall be payable on or with respect to any
fractional share and any such
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fractional share interest will not entitle the owner thereof to vote or to
any rights of stockholders of National City. In lieu of any such fractional
shares, holders of Certificates otherwise entitled to fractional shares
shall be entitled to receive promptly from the Exchange Agent a cash
payment in an amount equal to the fraction of such share of National City
Common Stock to which such holder would otherwise be entitled multiplied by
the Market Price (as hereinafter defined).
2.4 Closing of the Company's Transfer Books. The stock transfer books of
Company shall be closed at the close of business on the business day immediately
preceding the date of the Effective Time. In the event of a transfer of
ownership of Company Common Stock which is not registered in the transfer
records of Company, the Merger Consideration to be distributed pursuant to this
Agreement may be delivered to a transferee, if a Certificate is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by payment of any applicable stock transfer taxes. National
City and The Exchange Agent shall be entitled to rely upon the stock transfer
books of Company to establish the identity of those persons entitled to receive
the Merger Consideration specified in this Agreement for their shares of Company
Common Stock, which books shall be conclusive with respect to the ownership of
such shares. In the event of a dispute with respect to the ownership of any such
shares, the Surviving Corporation and the Exchange Agent shall be entitled to
deposit any Merger Consideration represented thereby in escrow with an
independent party and thereafter be relieved with respect to any claims to such
Merger Consideration.
2.5 Changes in National City Common Stock. If between the date of this
Agreement and the Effective Time, the shares of National City Common Stock shall
be changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or if a stock
dividend thereon shall be declared with a record date within said period, the
Merger Consideration shall be adjusted accordingly.
III. REPRESENTATIONS AND WARRANTIES OF NATIONAL CITY
National City hereby represents and warrants to Company that:
3.1 Corporate Organization. National City is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified to do business as a foreign corporation in each
jurisdiction in which its ownership or lease of property or the nature of the
business conducted by it makes such qualification necessary, except for such
jurisdictions in which the failure to be so qualified would not have a Material
Adverse Effect. National City is registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHCA"). National City has the
requisite corporate power and authority to own, lease and operate its properties
and assets and to carry on its business as it is now being conducted. National
City has heretofore delivered to Company true and complete copies of its
certificate of incorporation and By-laws.
3.2 Authority. National City has the requisite corporate power and
authority to execute and deliver this Agreement and, except for any required
approval of National City's stockholders, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated herein have been duly approved
by the Board of Directors of National City and no other corporate proceedings on
the part of National City are necessary to authorize this Agreement or to
consummate the transactions so contemplated, subject only to approval by the
stockholders of National City as provided in Subsection 5.15(b) of this
Agreement. This Agreement has been duly executed and delivered by, and
constitutes valid and binding obligations of National City enforceable against
National City in accordance with its terms, except as enforceability thereof may
be limited by applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought.
3.3 Capitalization. As of the date hereof, the authorized capital stock of
National City consists of 700,000,000 shares of National City Common Stock and
5,000,000 shares of National City preferred stock. As of the close of business
on November 28, 1997 (i) 211,108,844 shares of National City Common Stock were
validly issued and outstanding, fully paid and nonassessable and (ii) no shares
of preferred stock were issued and
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outstanding. As of the date hereof, except as set forth in this Section 3.3,
pursuant to the exercise of employee stock options under National City's various
stock option plans in effect, National City's dividend reinvestment plan and
stock grants made pursuant to the National City 1991 Restricted Stock Plan,
pursuant to the National City Option Agreement or set forth in the National City
Disclosure Letter, there are no other shares of capital stock of National City
authorized, issued or outstanding and there are no outstanding subscriptions,
options, warrants, rights, convertible securities or any other agreements or
commitments of any character relating to the issued or unissued capital stock or
other securities of National City obligating National City to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of National City or obligating National City to grant, extend or enter
into any subscription, option, warrant, right, convertible security or other
similar agreement or commitment. As of the date hereof, except as provided in
this Agreement, there are no voting trusts or other agreements or understandings
to which National City or any National City subsidiary is a party with respect
to the voting of the capital stock of National City. All of the shares of
National City Common Stock issuable in exchange for the Company Common Stock at
the Effective Time in accordance with this Agreement and all of the shares of
National City Common Stock issuable upon exercise of Unexercised Options will
be, when so issued, duly authorized, validly issued, fully paid and
nonassessable and will not be subject to preemptive rights.
3.4 Subsidiaries. The name and state of incorporation of each significant
subsidiary (as defined in Paragraph 8.6(i) hereof) of National City
(collectively, the "Significant Subsidiaries") is set forth in the National City
Disclosure Letter. Each of the Significant Subsidiaries is a bank or a
corporation duly organized, validly existing and in good standing under the laws
of its respective jurisdiction of incorporation or organization and is duly
qualified to do business as a foreign corporation in each jurisdiction in which
its ownership or lease of property or the nature of the business conducted by it
makes such qualification necessary, except for such jurisdictions in which the
failure to be so qualified would not have a Material Adverse Effect. Each of the
Significant Subsidiaries has the requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its businesses as
they are now being conducted. Except as set forth in the National City
Disclosure Letter, all outstanding shares of capital stock of each of the
Significant Subsidiaries are owned by National City or another of National
City's subsidiaries and are validly issued, fully paid and (except pursuant to
12 USC Section 55 in the case of each national bank subsidiary and applicable
state law in the case of each state bank subsidiary) nonassessable, are not
subject to preemptive rights and are owned free and clear of all liens, claims
and encumbrances. There are no outstanding subscriptions, options, warrants,
rights, convertible securities or any other agreements or commitments of any
character relating to the issued or unissued capital stock or other securities
of any Significant Subsidiary obligating any of the Significant Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold additional
shares of its capital stock or obligating any of the Significant Subsidiaries to
grant, extend or enter into any subscription, option, warrant, right,
convertible security or other similar agreement or commitment.
3.5 Information in Disclosure Documents, Registration Statement, Etc. None
of the information with respect to National City or any of National City's
subsidiaries provided by National City for inclusion in (i) the Registration
Statement to be filed with the Securities and Exchange Commission (the
"Commission") by National City on Form S-4 under the Securities Act of 1933, as
amended (the "Securities Act"), for the purpose of registering the shares of
National City Common Stock to be issued in the Merger (the "Registration
Statement") and (ii) any joint proxy statement of Company and National City
("Proxy Statement") required to be mailed to Company's shareholders and National
City's stockholders in connection with the Merger will, in the case of the Proxy
Statement or any amendments or supplements thereto, at the time of the mailing
of the Proxy Statement and any amendments or supplements thereto, and at the
time of the Company Meeting and the National City Meeting (as hereinafter
defined), or, in the case of the Registration Statement, at the time it becomes
effective, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
promulgated thereunder. The Proxy Statement will comply as to form in all
material respects with the provisions of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder.
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3.6 Consents and Approvals; No Violation. Except as set forth in the
National City Disclosure Letter, neither the execution and delivery of this
Agreement by National City nor the consummation by National City of the
transactions contemplated hereby will (a) conflict with or result in any breach
of any provision of its certificate of incorporation or By-laws of National
City, (b) violate, conflict with, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in the
creation of any lien or other encumbrance upon any of the properties or assets
of National City or any of National City's subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which National
City or any of National City's subsidiaries is a party or to which they or any
of their respective properties or assets are subject, except for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens or other encumbrances, which will not have a Material Adverse
Effect or (c) require any consent, approval, authorization or permit of or from,
or filing with or notification to, any court, governmental authority or other
regulatory or administrative agency or commission, domestic or foreign
("Governmental Entity"), except (i) pursuant to the Exchange Act and the
Securities Act, (ii) filing the Delaware Certificate of Merger and a designation
pursuant to the DGCL, (iii) filing the Michigan Certificate of Merger, (iv)
filings required under the securities or blue sky laws of the various states,
(v) filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (vi) filings with, and approval by, the Federal Reserve
Board (the "FRB"), (vii) filings with and approval by the Office of Thrift
Supervision ("OTS"), (viii) filings with, and approvals by, the Ohio
Superintendent of Banks, the Arizona Director of Insurance and such other state
regulatory agencies as may be required (collectively, the "State Entities"),
(ix) filings and approvals pursuant to any applicable state takeover law, (x)
filings and approvals under the Small Business Investment Act of 1958 and the
rules and regulations thereunder ("SBIA") or (xi) consents, approvals,
authorizations, permits, filings or notifications which, if not obtained or made
will not, individually or in the aggregate, have a Material Adverse Effect.
3.7 Reports and Financial Statements. Since January 1, 1992, National City
and each of National City's subsidiaries have filed all reports, registrations
and statements, together with any required amendments thereto, that they were
required to file with the Commission under Section 12(b), 12(g), 13(a) or 14(a)
of the Securities Exchange Act of 1934, including, but not limited to Forms
10-K, Forms 10-Q and proxy statements (the "National City Reports"). National
City has previously furnished or will promptly furnish Company with true and
complete copies of each of National City's annual reports on Form 10-K for the
years 1992 through 1996 and its quarterly reports on Form 10-Q for March 31,
1997, June 30, 1997 and September 30, 1997. As of their respective dates, the
National City Reports complied with the requirements of the Commission 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 circumstance under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of National City included in the National City Reports have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the consolidated financial position of National City and
National City's subsidiaries as of the dates thereof and the results of their
operations and cash flows for the periods then ended subject, in the case of the
unaudited interim financial statements, to normal year-end and audit adjustments
and any other adjustments described therein. There exist no material liabilities
of National City and its consolidated subsidiaries, contingent or otherwise of a
type required to be disclosed in accordance with generally accepted accounting
practices, except as disclosed in the National City Reports. National City's
reserve for possible loan losses as shown in its Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1997 was adequate, within the meaning
of generally accepted accounting principles and safe and sound banking
practices.
3.8 Taxes. National City will promptly make available to Company, upon
request by Company, true and correct copies of the federal, state and local
income tax returns, and state and local property and sales tax returns and any
other tax returns filed by National City and any of National City's subsidiaries
for each of the fiscal years that remains open, as of the date hereof, for
examination or assessment of tax. National City and each National City
subsidiary have prepared in good faith and duly and timely filed, or caused to
be duly and timely filed, all federal, state, local and foreign income,
estimated tax, withholding tax, franchise, sales and other tax returns or
reports required to be filed by them on or before the date hereof, except to the
extent that all such failures to file,
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taken together, would not have a Material Adverse Effect. National City and each
of its subsidiaries have paid, or have made adequate provision or set up an
adequate accrual or reserve for the payment of, all taxes, shown or required to
be shown to be owing on all such returns or reports, together with any interest,
additions or penalties related to any such taxes or to any open taxable year or
period. Except as set forth in the National City Disclosure Letter, neither
National City nor any of National City's subsidiaries has consented to extend
the statute of limitations with respect to the assessment of any tax. Except as
set forth in the National City Disclosure Letter, neither National City nor any
of National City's subsidiaries is a party to any action or proceeding, nor to
the best of National City's knowledge is any such action or proceeding
threatened, by any Governmental Entity in connection with the determination,
assessment or collection of any taxes, and no deficiency notices or reports have
been received by National City or any of National City's subsidiaries in respect
of any material deficiencies for any tax, assessment, or government charges.
3.9 Employee Plans. Except as set forth in the National City Disclosure
Letter, all employee benefit, welfare, bonus, deferred compensation, pension,
profit sharing, stock option, employee stock ownership, consulting, severance,
or fringe benefit plans, formal or informal, written or oral, and all trust
agreements related thereto, relating to any present or former directors,
officers or employees of National City or its subsidiaries ("National City
Employee Plans") have been maintained, operated, and administered in substantial
compliance with their terms and currently comply, and have at all relevant times
complied, in all material respects with the applicable requirements of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Code,
and any other applicable laws. With respect to each National City Employee Plan
which is a pension plan (as defined in Section 3(2) of ERISA): (a) except for
recent amendment(s) to the plans not materially affecting the qualified status
of the plans (which are disclosed in, and copies of which are attached to, the
National City Disclosure Letter), each pension plan as amended (and any trust
relating thereto) intended to be a qualified plan under Section 401(a) of the
Code either: (i) has been determined by the Internal Revenue Service ("IRS") to
be so qualified, (ii) is the subject of a pending application for such
determination that was timely filed, or (iii) will be submitted for such a
determination prior to end of the "remedial amendment period" within the meaning
of Section 401(b) of the Code, (b) there is no accumulated funding deficiency
(as defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, and no waiver of the minimum funding standards of such sections has been
requested from the IRS, (c) neither National City nor any of its subsidiaries
has provided, or is required to provide, security to any pension plan pursuant
to Section 401(a)(29) of the Code, (d) the fair market value of the assets of
each defined benefit plan (as defined in Section 3(35) of ERISA) exceeds the
value of the "benefit liabilities" within the meaning of Section 4001(a)(16) of
ERISA under such defined benefit plan as of the end of the most recent plan year
thereof ending prior to the date hereof, calculated on the basis of the
actuarial assumptions used in the most recent actuarial valuation for such
defined benefit plan as of the date hereof, (e) no reportable event described in
Section 4043 of ERISA for which the 30 day reporting requirement has not been
waived has occurred, (f) except as disclosed in the National City Disclosure
Letter, no defined benefit plan has been terminated, nor has the Pension Benefit
Guaranty Corporation ("PBGC") instituted proceedings to terminate a defined
benefit plan or to appoint a trustee or administrator of a defined benefit plan,
and no circumstances exist that constitute grounds under Section 4042(a)(2) of
ERISA entitling the PBGC to institute any such proceedings and (g) no pension
plan is a "multiemployer plan" within the meaning of Section 3(37) of ERISA or a
"multiple employer plan" within the meaning of 413(c) of the Code. Neither
National City nor any of its subsidiaries has incurred any liability to the PBGC
with respect to any "single-employer plan" within the meaning of Section
4001(a)(15) of ERISA currently or formerly maintained by any entity considered
one employer with it under Section 4001 of ERISA or Section 414 of the Code,
except for premiums all of which have been paid when due. Neither National City
nor any of its subsidiaries has incurred any withdrawal liability with respect
to a multiemployer plan under Subtitle E of Title IV of ERISA. Except as set
forth in the National City Disclosure Letter, there is no basis for any person
to assert that National City or any of its subsidiaries has an obligation to
institute any Employee Plan or any such other arrangement, agreement or plan.
With respect to any insurance policy that heretofore has or currently does
provide funding for benefits under any National City Employee Plan, (A) there is
no liability on the part of National City or any of its subsidiaries in the
nature of a retroactive or retrospective rate adjustment, loss sharing
arrangement, or other actual or contingent liability, nor would there be any
such liability if such insurance policy was terminated, and (B) no insurance
company issuing such policy is in receivership, conservatorship, liquidation or
similar proceeding and, to the knowledge of National City, no such proceeding
with respect to any such insurer is imminent. Except as set forth in the
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National City Disclosure Letter, neither the execution of this Agreement, nor
the consummation of the transactions contemplated thereby will (A) constitute a
stated triggering event under any National City Employee Plan that will result
in any payment (whether of severance pay or otherwise) becoming due from
National City or any of its subsidiaries to any present or former officer,
employee, director, shareholder, consultant or dependent of any of the foregoing
or (B) accelerate the time of payment or vesting, or increase the amount of
compensation due to any present or former officer, employee, director,
shareholder, consultant, or dependent of any of the foregoing. Neither National
City nor any of its subsidiaries has any obligations for retiree health and life
benefits under any National City Employee Plan, except as set forth in the
National City Disclosure Letter. There are no restrictions on the rights of
National City or its subsidiaries to amend or terminate any such National City
Employee Plan without incurring any liability thereunder.
3.10 Material Contracts. Except as set forth in the National City
Disclosure Letter or disclosed in the National City Reports, neither National
City nor any of its subsidiaries is a party to, or is bound or affected by, or
receives benefits under (a) any employment, severance,termination, consulting or
retirement agreement (collectively, "Benefit Agreements") providing for
aggregate payments to any person in any calendar year in excess of $100,000, (b)
any material agreement, indenture or other instrument relating to the borrowing
of money by National City or any of its subsidiaries or the guarantee by
National City or any of its subsidiaries of any such obligation (other than
trade payables and instruments relating to borrowings or guaranties made in the
ordinary course of business) or (c) any other contract or agreement or amendment
thereto that would be required to be filed as an exhibit to a Form 10-K filed by
National City with the Commission as of the date of this Agreement
(collectively, the "National City Contracts"). Neither National City nor any of
National City's subsidiaries is in default under any of the National City
Contracts, which default is reasonably likely to have, either individually or in
the aggregate, a Material Adverse Effect and there has not occurred any event
that with the lapse of time or the giving of notice or both would constitute
such a default. Neither National City nor any of National City's subsidiaries is
a party to, or is bound by, any collective bargaining agreement, contract, or
other agreement or understanding with a labor union or labor organization, nor
is National City or any of National City's subsidiaries the subject of a
proceeding asserting that it or any such subsidiary has committed an unfair
labor practice or seeking to compel it or such subsidiary to bargain with any
labor organization as to wages and conditions of employment, nor is there any
strike or other labor dispute involving it or any of its subsidiaries pending or
threatened.
3.11 Absence of Certain Changes or Events. Except as set forth in the
National City Disclosure Letter or disclosed in the National City Reports filed
by National City with the Commission prior to the date of this Agreement, since
December 31, 1996, there has not been any change in the financial condition,
results of operations or business of National City and its subsidiaries which
would or in the future will have a Material Adverse Effect.
3.12 Litigation. Except as disclosed in the National City Reports filed by
National City with the Commission prior to the date of this Agreement, there is
no suit, action or proceeding pending, or, to the knowledge of National City,
threatened against or affecting National City or any of National City's
subsidiaries which, if decided adversely to National City, would be reasonably
expected to result in a Material Adverse Effect, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator,
outstanding against National City or any of National City's subsidiaries having,
or which, insofar as reasonably can be foreseen, in the future would have, a
Material Adverse Effect.
3.13 Compliance with Laws and Orders. Except as set forth in the National
City Disclosure Letter or disclosed in the National City Reports filed by
National City with the Commission prior to the date of this Agreement, the
businesses of National City and of National City's subsidiaries are not being
conducted in violation of any law, ordinance, regulation, judgment, order,
decree, license or permit of any Governmental Entity (including, without
limitation, in the case of National City's subsidiaries that are banks, all
statutes, rules and regulations pertaining to the conduct of the banking
business and the exercise of trust powers), except for violations which
individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future will not, have a Material Adverse Effect. Except as set
forth in the National City Disclosure Letter, no investigation or review by any
Governmental Entity with respect to National City or any of National City's
subsidiaries is pending or, to the knowledge of National City, threatened, nor
has any Governmental Entity
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indicated an intention to conduct the same in each case other than those the
outcome of which will not have a Material Adverse Effect.
3.14 Agreements with Bank Regulators, Etc. Neither National City nor any
National City subsidiary is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter, board resolution or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, any Governmental Entity
which restricts materially the conduct of its business, or in any manner relates
to its capital adequacy, its credit or reserve policies or its management, nor
has National City been advised by any Governmental Entity that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or similar
submission. Neither National City nor any of National City's subsidiaries is
required by Section 32 of the Federal Deposit Insurance Act ("FDIA") to give
prior notice to a Federal banking agency of the proposed addition of an
individual to its board of directors or the employment of an individual as a
senior executive officer. National City knows of no reason why the regulatory
approvals referred to in Subsection 3.6(c) should not be obtained.
3.15 National City Ownership of Stock. As of the date of this Agreement,
neither National City nor any of its affiliates or associates (i) beneficially
owns, directly or indirectly, or (ii) are parties to any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or disposing of,
Company Common Stock (other than DPC Shares or Trust Account Shares), which in
the aggregate, represent 5% or more of the outstanding shares of Company Common
Stock.
3.16 Accounting Treatment; Tax Treatment. Neither National City nor, to its
best knowledge, any of its affiliates, has, through the date of this Agreement,
taken or agreed to take any action or knows of any reason that with respect to
National City and its affiliates would prevent National City from accounting for
the business combination to be effected by the Merger as a
"pooling-of-interests." As of the date hereof, National City is aware of no
reason why the Merger will fail to qualify as a reorganization under Section
368(a) of the Code.
3.17 Fees. Except for the fees paid and payable to UBS Securities LLC and
NationsBank/Montgomery Securities, neither National City nor any of National
City's subsidiaries has paid or will become obligated to pay any fee or
commission to any broker, finder or intermediary in connection with the
transactions contemplated by this Agreement.
3.18 National City Action. The Board of Directors of National City (at a
meeting duly called, constituted and held) has by the requisite vote of all
directors present (a) determined that the Merger is advisable and in the best
interests of National City and its stockholders and (b) approved this Agreement
and the transactions contemplated by this Agreement and (c) has directed that
the Merger be submitted for consideration by National City's stockholders at the
National City Meeting, as herein defined. The Board of Directors of National
City has approved the transactions contemplated by this Agreement, the National
City Option Agreement and the Company Option Agreement such that the provisions
of Section 203 of the DGCL and any other applicable state business combination
or anti-takeover provisions of National City Certificate of Incorporation or
By-laws shall not be triggered by the Merger, execution of this Agreement, the
National City Option Agreement or the Company Option Agreement or any
transactions contemplated by such Agreements.
3.19 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of National City Common Stock entitled to vote thereon is
the only vote of the holders of any class or series of National City capital
stock necessary to approve this Agreement and the transactions contemplated
herein.
3.20 Material Interests of Certain Persons. Except as disclosed in National
City's Proxy Statement for its 1997 Annual Meeting of Stockholders, no officer
or director of National City, or any "associate" (as such term is defined in
Rule 14a-1 under the 1934 Act) of any such officer or director, has any material
interest in any material contract or property (real or personal), tangible or
intangible, used in or pertaining to the business of National City or any of its
subsidiaries.
3.21 Environmental Matters. For purposes of this Agreement, the following
terms shall have the indicated meanings:
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"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, determination, judgment, decree, injunction or
agreement with any governmental entity relating to (1) the health,
protection, preservation, containment or restoration of the environment
including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil,
wetlands, plant and animal life or any other natural resource,
conservation, and/or (2) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production,
release or disposal of Hazardous Substances. The term Environmental Law
includes without limitation (1) the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. Section 9601, et
seq.; the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
9601(2)(D); the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Section 6901, et seq.; the Clean Air Act, as amended, 42 U.S.C.
Section 7401, et seq.; the Federal Water Pollution Control Act, as amended
by the Clean Water Act, 33 U.S.C. Section 1251, et seq.; the Toxic
Substances Control Act, as amended, 15 U.S.C. Section 9601, et seq.; the
Emergency Planning and Community Right to Know Act, 42 U.S.C. Section
11001, et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f, et
seq.; and all comparable state and local laws, ordinances, rules,
regulations respecting the interpretation or enforcement of same and (2)
any common law (including without limitation common law that may impose
strict liability) that may impose liability for injuries or damages due to
the release of any Hazardous Substance.
"Hazardous Substance" means (i) any hazardous wastes, toxic chemicals,
materials, substances or wastes as defined by or for the purposes of any
Environmental Law; (ii) any "oil", as defined by the Clean Water Act, as
amended from time to time, and regulations promulgated thereunder
(including crude oil or any fraction thereof and any petroleum products or
derivatives thereof); (iii) any substance, the presence of which is
prohibited, regulated or controlled by any applicable federal, state or
local laws, regulations, statutes or ordinances now in force or hereafter
enacted relating to waste disposal or environmental protection with respect
to the exposure to, or manufacture, possession, presence, use, generation,
storage, transportation, treatment, release, emission, discharge, disposal,
abatement, cleanup, removal, remediation or handling of any such substance;
(iv) any asbestos or asbestos-containing materials, polychlorinated
biphenyls ("PCBs") in the form of electrical equipment, fluorescent light
fixtures with ballasts, cooling oils or any other form, urea formaldehyde,
atmospheric radon; (v) any solid, liquid, gaseous or thermal irritant or
contaminant, such as smoke, vapor, soot, fumes, alkalis, acids, chemicals,
pesticides, herbicides, sewage, industrial sludge or other similar wastes;
(vi) industrial, nuclear or medical by-products; (vii) any lead based paint
or coating and (viii) any underground storage tank(s).
"Loan Portfolio Properties, Trust Properties and Other Properties"
means any real property, interest in real property, improvements,
appurtenances, rights and personal property attendant thereto, which is
owned, leased as a landlord or a tenant, licensed as a licensor or
licensee, managed or operated or upon which is held a mortgage, deed of
trust, deed to secure debt or other security interest by National City or
Company, as the case may be, or any of their subsidiaries whether directly,
as an agent, as trustee or other fiduciary or otherwise.
Except as set forth in the National City Disclosure Letter, (i) to the best
of National City's knowledge, neither National City nor any of its subsidiaries
is in violation of or has any liability, absolute or contingent, in connection
with or under any Environmental Law, except any such violations or liabilities
which would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect; (ii) to the best of National City's knowledge,
none of the Loan Portfolio Properties, Trust Properties and Other Properties of
National City or its subsidiaries is in violation of or has any liability,
absolute or contingent, under any Environmental Law, except any such violations
or liabilities which, individually or in the aggregate would not have a Material
Adverse Effect; and (iii) to the best of National City's knowledge, there are no
actions, suits, demands, notices, claims, investigations or proceedings pending
or threatened relating to any Loan Portfolio Properties, Trust Properties and
Other Properties including, without limitation any notices, demand letters or
requests for information from any federal or state environmental agency relating
to any such liability under or violation of Environmental Law, which would
impose a liability upon National City or its subsidiaries pursuant to any
Environmental Law, except such as would not, individually or in the aggregate
have a Material Adverse Effect.
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IV. REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to National City that:
4.1 Corporate Organization. Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Michigan
and is duly qualified to do business as a foreign corporation in each
jurisdiction in which its ownership or lease of property or the nature of the
business conducted by it makes such qualification necessary, except for such
jurisdictions in which the failure to be so qualified would not have a Material
Adverse Effect. Company is registered as a bank holding company under the BHCA
and a savings association holding company under the Federal Homeowners Loan Act
of 1933, as Amended ("HOLA"). Company has the requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as it is now being conducted. Company has heretofore delivered to
National City true and complete copies of its Articles of Incorporation and
Bylaws.
4.2 Authority. Company has the requisite corporate power and authority to
execute and deliver this Agreement and, except for any required approval of
Company's shareholders, to consummate the transactions contemplated by such. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been duly approved by the Board of
Directors of Company and no other corporate proceedings on the part of Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated, subject only to approval by the shareholders of Company as
provided in Section 5.15 (a) of this Agreement. This Agreement has been duly
executed and delivered by, and constitute valid and binding obligations of
Company, enforceable against Company in accordance with its terms, except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and other similar laws affecting
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceedings may be brought.
4.3 Capitalization. As of the date hereof, the authorized capital stock of
Company consists of 200,000,000 shares of Company Common Stock and 10,000,000
shares of Company preferred stock. As of the close of business on November 28,
1997, 87,153,571 shares of Company Common Stock were validly issued and
outstanding, fully paid and nonassessable and no shares of preferred stock were
issued or outstanding. As of the date of this Agreement except as set forth in
this Section 4.3, pursuant to Company's Option Plans, pursuant to the Company
Option Agreement or set forth in a disclosure letter executed by Company and
dated and delivered by Company to National City as of the date hereof ("Company
Disclosure Letter"), there are no shares of capital stock of Company authorized,
issued or outstanding and there are no outstanding subscriptions, options,
warrants, rights, convertible securities or any other agreements or commitments
of any character relating to the issued or unissued capital stock or other
securities of Company obligating Company to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock of Company or
obligating Company to grant, extend or enter into any subscription, option,
warrant, right, convertible security or other similar agreement or commitment.
Except as set forth in the Company Disclosure Letter, there are no voting trusts
or other agreements or understandings to which Company or any of Company's
subsidiaries is a party with respect to the voting of the capital stock of
Company. As of the date of this Agreement, there were outstanding under the
Company Option
Plans options to purchase 2,968,618 shares of Company Common Stock, which
Company stock options had a weighted average exercise price of $33.78 and for
which adequate shares of Company Common Stock have been reserved for issuance
under the Company Option Plans.
4.4 Subsidiaries. The Company Disclosure Letter sets forth the name and
state of incorporation of each subsidiary of Company (collectively, "Company
Subsidiaries"). Each of Company Subsidiaries is a bank, a corporation or other
business entity duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation or organization and is duly
qualified to do business as a foreign corporation or foreign business entity in
each jurisdiction in which its ownership or lease of property or the nature of
the business conducted by it makes such qualification necessary, except for such
jurisdictions in which the failure to be so qualified would not have a Material
Adverse Effect. Each of Company Subsidiaries has the requisite corporate power
and authority to own, lease and operate its properties and assets and to carry
on its businesses as they are now being conducted. Except as set forth in the
Company Disclosure Letter, all outstanding
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shares of capital stock of each Company Subsidiary is owned by Company or
another Company Subsidiary and are validly issued, fully paid and (except
pursuant to 12 USC Section 55 in the case of each national bank subsidiary and
applicable state law in the case of each state bank subsidiary) nonassessable,
are not subject to preemptive rights and are owned free and clear of all liens,
claims and encumbrances. There are no outstanding subscriptions, options,
warrants, rights, convertible securities or any other agreements or commitments
of any character relating to the issued or unissued capital stock or other
securities of any Company Subsidiary obligating any Company Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold additional shares of
its capital stock or obligating any Company Subsidiary to grant, extend or enter
into any subscription, option, warrant, right, convertible security or other
similar agreement or commitment.
4.5 Information in Disclosure Documents, Registration Statement, Etc. None
of the information with respect to Company or any Company Subsidiary provided by
Company for inclusion in the Proxy Statement or the Registration Statement will,
in the case of the Proxy Statement or any amendments or supplements thereto, at
the time of the mailing of the Proxy Statement and any amendments or supplements
thereto, and at the time of the Company Meeting (as hereinafter defined) and the
National City Meeting, or, in the case of the Registration Statement, at the
time it becomes effective, contain any untrue statement of material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated thereunder.
4.6 Consent and Approvals; No Violation. Except as set forth in the Company
Disclosure Letter neither the execution and delivery of this Agreement by
Company nor the consummation by Company of the transactions contemplated hereby
will (a) conflict with or result in any breach of any provision of its articles
of incorporation or Bylaws of Company, (b) violate, conflict with, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in the creation of any lien or other
encumbrance upon any of the properties or assets of Company or any of Company
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Company or any Company Subsidiary is a party
or to which they or any of their respective properties or assets are subject,
except for such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens or other encumbrances, which will not have a
Material Adverse Effect or (c) require any consent, approval, authorization or
permit of or from, or filing with or notification to, any Governmental Entity,
except (i) pursuant to the Exchange Act and the Securities Act, (ii) filing the
Delaware Certificate of Merger, (iii) filing the Michigan Certificate of Merger,
(iv) filings required under the securities or blue sky laws of the various
states, (v) filing under the HSR Act, (vi) filings with, and approval by, the
FRB, (vii) filings with, and approval by, the OTS, (viii) filings with, and
approvals by, the State Entities, (ix) filings and approvals pursuant to any
applicable state takeover law, (x) filings and approvals under the SBIA or (xi)
consents, approvals, authorizations, permits, filings or notifications which, if
not obtained or made will not, individually or in the aggregate, have a Material
Adverse Effect.
4.7 Reports and Financial Statements. Since January 1, 1992, Company and
each Company Subsidiary have filed all reports, registrations and statements,
together with any required amendments thereto, that they were required to file
with the Commission under Sections 12(b), 12(g), 13(a) or 14(a) of the
Securities Exchange Act of 1934, including, but not limited to Forms 10-K, Forms
10-Q and proxy statements (the "Company Reports"). Company has previously
furnished or will promptly furnish National City with true and complete copies
of each of Company's annual reports on Form 10-K for the years 1992 through 1996
and its quarterly reports on Form 10-Q for March 31, 1997, June 30, 1997 and
September 30, 1997. As of their respective dates, Company Reports complied with
the requirements of the Commission 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 circumstance under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of Company included in the
Company Reports have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the financial position of
Company and Company Subsidiaries taken as a whole as at the dates thereof and
the consolidated results of their operations
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and cash flows for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end and audit adjustments and any
other adjustments described therein. There exist no material liabilities of
Company and its consolidated subsidiaries, contingent or otherwise of a type
required to be disclosed in accordance with generally accepted accounting
practices, except as disclosed in the Company Reports. Company's reserve for
possible loan losses as shown in its Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997 was adequate, within the meaning of
generally accepted accounting principles and safe and sound banking practices.
4.8 Taxes. Company will promptly make available to National City, upon
request by National City, true and correct copies of the federal, state and
local income tax returns, and state and local property and sales tax returns
filed by Company and Company Subsidiaries for each of the fiscal years that
remains open, as of the date hereof, for examination or assessment of tax.
Company and each Company Subsidiary have prepared in good faith and duly and
timely filed, or caused to be duly and timely filed, all federal, state, local
and foreign income, franchise, sales and other tax returns or reports required
to be filed by them on or before the date hereof, except to the extent that all
failures to file, taken together, would not have a Material Adverse Effect.
Company and each Company Subsidiary have paid, or have made adequate provision
or set up an adequate accrual or reserve for the payment of, all taxes shown or
required to be shown to be owing on all such returns or reports, together with
any interest, additions or penalties related to any such taxes or to any open
taxable year or period. Except as set forth in the Company Disclosure Letter,
neither Company nor any Company Subsidiary has consented to extend the statute
of limitations with respect to the assessment of any tax. Except as set forth in
the Company Disclosure Letter, neither Company nor any of Company Subsidiaries
is a party to any action or proceeding, nor to the best of Company's knowledge
is any such action or proceeding threatened, by any Governmental Entity in
connection with the determination, assessment or collection of any taxes, and no
deficiency notices or reports have been received by Company or any of Company
Subsidiaries in respect of any material deficiencies for any tax, assessment, or
government charge.
4.9 Employee Plans. Except as set forth in the Company Disclosure Letter,
all employee benefit, welfare, bonus, deferred compensation, pension, profit
sharing, stock option, employee stock ownership, consulting, severance, or
fringe benefit plans, formal or informal, written or oral and all trust
agreements related thereto, relating to any present or former directors,
officers or employees of Company or Company Subsidiaries ("Company Employee
Plans") have been maintained, operated, and administered in substantial
compliance with their terms and currently comply, and have at all relevant times
complied, in all material respects with the applicable requirements of ERISA,
the Code, and any other applicable laws. Except as set forth in the Company
Disclosure Letter, with respect to each Company Employee Plan which is a pension
plan (as defined in Section 3(2) of ERISA): (a) except for recent amendment(s)
to the plans not materially affecting the qualified status of the plans (which
are disclosed in the Company Disclosure Letter, and copies of which were
previously made available to National City), each pension plan as amended (and
any trust relating thereto) intended to be a qualified plan under Section 401(a)
of the Code either has been determined by the IRS to be so qualified or is the
subject of a pending application for such determination that was timely filed,
(b) there is no accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, and no waiver of the
minimum funding standards of such sections has been requested from the IRS, (c)
neither Company nor any of the Company Subsidiaries has provided, or is required
to provide, security to any pension plan pursuant to Section 401(a)(29) of the
Code, (d) the fair market value of the assets of each defined benefit plan (as
defined in Section 3(35) of ERISA) exceeds the value of the "benefit
liabilities" within the meaning of Section 4001(a)(16) of ERISA under such
defined benefit plan as of the end of the most recent plan year thereof ending
prior to the date hereof, calculated on the basis of the actuarial assumptions
used in the most recent actuarial valuation for such defined benefit plan as of
the date hereof, (e) no reportable event described in Section 4043 of ERISA for
which the 30 day reporting requirement has not been waived has occurred, (f) no
defined benefit plan has been terminated, nor has the PBGC instituted
proceedings to terminate a defined benefit plan or to appoint a trustee or
administrator of a defined benefit plan, and no circumstances exist that
constitute grounds under Section 4042(a)(2) of ERISA entitling the PBGC to
institute any such proceedings and (g) no pension plan is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA or a "multiple employer plan"
within the meaning of 413(c) of the Code. Neither Company nor any Company
Subsidiary has incurred any liability to the PBGC with respect to any
"single-employer plan" within the meaning of action 4001(a)(15) of
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ERISA currently or formerly maintained by any entity considered one employer
with it under Section 4001 of ERISA or Section 414 of the Code, except for
premiums all of which have been paid when due. Neither Company nor any of its
subsidiaries has incurred any withdrawal liability with respect to a
multiemployer plan under Subtitle E of Title IV of ERISA. Except as set forth in
the Company Disclosure Letter, there is no basis for any person to assert that
Company or any of its subsidiaries has an obligation to institute any Employee
Plan or any such other arrangement, agreement or plan. With respect to any
insurance policy that heretofore has or currently does provide funding for
benefits under any Company Employee Plan, (A) there is no liability on the part
of Company or any of its subsidiaries in the nature of a retroactive or
retrospective rate adjustment, loss sharing arrangement, or other actual or
contingent liability, not would there be any such liability if such insurance
policy was terminated, and (B) no insurance company issuing such policy is in
receivership, conservatorship, liquidation or similar proceeding and, to the
knowledge of Company, no such proceeding with respect to any such insurer is
imminent. Except as set forth in the Company Disclosure Letter, neither the
execution of this Agreement, nor the consummation of the transactions
contemplated thereby will (A) constitute a stated triggering event under any
Company Employee Plan that will result in any payment (whether of severance pay
or otherwise) becoming due from Company or any of its subsidiaries to any
present or former officer, employee, director, shareholder, consultant or
dependent of any of the foregoing or (B) accelerate the time of payment or
vesting, or increase the amount of compensation due to any present or former
officer, employee, director, shareholder, consultant, or dependent of any of the
foregoing. Neither Company nor any Company Subsidiary has any obligations for
retiree health and life benefits under any Company Employee Plan, except as set
forth in the Company Disclosure Letter. Except as set forth in the Company
Disclosure Letter, there are no restrictions on the rights of Company or Company
Subsidiaries to amend or terminate any such Company Employee Plan without
incurring any liability thereunder.
4.10 Material Contracts. Except as set forth in the Company Disclosure
Letter or disclosed in the Company Reports, neither Company nor any Company
Subsidiary is a party to, or is bound or affected by, or receives benefits under
(a) any Benefit Agreements providing for aggregate payments to any person in any
calendar year in excess of $100,000, (b) any material agreement, indenture or
other instrument relating to the borrowing of money by Company or any Company
Subsidiary or the guarantee by Company or any Company Subsidiary of any such
obligation (other than trade payables and instruments relating to transactions
entered into in the ordinary course of business) or (c) any other contract or
agreement or amendment thereto that would be required to be filed as an exhibit
to a Form 10-K filed by Company with the Commission as of the date of this
Agreement (collectively, the "Company Contracts"). Neither Company nor any
Company Subsidiary is in default under any Company Contract, which default is
reasonably likely to have, either individually or in the aggregate, a Material
Adverse Effect, and there has not occurred any event that with the lapse of time
or the giving of notice or both would constitute such a default. Except as set
forth in the Company Disclosure Letter, neither Company nor any of Company
Subsidiary is a party to, or is bound by, any collective bargaining agreement,
contract, or other agreement or understanding with a labor union or labor
organization, nor is Company or any Company Subsidiary the subject of a
proceeding asserting that is or any Company Subsidiary has committed an unfair
labor practice or seeking to compel it or such subsidiary to bargain with any
labor organization as to wages and conditions of employment, nor is there any
strike or other labor dispute involving it or any Company Subsidiary pending or
threatened.
4.11 Absence of Certain Changes or Events. Except as set forth in the
Company Disclosure Letter or disclosed in Company Reports filed by Company with
the Commission prior to the date of this Agreement, since December 31, 1996,
there has not been any change in the financial condition, results of operations
or business of Company and Company Subsidiaries which would or in the future
will have a Material Adverse Effect.
4.12 Litigation. Except as disclosed in Company Reports filed by Company
with the Commission prior to the date of this Agreement, there is no suit,
action or proceeding pending, or, to the knowledge of Company, threatened
against or affecting Company or any Company Subsidiary which, if determined
adversely to Company, would be reasonably expected to have a Material Adverse
Effect, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator, outstanding against Company or any Company
Subsidiary having, or which, insofar as reasonably can be foreseen, in the
future would have, a Material Adverse Effect.
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4.13 Compliance with Laws and Orders. Except as set forth in the Company
Disclosure Letter or as disclosed in Company Reports filed by Company with the
Commission prior to the date of this Agreement, the businesses of Company and
Company Subsidiaries are not being conducted in violation of any law, ordinance,
regulation, judgment, order, decree, license or permit of any Governmental
Entity (including, without limitation, in the case of Company Subsidiaries that
are banks, all statutes, rules and regulations pertaining to the conduct of the
banking business and the exercise of trust powers), except for violations which
individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future will not, have a Material Adverse Effect. Except as set
forth in the Company Disclosure Letter, no investigation or review by any
Governmental Entity with respect to Company or any Company Subsidiary is pending
or, to the knowledge of Company threatened, nor has any Governmental Entity
indicated an intention to conduct the same in each case other than those the
outcome of which will not have a Material Adverse Effect.
4.14 Agreements with Bank Regulators, Etc. Neither Company nor any Company
Subsidiary is a party to any written agreement or memorandum of understanding
with, or a party to any commitment letter, board resolution or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, any Governmental Entity which
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its credit or reserve policies or its management, except
for those the existence of which has been disclosed in the Company Disclosure
Letter, nor has Company been advised by any Governmental Entity that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or similar
submission, except as set forth in the Company Disclosure Letter. Neither
Company nor any Company Subsidiary is required by Section 32 of the Federal
Deposit Insurance Act to give prior notice to a Federal banking agency of the
proposed addition of an individual to its board of directors or the employment
of an individual as a senior or executive officer. Company knows of no reason
why the regulatory approvals referred to in Subsections 4.6(c) should not be
obtained.
4.15 Accounting Treatment; Tax Treatment. Neither Company nor, to its best
knowledge, any of its affiliates, has, through the date of this Agreement, taken
or agreed to take any action or knows of any reason that with respect to Company
and its affiliates would prevent National City from accounting for the business
combination to be effected by the Merger as a "pooling-of-interests." As of the
date hereof, Company is aware of no reason why the Merger will fail to qualify
as a reorganization under Section 368(a) of the Code.
4.16 Fees. Except for fees paid and payable to Merrill Lynch & Co., neither
Company nor any Company Subsidiary has paid or will become obligated to pay any
fee or commission to any broker, finder or intermediary in connection with the
transactions contemplated by this Agreement.
4.17 Company Action. The Board of Directors of Company (at a meeting duly
called, constituted and held) has by the requisite vote of all directors present
(a) determined that the Merger is advisable and in the best interests of Company
and its shareholders, (b) approved this Agreement and the transactions
contemplated hereby, including the Merger, and (c) has directed that the Merger
be submitted for consideration by the Company's shareholders at the Company
Meeting. The Company has taken all steps necessary to exempt (i) the execution
of this Agreement, the National City Stock Option and the Company Stock Option,
(ii) the Merger and (iii) the transactions contemplated hereby and thereby from,
(x) any statute of the State of Michigan that purports to limit or restrict
business combinations or the ability to acquire or to vote shares, (y) the
Company Rights Agreement dated as of July 18, 1990 by and between First of
America Bank Corporation and First of America Bank -- Michigan, NA as rights
agent and (z) any applicable provision of the Company's restated articles of
incorporation containing change of control or anti-takeover provisions. The
Company has (A) duly entered into an appropriate amendment to the Company Rights
Agreement and (B) taken all other action necessary or appropriate so that the
execution of this Agreement, and the consummation of the transactions
contemplated hereby (including, without limitation, the Merger) do not and will
not result in the ability of any person to exercise any rights under the Company
Rights Agreement or enable or require the rights to separate from the shares of
the Company Common Stock to which they are attached or to be triggered or become
exercisable.
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4.18 Vote Required. The affirmative votes of a majority of the outstanding
shares of Company Common Stock entitled to vote thereon are the only votes of
the holders of any class or series of Company capital stock necessary to approve
this Agreement and the transactions contemplated by the Agreement.
4.19 Material Interests of Certain Persons. Except as disclosed in
Company's Proxy Statement for its 1997 Annual Meeting of Shareholders or as set
forth in the Company Disclosure Letter, no officer or director of Company, or
any "associate" (as such term is defined in Rule 14a-1 under the 1934 Act) of
any such officer or director, has any material interest in any material
contracts or property (real or personal), tangible or intangible, used in or
pertaining to the business of Company or any Company Subsidiaries.
4.20 Environmental Matters. (i) To the best of Company's knowledge, neither
Company nor any of its subsidiaries is in violation of or has any liability,
absolute or contingent, in connection with or under any Environmental Law,
except any such violations or liabilities which would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect;
(ii) to the best of Company's knowledge, none of the Loan Portfolio Properties,
Trust Properties and Other Properties of Company or its subsidiaries is in
violation of or has any liability, absolute or contingent, under any
Environmental Law, except any such violations or liabilities which, individually
or in the aggregate would not have a Material Adverse Effect; and (iii) to the
best of Company's knowledge, there are no actions, suits, demands, notices,
claims, investigations or proceedings pending or threatened relating to any Loan
Portfolio Properties, Trust Properties and Other Properties including, without
limitation any notices, demand letters or requests for information from any
federal or state environmental agency relating to any such liability under or
violation of Environmental Law, which would impose a liability upon Company or
its subsidiaries pursuant to any Environmental Law, except such as would not,
individually or in the aggregate have a Material Adverse Effect.
V. COVENANTS
5.1 Acquisition Proposals. Each of Company and Company Subsidiaries shall
not, directly or indirectly, and shall instruct and otherwise use its best
efforts to cause their respective officers, directors, employees, agents or
advisors or other representatives or consultants not to, directly or indirectly,
(i) solicit or initiate any proposals or offers from any person relating to any
acquisition or purchase of all or a material amount of the assets of, or any
securities of, or any merger, consolidation or business combination with,
Company or any of Company Subsidiaries (such transactions are referred to herein
as "Acquisition Transactions") or (ii) except to the extent that the Board is
required, in a written opinion of counsel to the Board, in the exercise of its
fiduciary duties in accordance with applicable law, to participate in any
discussions or negotiation regarding, or furnish to any other person any
information with respect to, an Acquisition Transaction; provided, however, that
nothing contained in this Section 5.1 shall restrict or prohibit any disclosure
by Company that is required in any document to be filed with the Commission
after the date of this Agreement or any disclosure that, in the written opinion
of counsel to the Board of Directors of the Company, is otherwise required under
applicable law. Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Company will notify National
City immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with Company.
5.2 Interim Operations of Company. During the period from the date of this
Agreement to the Effective Time, except as specifically contemplated by this
Agreement, set forth in the Company Disclosure Letter or as otherwise approved
expressly in writing by National City (which approval will not be unreasonably
withheld or delayed):
(a) Conduct of Business. Company shall, and shall cause each of
Company Subsidiaries to, conduct their
respective businesses only in, and not take any action except in, the
ordinary course of business consistent with past practice. Company shall
use reasonable efforts to preserve intact the business organization of
Company and each of Company Subsidiaries, to keep available the services of
its and their present key officers and employees and to preserve the
goodwill of those having business relationships with Company or Company
Subsidiaries. Other than in the ordinary course of business consistent with
past practice, Company shall not (i) incur any indebtedness for borrowed
money (it being understood and agreed that incurrence of
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indebtedness in the ordinary course of business shall include, without
limitation, the creation of deposit liabilities, purchases of federal
funds, borrowings pursuant to existing lines of credit, sales of
certificates of deposit and entering into repurchase agreements), (ii)
assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or
other entity, or (iii) make any loan or advance other than in the ordinary
course of business consistent with past practice;
(b) Articles and Bylaws. Company shall not and shall not permit any
Company Subsidiary to make any change or amendment to their respective
articles of incorporation or Bylaws (or comparable governing instruments)
in a manner that would materially and adversely effect either party's
ability to consummate the Merger or the economic benefits of the Merger to
either party.
(c) Capital Stock. Company shall not, and shall not permit any Company
Subsidiary to, issue or sell any shares of capital stock or any other
securities of any of them (other than pursuant to outstanding exercisable
stock options granted pursuant to one of the Company Option Plans, pursuant
to the Director Option Plan or the Company's Shareholders Investment Plan)
or issue any securities convertible into or exchangeable for, or options,
warrants to purchase, scrip, rights to subscribe for, calls or commitments
of any character whatsoever relating to, or enter into any contract,
understanding or arrangement with respect to the issuance of, any shares of
capital stock or any other securities of any of them (other than pursuant
to the Company Option Plans or the Company's dividend reinvestment plan) or
enter into any arrangement or contract with respect to the purchase or
voting of shares of their capital stock, or adjust, split, combine or
reclassify any of their capital stock or other securities or make any other
changes in their capital structures. Neither Company nor any Company
Subsidiaries shall grant any additional stock options, except for stock
option grants made in accordance with existing elections by participants in
the Director Option Plan under any Company Option Plans.
(d) Dividends. Company shall not and shall not permit any Company
Subsidiary to, declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or property) with respect
to, or purchase or redeem, any shares of the capital stock of any of them
other than (a) regular quarterly cash dividends in an amount not to exceed
$.35 per share of Company Common Stock payable on the regular historical
payment dates and (b) dividends paid by any Company Subsidiary to Company
or another Company Subsidiary with respect to its capital stock between the
date hereof and the Effective Time. It is agreed by the parties hereto that
they will cooperate to assure that, during any quarter, there shall not be
a duplication of nor omission of payment of dividends to shareholders of
Company.
(e) Employee Plans, Compensation, Etc. Except as otherwise provided in
this Agreement, Company shall not, and shall not permit any Company
Subsidiary to, adopt or amend (except as required by law or other
contractual obligations existing on the date hereof) any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other employee benefit
agreements, trusts, plans, funds or other arrangements for the benefit or
welfare of any director, officer or employee, or (except for normal merit
increases in the ordinary course of business consistent with past practice)
increase the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any existing plan, agreement or
arrangement (including, without limitation, the granting of stock options
or stock appreciation rights) or take any action or grant any benefit not
required under the terms of any existing agreements, trusts, plans, funds
or other such arrangements or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing. Notwithstanding the
foregoing, the Company may amend the Company's Employees' Health Care Plan
to adopt the amendments to the plan previously approved by Company's
management and communicated to Company's employees.
(f) Certain Policies. Company will modify and change its loan,
litigation, real estate valuation asset, liquidity and investment portfolio
policies and practices (including loan classifications and level of
reserves) prior to the Effective Time so as to be consistent on a mutually
satisfactory basis with those of National City and generally accepted
accounting principles, at the earlier of (i) such time as National City
acknowledges that all conditions to its obligations to consummate the
Merger set forth in Sections 7.1 and 7.3 have been waived or satisfied or
(ii) immediately prior to the Effective Time. Company's representations,
warranties or covenants contained in this Agreement shall not be deemed to
be untrue or breached in any respect for any purpose as a consequence of
any such modifications or changes.
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5.3 Interim Operations of National City. During the period from the date of
this Agreement to the Effective Time, without the prior written consent of
Company, National City will not declare or pay any extraordinary or special
dividend on the National City Common Stock or take any action that would (a)
materially delay or adversely affect the ability of National City to obtain any
approvals of Governmental Authorities required to permit consummation of the
Merger or (b) materially adversely affect its ability to perform its obligations
under this Agreement or to consummate the transaction contemplated hereby.
5.4 Employee Matters
(a) Benefit Agreements. Surviving Corporation and National City shall
honor, maintain and perform on and after the Effective Time, without
deduction, counterclaims, interruptions or deferment (other than
withholding under applicable law), all vested benefits of any person under
all plans or agreements.
(b) Retirement and Benefit Plans. For purposes of all employee benefit
plans, programs or arrangements maintained or contributed to by National
City or Surviving Corporation National City shall credit or shall cause
Surviving Corporation to credit employees of Company and Company
Subsidiaries who become employees of National City or Surviving Corporation
as a result of the Merger with all service with Company or any Company
Subsidiaries for purposes of eligibility and vesting as if such service,
and compensation from, had been performed for National City but not for
purposes of benefit accrual, provided, however, that this provision shall
not change the treatment under the National City Non-Contributory
Retirement Plan and Trust of service with National City or any of National
City's subsidiaries prior to the Closing Date. From and after the Effective
Time, National City shall, or shall cause Surviving Corporation to, cause
any and all pre-existing condition limitations under any health plans to be
waived with respect to Company Employees and their eligible dependents to
the extent that such conditions were covered by Company's health plans. To
the extent that any Company Employees and their eligible dependents have,
before the Effective Time, satisfied in whole or in part any annual
deductible or paid any out of pocket or co-payment expenses under the
applicable plan of the Company, such individual shall be credited therefor
under the corresponding plan of National City or Surviving Corporation in
which such individual participates after the Effective Time.
(c) Transition. Upon and after the Merger, Company Employees shall
have benefits that in the aggregate are no less favorable than the benefits
enjoyed generally by National City employees working in similar business
lines.
(d) General. Notwithstanding anything to the contrary contained in
this Agreement, Company and National City shall take all actions necessary
to enact the items set forth on Schedule 5.4 of the Company Disclosure
Letter, and Schedule 5.4 of the Company Disclosure Letter shall be deemed
incorporated into this Section 5.4(d).
5.5 Access and Information. Upon reasonable notice, each of the parties
shall (and shall cause each of the parties' subsidiaries to) afford to the other
parties and their representatives (including, without limitation, directors,
officers and employees of the parties and their affiliates, and counsel,
accountants and other professionals retained) such access during normal business
hours throughout the period prior to the Effective Time to the books, records
(including, without limitation, tax returns and work papers of independent
auditors), properties, personnel and to such other information as any party may
reasonably request; provided, however, that no party shall be required to
provide access to any such information if the providing of such access (i) would
be reasonably likely, in the written opinion of counsel, to result in the loss
or impairment of any privilege generally recognized under law with respect to
such information or (ii) would be precluded by any law, ordinance, regulation,
judgment, order, decree, license or permit of any Governmental Entity. All
information furnished by one party to any of the others in connection with this
Agreement or the transactions contemplated hereby shall be kept confidential by
such other party (and shall be used by it only in connection with this Agreement
and the transactions contemplated hereby) except to the extent that such
information (i) already is known to such other party when received from a source
not known by the receiving party to be under an obligation of confidentiality,
(ii) thereafter becomes lawfully obtainable from other sources or (iii) is
required to be disclosed in any non-confidential document filed with the
Commission, the FRB, the Department of Justice or any other agency or any
government. In the event that the transactions contemplated by this Agreement
shall fail to consummate, each
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party shall promptly cause all copies of documents or extracts thereof
containing information and data as to another party hereto to be returned to the
party which furnished the same or destroyed.
5.6 Certain Filings, Consents and Arrangements. National City and Company
shall (a) as soon as practicable make any required filings and applications
required to be filed with Governmental Authorities between the date of this
Agreement and the Effective Time, (b) cooperate with one another (i) in promptly
determining whether any other filings are required to be made or consents,
approvals, permits or authorizations are required to be obtained under any other
relevant federal, state or foreign law or regulation and (ii) in promptly making
any such filings, furnishing information required in connection therewith and
seeking timely to obtain any such consents, approvals, permits or authorizations
and (c) deliver to the other parties to this Agreement copies of the publicly
available portions of all such reports promptly after they are filed.
5.7 State Takeover Statutes. Company shall take all reasonable steps to (i)
exempt Company and the Merger from the requirements of any state takeover law by
action of the Company's Board of Directors or otherwise and (ii), upon the
request of National City, assist in any challenge by National City to the
applicability to the Merger of any state takeover law.
5.8 Indemnification and Insurance
(a) Indemnification. From and after the Effective Time, National City
will assume and honor any obligation as provided for and permitted by
applicable federal and state law Company had immediately prior to the
Effective Time with respect to the indemnification of each person who is
now, or has been at any time prior to the date hereof or who becomes prior
to the Effective Time, a director or officer of Company or any Company
Subsidiary or was serving at the request of Company as a director, officer
of any domestic or foreign corporation joint venture, trust, employee
benefit plan or other enterprise (collectively, the "Indemnitees") arising
out of Company's Articles of Incorporation or Bylaws or any indemnification
(to the maximum extent available thereunder and permitted by applicable law
or regulation) against any and all Losses in connection with or arising out
of any claim which is based upon, arises out of or in any way relates to
any actual or alleged act or omission occurring at or prior to the
Effective Time, including any actions taken to approve and implement this
Agreement and the transactions contemplated hereby, in the Indemnitee's
capacity as a director or officer (whether elected or appointed), of
Company or any Company Subsidiary. This Section 5.8 will be construed as an
agreement, as to which the Indemnitees are intended to be third-party
beneficiaries.
(b) Insurance. For a period of six years after the Effective Time,
National City shall use all reasonable efforts to maintain in effect
current directors' and officers' liability insurance in an aggregate limit
at least equal to the aggregate limit of Company's insurance that is in
place on the date of this Agreement, which will insure Company's directors
and officers for events which occurred prior to the Effective Time but were
undiscovered at the Effective Time provided, however, that in no event
shall National City be obligated to expend, in order to maintain or provide
insurance coverage pursuant to this Subsection 5.8(b), any amount per annum
in excess of 200% of the amount of the annual premium paid as of the date
hereof by National City for its current director's and officers' liability
insurance.
5.9 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable efforts to
take promptly, or cause to be taken promptly, all actions and to do promptly, or
cause to be done promptly, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, including using its
best efforts to obtain all necessary actions or non-actions, extensions,
waivers, consents and approvals from all applicable Governmental Entities,
effecting all necessary registrations, applications and filings (including,
without limitation, filings under any applicable state securities laws) and
obtaining any required contractual consents and regulatory approvals.
5.10 Publicity. The Bank and the Group offer a broad range of banking and
financial products and services, including residential and commercial mortgage
loans, public sector loans, consumer banking services, investment products for
consumers and financial institutions, business loans, project The initial press
release announcing this Agreement shall be a joint press release and thereafter
Company and National City shall consult with each other
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in issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby and in making any filings with any
Governmental Entity or with any national securities exchange with respect
thereto.
5.11 Registration Statement. National City shall prepare and file the
Registration Statement with the Commission as soon as is reasonably practicable
following receipt of final comments from the Staff of the Commission on the
Proxy Statement (or advice that such Staff will not review such filing) and
shall use all reasonable efforts to have the Registration Statement declared
effective by the Commission as promptly as practicable and to maintain the
effectiveness of such Registration Statement. National City shall also take any
action required to be taken under state blue sky or securities laws in
connection with the issuance of the National City Common Stock pursuant to the
Merger, and Company shall furnish National City all information concerning
Company and the holders of its capital stock and shall take any action as
National City may reasonably request in connection with any such action.
5.12 Securities Act; Pooling-of-Interests
(a) Prior to the Effective Time, Company shall identify to National
City all persons who were, at the time of the Company Meeting (as herein
later defined), possible "affiliates" of Company as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act (at the
minimum, all those persons subject to the reporting requirements of Rule
16(a) under the Exchange Act) and for purposes of qualifying for
"pooling-of-interests" accounting treatment (the "Affiliates").
(b) Company shall use its best efforts to obtain a written agreement
from each person who is identified as a possible Affiliate pursuant to
clause (a) above providing that such person will not sell, pledge, transfer
or otherwise dispose of any shares of Company Common Stock held by such
"affiliate" and the Merger Consideration to be received by such "affiliate"
in the Merger: (1) in the case of shares of National City Common Stock
only, except in compliance with the applicable provisions of the Securities
Act and the rules and regulations thereunder; and (2) during the periods
during which any such sale, pledge, transfer or other disposition would,
under generally accepted accounting principles or the rules, regulations or
interpretations of the Commission, disqualify the Merger for
"pooling-of-interests" accounting treatment. The parties understand that
such periods in general encompass the period commencing thirty (30) days
prior to the Merger and ending at the time of the publication of financial
results covering at least 30 days of combined operations of National City
and Company within the meaning of Section 201.01 of the Commission's
Codification of Financial Reporting Policies. National City shall file such
financial results within 90 days of the Effective Time. Company shall
deliver such written agreements to National City at or prior to the
Effective Time.
5.13 Stock Exchange Listings. National City shall use its best efforts to
list on the New York Stock Exchange, upon official notice of issuance, the
National City Common Stock to be issued pursuant to the Merger.
5.14 Proxy. As soon as practicable after the date hereof, Company and
National City shall prepare the Proxy Statement, file it with the Commission,
respond to comments of the Staff of the Commission, clear the Proxy Statement
with the Staff of the Commission and promptly thereafter mail the Proxy
Statement to all holders of shares of Company Common Stock and National City
Common Stock. National City and Company shall cooperate with each other in the
preparation of the Proxy Statement.
5.15 Shareholders' and Stockholders' Meetings
(a) Company shall take all action necessary, in accordance with
applicable law and its Articles of Incorporation and Bylaws, to convene a
special meeting of the holders of Company Common Stock (the "Company
Meeting") as promptly as practicable for the purpose of considering and
taking action upon this Agreement. Unless the Board of Directors of Company
shall have received the written advice of counsel, reasonably acceptable to
National City, to the effect that making such a recommendation would cause
the Board of Directors of Company to violate its fiduciary duty under
applicable law and provided that such advice is not predicated solely upon
the price of National City Common Stock, the Board of Directors of
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Company shall recommend that the holders of the Company Common Stock vote
in favor of and approve the Merger and adopt this Agreement at the Company
Meeting.
(b) National City shall take all action necessary, in accordance with
applicable law and its certificate of incorporation and By-laws, to convene
a meeting of the holders of National City Common Stock (the "National City
Meeting") for the purpose of considering and taking action upon this
Agreement. The Board of Directors of National City shall recommend that
holders of National City Common Stock vote in favor of and approve the
Merger and adopt this Agreement at the National City Meeting.
5.16 Pooling-of-Interests and Tax-Free Reorganization Treatment. Neither
National City nor Company shall intentionally take or cause to be taken any
action, whether before or after the Effective Time, which would disqualify the
Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368 of the Code.
5.17 Provision of Shares. National City shall issue and provide the shares
of National City Common Stock deliverable upon the conversion of the Company
Common Stock pursuant to this Agreement, and will provide the cash to be paid in
lieu of fractional shares of National City Common Stock as provided in
Subsection 2.3(f). The shares of National City Common Stock to be issued and
exchanged for shares of Company Common Stock pursuant to this Agreement will, at
the Effective Time, be duly authorized, validly issued, fully paid and
nonassessable and subject to no preemptive rights.
5.18 Adverse Action. From the date hereof until the Effective Time, except
as expressly contemplated by the Agreement neither party will, without the
written consent of the other party (which consent will not be unreasonably
withheld or delayed) knowingly take any action that would, or would be
reasonably likely to result in (a) any of its representations and warranties set
forth in the Agreement being or becoming untrue in any material respect, (b) any
of the conditions to the Merger set forth in Article VII not being satisfied or
(c) a material violation of any provision of the Agreement except, in each case,
as may be required by applicable law.
VI. CLOSING MATTERS
6.1 The Closing. Subject to satisfaction or waiver of all conditions
precedent set forth in Article VII of this Agreement, the closing ("Closing") at
such location mutually agreeable to the parties and on a date ("Closing Date")
which is on (1) the third business day after the later of:
(a) the first date on which the Merger may be consummated in
accordance with the approvals of any Governmental Entities or
(b) the date the required approvals of Company's shareholders and
National City's stockholders have been obtained or
(2) such other date to which the parties agree in writing.
If all conditions are determined to be satisfied in all material respects (or
are duly waived) at the Closing, the Closing shall be consummated by the making
of all necessary filing required by all Governmental Entities.
6.2 Documents and Certificates. National City and Company shall use their
respective best efforts, on or prior to Closing, to execute and deliver all such
instruments, documents or certificates as may be necessary or advisable, on the
advice of counsel, for the consummation at the Closing of the transactions
contemplated by this Agreement to occur as soon as practicable.
VII. CONDITIONS
7.1 Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) The Merger shall have been approved and adopted by the requisite
vote of the holders of Company Common Stock and by the requisite vote of
the holders of National City Common Stock.
(b) The National City Common Stock issuable in the Merger shall have
been authorized for listing on the New York Stock Exchange, upon official
notice of issuance.
(c) All authorizations, consents, orders or approvals of, and all
expirations of waiting periods imposed by, any Governmental Entity
(collectively, "Consents") which are necessary for the consummation of the
Merger, (other than immaterial Consents, the failure to obtain which would
not be materially adverse to the
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combined businesses of National City, Company, National City's subsidiaries
and Company Subsidiaries taken as a whole) shall have been obtained or
shall have occurred and shall be in full force and effect at the Effective
Time.
(d) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and remain in effect.
(e) National City and Company shall have received a letter, dated the
date of the Closing, from Ernst and Young or its successor, National City's
independent accountants, to the effect that, for financial reporting
purposes, the Merger qualifies for pooling-of-interests accounting
treatment under generally accepted accounting principles if consummated in
accordance with this Agreement.
(f) No temporary restraining order, preliminary or permanent
injunction or other order by any federal or state court in the United
States which prevents the consummation of the Merger shall have been issued
and remain in effect.
(g) Wachtell, Lipton, Rosen & Katz counsel to Company, shall have
delivered to Company and National City their opinion, dated the day of the
Effective Time, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that, accordingly: (i)
no gain or loss will be recognized by National City or Company as a result
of the Merger; (ii) no gain or loss will be recognized by the shareholders
of Company who exchange their shares of the Company Common Stock solely for
shares of National City Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in National
City Common Stock); (iii) the tax basis of the shares of National City
Common Stock received by shareholders who exchange all of their shares of
Company Common Stock solely for shares of National City Common Stock in the
Merger will be the same as the tax basis of the shares of Company Common
Stock surrendered in exchange therefor (reduced by any amount allocable to
a fractional share interest for which cash is received); and (iv) the
holding period of the shares of National City Common Stock received in the
Merger will include the period during which the shares of Company Common
Stock surrendered in exchange therefor were held, provided such shares of
Company Common Stock were held as capital assets at the Effective Time. In
rendering such opinion, counsel may require and rely upon representations
contained in certificates of officers of Company, National City, and
others.
7.2 Conditions to Obligation of Company to Effect the Merger. The
obligation of Company to effect the Merger shall be subject to the fulfillment
or waiver at or prior to the Effective Time of the additional following
conditions:
(a) National City shall have performed in all material respects its
covenants contained in this Agreement required to be performed at or prior
to the Effective Time.
(b) The representations and warranties of National City contained in
this Agreement shall be true and correct when made and the representations
and warranties set forth in Article 3 shall be true and correct as of the
Effective Time as if made at and as of such time, except as expressly
contemplated or permitted by this Agreement, except for representations and
warranties relating to a time or times other than the Effective Time which
were or will be true and correct at such time or times and except where the
failure or failures of such representations and warranties to be so true
and correct, individually or in the aggregate, does not result or would not
result in a Material Adverse Effect.
(c) National City shall have furnished Company a Certificate dated the
date of the Closing, signed by the Chief Executive Officer and Chief
Financial Officer of National City that, to the best of their knowledge and
belief after due inquiry, the conditions set forth in Subsections 7.2(a)
and 7.2(b) have been satisfied.
7.3 Conditions to Obligation of National City to Effect the Merger. The
obligation of National City to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Time of the additional
following conditions:
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(a) Company shall have performed in all material respects its
covenants contained in this Agreement required to be performed at or prior
to the Effective Time.
(b) The representations and warranties of Company contained in this
Agreement shall be true and correct when made and the representations and
warranties set forth in Article 4 shall be true and correct as of the
Effective Time as if made on and as of such time, except as expressly
contemplated or permitted by this Agreement, except for representations and
warranties relating to a time or times other than the Effective Time which
were or will be true and correct at such time or times and except where the
failure or failures of such representations and warranties to be so true
and correct, individually or in the aggregate, does not result or would not
result in a Material Adverse Effect.
(c) Company shall have furnished National City a Certificate dated the
date of the Closing signed by the Chief Executive Officer and Chief
Financial Officer of Company that, to the best of their knowledge and
belief after due inquiry, the conditions set forth in subsections 7.3(a)
and 7.3(b) have been satisfied.
VIII. MISCELLANEOUS
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the shareholders of Company
and/or the stockholders of National City:
(a) by mutual consent of the Board of Directors of National City and
the Board of Directors of Company;
(b) by either National City or Company if the Merger shall not have
been consummated on or before June 30, 1998 or if this Agreement was not
approved at either the Company Meeting or the National City Meeting
(provided the terminating party is not otherwise in material breach of its
obligations under this Agreement);
(c) by Company if any of the conditions specified in Sections 7.1 and
7.2 have not been met or waived by Company at such time as such condition
can no longer be satisfied;
(d) by National City if any of the conditions specified in Sections
7.1 and 7.3 have not been met or waived by National City at such time as
such condition can no longer be satisfied;
(e) by Company, during the 15-day period commencing on the Fed
Approval Date, if both of the following conditions are satisfactory:
(i) the average of the daily closing prices on the New York Stock
Exchange of a share of National City Common Stock for the 20 consecutive
trading days ending at the end of the third trading day immediately
preceding the Fed Approval is less than $53.375; and
(ii) the number obtained by dividing the average of the daily
closing prices on the New York Stock Exchange of a share of National
City Common Stock for the 20 consecutive trading days ending at the end
of the third trading day immediately preceding the Fed Approval Date by
the closing price of National City Common Stock on the trading day
immediately preceding the public announcement of this Agreement is less
than the number obtained by dividing the Final Index Price (as defined
below) by the Initial Index Price (as defined below) and subtracting .20
from the quotient.
For purposes of this Subsection 8.1(e):
The "Index Group" shall mean all those companies listed in the
National City Disclosure Letter the common stock of which is publicly
traded and as to which there has not been a publicly announced proposal at
any time for such company to be acquired. In the event that any such
company or companies are so removed from the Index Group, the weights
attributed to the remaining companies shall be adjusted proportionately for
purposes of determining both the Initial Index Price and the Final Index
Price;
The "Initial Index Price" shall mean the weighted average (weighted in
accordance with the factors listed in the National City Disclosure Letter)
of the closing prices on the trading day immediately preceding the public
announcement of this Agreement of the common stock of the companies
comprising the Index Group;
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The "Final Price" of any company belonging to the Index Group shall
mean the average of the daily closing sale prices of a share of the common
stock of such company, as reported in the consolidated transaction
reporting system for the market or exchange on which such common stock is
principally traded, during the period of 20 consecutive trading days ending
at the end of the third trading day immediately preceding the Fed Approval
Date; and
The "Final Index Price" shall mean the weighted average (weighted in
accordance with the factors listed in the National City Disclosure Letter)
of the Final Prices for all of the companies comprising the Index Group.
If National City or any company belonging to the Index Group declares
a stock dividend or effects a reclassification, recapitalization, split-up,
combination, exchange or shares or similar transaction between the date of
this Agreement and the Fed Approval Date, the closing prices for the common
stock of such company shall be appropriately adjusted for the purposes of
the definitions above so as to be comparable to the price on the date of
this Agreement.
8.2 Non-Survival of Representations, Warranties and Agreements. The
representations and warranties or covenants in this Agreement will terminate at
the Effective Time or the earlier termination of this Agreement pursuant to
Section 7.1, as the case may be; provided, however, that if the Merger is
consummated, Sections 1.6, 2.1 through 2.4, 5.4, 5.5, 5.8, 5.17 and 8.2 hereof
will survive the Effective Time to the extent contemplated by such Sections;
provided, further, that the last sentence of Section 5.5 and all of Section 8.10
hereof will in all events survive any termination of this Agreement.
8.3 Waiver and Amendment. Subject to applicable provisions of the DGCL and
MBCA, any provision of this Agreement may be waived at any time by the party
which is, or whose stockholders or shareholders are, entitled to the benefits
thereof, and this Agreement may be amended or supplemented at any time, provided
that no amendment will be made after any stockholder or shareholder approval of
the Merger which reduces or changes the form of the Merger Consideration without
further stockholder or shareholder approval. No such waiver, amendment or
supplement will be effective unless in a writing which makes express reference
to this Section 8.3 and is signed by the party or parties sought to be bound
thereby.
8.4 Entire Agreement. This Agreement together with the Option Agreement
contain the entire agreement among National City and Company with respect to the
Merger and the other transactions contemplated hereby and thereby, and
supersedes all prior agreements among the parties with respect to such matters.
8.5 Applicable Law; Consent to Jurisdiction. This Agreement will be
governed by and construed in accordance with the laws of the State of Michigan
except to the extent laws of the state of Delaware govern the merger. National
City and Company consent to personal jurisdiction in any action brought in any
federal or state court within the State of Michigan having subject matter
jurisdiction in the matter for purposes of any action arising out of this
Agreement.
8.6 Certain Definitions; Headlines. (a) For purposes of this Agreement, the
term:
(i) "affiliate", "associate" and "significant subsidiary" shall have
the respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act, as in effect on the date
hereof.
(ii) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock,
as trustee or executor, by contract or credit arrangement or otherwise;
(iii) "Fed Approval Date" means the day the FRB issues an order
approving consummation of the Merger.
(iv) "Market Price" means the average of the per share closing prices
on the New York Stock Exchange of National City Common Stock for the 20
consecutive trading days ending at the end of the third trading day
immediately preceding the Effective Time.
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(v) "Material Adverse Effect" means an event, change or occurrence
which has a material negative impact on the financial condition, businesses
or results of operations of Company and its subsidiaries, taken as a whole,
or National City and its subsidiaries, taken as a whole, as the case may
be, or the ability of Company or National City, as the case may be, to
consummate the transactions contemplated hereby. The effect of any action
taken by Company solely pursuant to Subsection 5.2(f) shall not be taken
into consideration in determining whether any Material Adverse Effect has
occurred.
(vi) "person" means an individual, corporation, partnership,
association, trust or unincorporated organization; and
(vii) "subsidiary" of Company, National City or any other person
means, except where the context otherwise requires, any corporation,
partnership, trust or similar association of which Company, National City
or any other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, more
than 50% of the stock or other equity interests, the holders of which are
generally entitled to vote for the election of the board of directors or
other governing body of such corporation.
(b) The descriptive headings contained in this Agreement are for
convenience and reference only and will not affect in any way the meaning
or interpretation of this Agreement.
(c) Unless the context of this Agreement expressly indicates
otherwise, (i) any singular term in this Agreement will include the plural
and any plural term will include the singular and (ii) the term section or
schedule will mean a section or schedule of or to this Agreement.
8.7 Notices. All notices, consents, requests, demands and other
communications hereunder will be in writing and will be deemed to have been duly
given or delivered if delivered personally, telexed with receipt acknowledged,
mailed by registered or certified mail return receipt requested, sent by
facsimile with confirmation of receipt, or delivered by a recognized commercial
courier addressed as follows:
If to Company to:
First of America Bank Corporation
211 South Rose Street
Kalamazoo, Michigan 49007
Attention: Richard F. Chormann, Chairman, President and Chief
Executive Officer
Fax No. (616) 376-7273
With copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Edward Herlihy, Esq.
Fax No. (212) 403-2000
and
Howard & Howard Attorneys, P.C.
107 W. Michigan Avenue
Suite 400
Kalamazoo, Michigan 49007
Attention: Joseph B. Hemker
Fax No. (616) 382-1568
If to National City to:
National City Corporation
P. O. Box 5756
Cleveland, Ohio 44101-0756
Attention: Chairman of the Board
Fax No. (216) 575-3332
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With a copy to:
National City Corporation
Law Department
P. O. Box 5756
Cleveland, Ohio 44101-0756
Attention: General Counsel
Fax No. (216) 575-3332
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 8.7.
8.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original but all of which
together will constitute but one agreement.
8.9 Parties in Interest; Assignment. Except for Section 2.2, (which is
intended to be for the benefit of the holders of Outstanding Options under the
Company Option Plans to the extent contemplated thereby and their beneficiaries,
and may be enforced by such persons) and Sections 5.4 and 5.8 hereof (which are
intended to be for the benefit of directors, officers or employees to the extent
contemplated thereby and their beneficiaries, and may be enforced by such
persons), this Agreement is not intended to nor will it confer upon any other
person (other than the parties hereto) any rights or remedies. Without the prior
written consent of the other parties to this Agreement neither National City nor
Company shall assign any rights or delegate any obligations under this
Agreement. Any such purported assignment or delegation made without prior
consent of the other parties hereto shall be null and void.
8.10 Expenses. Each party will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby, except
that printing expenses and Commission filing and registration fees shall be
shared equally between Company and National City.
8.11 Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto will be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
8.12 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement as of the date first above written.
FIRST OF AMERICA BANK CORPORATION
By: /s/ Richard F. Chormann
Richard F. Chormann
Chairman, President and
Chief Executive Officer
NATIONAL CITY CORPORATION
By: /s/ Vincent A. DiGirolamo
Vincent A. DiGirolamo
Vice Chairman
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APPENDIX B
Investment Banking Group
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, New York 10281-1325
212 449 1000
(MERRILL LYNCH LOGO)
November 30, 1997
Board of Directors
First of America Bank Corporation
211 South Rose Street, 3rd Floor
Kalamazoo, MI 49007
Members of the Board:
We understand that it is proposed that National City Corporation ("National
City") and First of America Bank Corporation ("First of America") will enter
into an Agreement and Plan of Merger (the "Agreement"), dated as of November 30,
1997, pursuant to which First of America will be merged with and into National
City in a transaction ("the Merger") in which each outstanding share of First of
America's common stock, par value $10.00 per share (the "First of America
Shares"), will be converted into the right to receive 1.2 shares (the "Exchange
Ratio") of the common stock, par value $4.00 per share, of National City (the
"National City Shares"), all as set forth more fully in the Agreement. In
connection with the Merger, it is also proposed that the parties will each enter
into a Stock Option Agreement, each dated as of November 30, 1997, (the "Option
Agreements") pursuant to which First of America and National City will grant to
the other an option to acquire, under certain circumstances, a certain number of
their respective outstanding common shares, all as set forth more fully in the
Option Agreements.
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to the holders of First America Shares (other than
National City and its affiliates).
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly-available business and financial information
relating to First of America and National City we deemed relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the respective businesses, earnings, assets, liabilities and
prospects of First of America and National City furnished to us by
senior management of First of America and National City, as well as
the amount and timing of the cost savings, revenue enhancements and
related expenses expected to result from the Merger (the "Expected
Synergies") furnished to us by senior management of National City;
(3) Conducted discussions with members of senior management of First of
America and National City concerning the matters described in clauses
(1) and (2) above, as well as their businesses and prospects before
and after giving effect to the merger and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the First of
America Shares and the National City Shares and compared them with
those of certain publicly-traded companies which we deemed to be
relevant;
(5) Reviewed the respective financial condition and results of operations
of First of America and National City and compared them with those of
certain publicly-traded companies which we deemed to be relevant;
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(MERRILL LYNCH LOGO)
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions which we deemed to be relevant;
(7) Participated in certain discussions and negotiations among
representatives of First of America and National City and their
financial and legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed a draft of the Agreement and Plan of Merger and the Stock
Option Agreements; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information suppled or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of the assets or liabilities
of First of America or National City or been furnished any such evaluation or
appraisal. We are not experts in the evaluation of allowances for loan losses,
and we have neither made an independent evaluation of the adequacy of the
allowance for loan losses of First of America or National City, nor have we
reviewed any individual credit files relating to First of America or National
City, and, as a result, we have assumed that the aggregate allowance for loan
losses for both First of America and National City is adequate to cover such
losses and will be adequate on a pro forma basis for the combined entity. In
addition, we have not assumed any obligation to conduct, nor have we conducted,
any physical inspection of the properties or facilities of First of America or
National City. With respect to the financial forecast information and Expected
Synergies furnished to or discussed with us by First of America or National
City, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgments of the senior management of
First of America and National City as to the future financial performance of
First of America, National City or the combined entity, as the case may be. We
have further assumed that the Merger will be accounted for as a
pooling-of-interests under generally accepted accounting principles and that it
will qualify as a tax-free reorganization for U.S. federal income tax purposes.
We have also assumed that the final form of the Agreement will be substantially
similar to the last draft received by us from First of America.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendment or modifications, will be imposed that will have a material adverse
affect on the contemplated benefits of the Merger.
We have been retained by the Board of Directors of First of America to act
as financial advisor to First of America in connection with the Merger and will
receive a fee for our services, a significant portion of which is contingent
upon the consummation of the Merger. In addition, First of America has agreed to
indemnify us for certain liabilities arising out of our engagement. We have in
the past two years provided financial advisory, investment banking and other
services to First of America and National City and received customary fees for
the rendering of such services. In the ordinary course of our securities
business, we also may actively trade debt and/or equity securities of First of
America and National City and their respective affiliates for our own account
and the accounts of our customers, and we therefore may from time to time hold a
long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors and First
of America. Our opinion does not address the merits of the underlying decision
by First of America to engage in the Merger and does not constitute a
recommendation to any shareholder of First of America as to how such shareholder
should vote on the proposed Merger.
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(MERRILL LYNCH LOGO)
We are not expressing any opinion herein as to the prices as which First of
America Shares or National City Shares will trade following the announcement or
consummation of the Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as the date hereof, the Exchange Ratio is fair from a financial point of view to
the shareholders of First of America (other than National City and its
affiliates).
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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APPENDIX C
UBS Securities LLC
(UBS LOGO)
November 30, 1997
Board of Directors
National City Corporation
1900 East Ninth Street
Cleveland, Ohio 44114
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to National City Corporation (the "Company") of the Exchange Ratio (as
defined below) provided for pursuant to the Agreement and Plan of Merger dated
as of November 30, 1997 (the "Transaction Agreement"), by and between the
Company and First of America Bank Corporation ("Transaction Partner"). This
written opinion confirms our oral opinion delivered on November 28, 1997.
Pursuant to the terms of the Transaction Agreement, the Transaction Partner will
be merged with and into the Company (the "Transaction") and each outstanding
share of common stock, par value $10.00 per share, of Transaction Partner (the
"Common Stock") will be converted into 1.2 shares of common stock, par value
$4.00 per share of the Company (the "Exchange Ratio"). The terms and conditions
of the Transaction are more fully set forth in the Transaction Agreement.
UBS Securities LLC ("UBS"), as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of our
business, we and our affiliates actively trade the securities of the Company and
Transaction Partner for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities. We are acting as financial advisor to the Company in connection with
the Transaction and will receive a fee from the Company for our services
pursuant to the terms of our engagement letter with the Company, dated as of
November 25, 1997 (the "Engagement Letter"). In the past, UBS has provided other
investment banking and financial advisory services to the Company and
Transaction Partner for which we have received compensation. UBS may provide
investment banking and financial advisory services to the Company in the future.
In connection with our opinion, we have reviewed and considered such
financial and other matters as we have deemed relevant, including, among other
things: (i) the Transaction Agreement; (ii) certain publicly available
information for the Company and Transaction Partner, including each of the
annual reports of the Company and Transaction Partner filed on Form 10-K for
each of the years ended December 31, 1994, 1995 and 1996, and each of the
quarterly reports of the Company and Transaction Partner filed on Form 10-Q for
each of the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997;
(iii) certain internal financial analyses, financial forecasts, reports and
other information concerning the Company and Transaction Partner prepared by the
respective managements of the Company and Transaction Partner; (iv) certain
third party analysts' estimates as to the future financial performance of the
Company and Transaction Partner; (v) discussions we have had with certain
members of the managements of each of the Company and Transaction Partner
concerning the historical and current business operations, financial conditions
and prospects of the Company and Transaction Partner and such other matters we
deemed relevant; (vi) the reported price and trading histories of the shares of
the common stock of the Company and Transaction Partner as compared to the
reported price and trading histories of certain publicly traded companies we
deemed relevant; (vii) the respective financial conditions of the Company and
Transaction Partner as compared to the financial conditions of certain other
companies we deemed relevant; (viii) certain financial terms of the Transaction
as compared to the financial terms of selected other business combinations we
deemed relevant; and (ix) such other information, financial studies, analyses
and investigations and such other factors that we deemed relevant for the
purposes of this opinion.
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In conducting our review and arriving at our opinion, as contemplated under
the terms of our Engagement Letter with the Company we have, with your consent,
assumed and relied, without independent investigation, upon the accuracy and
completeness of all financial and other information provided to us by the
Company and Transaction Partner, respectively, or publicly available, and we
have not undertaken any responsibility for the accuracy, completeness or
reasonableness of, or independently to verify, such information. We have further
relied upon the assurance of management of the Company that they are unaware of
any facts that would make the information provided to us incomplete or
misleading in any respect. We have, with your consent, assumed that the
forecasted cost savings and other synergies which we examined were reasonably
prepared by management of the Company on bases reflecting the best currently
available estimates and good faith judgments of such management. You have
informed us, and we have assumed, that the Transaction will be recorded as a
pooling-of-interests under generally accepted accounting principles. We have
assumed with your consent that the third party analysts' estimates as to the
future financial performance of the Company and Transaction Partner provide a
reasonable basis for our opinion. We have not made or obtained any independent
evaluations, valuations or appraisals of the assets or liabilities of the
Company or Transaction Partner, nor have we been furnished with such materials.
We have assumed, without independent verification, that the aggregate allowance
for credit losses for the Company and the Transaction Partner are adequate to
cover such losses. Our services to the Company in connection with the
Transaction have been comprised solely of financial advisory services, as
described in the Engagement Letter. Our opinion is necessarily based upon
economic and market conditions and other circumstances as they exist and can be
evaluated by us on the date hereof. We shall have no obligation to update the
opinion set forth herein, unless requested by the Company in writing to do so,
and we expressly disclaim any responsibility to do so in the absence of any such
request.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of the Company in its consideration of the Transaction
and may not be reproduced, disseminated, quoted or referred to at any time, in
any manner or for any purpose without our prior written consent. We hereby
consent to the reference to the opinion of UBS Securities LLC in the Company's
Registration Statement relating to the shares of common stock of the Company to
be issued pursuant to the Transaction Agreement and to the inclusion of the
foregoing opinion in the Proxy Statement relating to the Annual Meeting of
Stockholders of the Company. In giving such consent, we do not thereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder. This letter does not constitute a
recommendation to or any advice to the Board of Directors to approve the
Transaction or to any stockholder or to take any other action in connection with
the Transaction or otherwise. Furthermore, we express no view as to the price or
trading range for shares of the common stock of the Company following the
consummation of the Transaction.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the Exchange Ratio is fair, from a financial point of view, to the Company.
Very truly yours,
UBS SECURITIES LLC
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APPENDIX D
NATIONSBANC MONTGOMERY SECURITIES, INC.
PRIVILEGED AND
CONFIDENTIAL DRAFT
November 30, 1997
Board of Directors
National City Corporation
National City Center
1900 East Ninth St.
Cleveland, OH 44114-3484
Gentlemen:
We understand that First of America Bank Corporation, a Michigan
corporation ("FOA"), and National City Corporation, a Delaware corporation
("National City"), have entered into a Merger Agreement dated November 30, 1997
(the "Merger Agreement"), pursuant to which FOA will be merged with and into
National City, which will be the surviving entity (the "Merger"). Pursuant to
the Merger, as more fully described in the Merger Agreement, we understand that
each outstanding share of the common stock, $10.00 par value per share ("FOA
Common Stock"), of FOA will be converted into and exchangeable for 1.2 shares of
the common stock, $4.00 par value per share ("National City Common Stock"), of
National City, subject to certain adjustments (the "Consideration"). The terms
and conditions of the Merger are set forth in more detail in the Merger
Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be paid by National City pursuant tot he Merger is fair to
National City from a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to FOA and
National City, including the consolidated financial statements for recent years
and interim periods to September 30, 1997 and certain other relevant financial
and operating data relating to FOA and National City made available to us from
published sources and from the internal records of FOA and National City; (ii)
reviewed the financial terms and conditions of the Merger Agreement; (iii)
reviewed certain publicly available information concerning the trading of, and
the trading market for, FOA Common Stock and National City Common Stock; (iv)
compared FOA and National City from a financial point of view with certain other
companies in the banking industry which we deemed to be relevant; (v) considered
the financial terms, to the extent publicly available, of selected recent
business combinations of companies in the banking industry which we deemed to be
comparable, in whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of National City and FOA certain information
of a business and financial nature regarding National City and FOA, furnished to
us by them, including financial forecasts of synergies for the Merger; (vii)
reviewed third party analysts' estimates as to the future financial performance
of National City and FOA; (viii) made inquires regarding and discussed the
Merger and the Merger Agreement and other matters related thereto with National
City's counsel; and (ix) performed such other analyses and examinations as we
have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts of synergies for the Merger provided to us by National City's
management, upon your advice and with your consent we have assumed for purposes
of our opinion that the forecasts have been reasonably estimated by National
City's management at the time of preparation and that they provide a reasonable
basis upon which we can form our opinion. We have also assumed with your consent
that the third party analysts' estimates as to the future financial performance
of National City and FOA provide a reasonable basis upon which we can
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form our opinion. We have assumed that there have been no material changes in
National City's or FOA's assets, financial condition, results of operations,
business or prospects since the respective dates of their last financial
statements made available to us. We have relied on advice of counsel to National
City on all legal matters with respect to National City, FOA, the Merger and the
Merger Agreement. We have assumed that the Merger will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934 and all other applicable federal and state statutes, rules
and regulations. We are not experts in the evaluation of loan portfolios for
purposes of assessing the adequacy of the allowances for losses with respect
thereto and have assumed, with your consent, that such allowances for each of
National City and FOA are in the aggregate adequate to cover such losses. In
addition, we have not assumed responsibility for reviewing any individual credit
files, or making an independent evaluation, appraisal or physical inspection of
any of the assets or liabilities (contingent or otherwise) of National City or
FOA, nor have we been furnished with any such appraisals. You have informed us,
and we have assumed, that the Merger will be recorded as a pooling of interests
under generally accepted accounting principles. Finally, our opinion is based on
economic, monetary and market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by National City of
any of the conditions to its obligations thereunder. We have also assumed that
in the course of obtaining the necessary regulatory approvals for the Merger, no
restrictions, including any divestiture requirements, will be imposed that could
have a meaningful effect on the contemplated benefits of the Merger.
We have acted as financial advisor to National City in connection with the
Merger and will receive a fee for our services, including rendering this
opinion, a significant portion of which is contingent upon the consummation of
the Merger.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be paid by National City pursuant
to the Merger is fair to National City from a financial point of view, as of the
date hereof.
This opinion is directed to the Board of Directors of National City in its
consideration of the Merger and is not a recommendation to any shareholder as to
how such shareholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Consideration to be paid by
National City and does not address the relative merits of the Merger and any
alternatives to the Merger, National City's underlying decision to proceed with
or effect the Merger, or any other aspect to the Merger. This opinion may not be
used or referred to by National City, or quoted or disclosed to any person in
any manner, without our prior written consent, which consent is hereby given to
the inclusion of this opinion in any proxy statement or registration statement
filed with the Securities and Exchange Commission in connection with the Merger.
In furnishing this opinion, we do not admit that we are experts within the
meaning of the term "experts" as used in the Securities Act and the rules and
regulations promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
Very truly yours,
NATIONSBANC MONTGOMERY
SECURITIES, INC.
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APPENDIX E
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of November 30, 1997, between National
City Corporation, a Delaware corporation ("Grantee"), and First of America Bank
Corporation, a Michigan corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, as a condition to, and contemporaneous with the execution of this
Stock Option Agreement the parties are entering into an Agreement and Plan of
Merger dated November 30, 1997 ("Agreement") and in consideration therefor,
Issuer has agreed to grant Grantee the Option (as hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Agreement, the parties hereto agree
as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 16,813,611 fully
paid and nonassessable shares of Common Stock, par value $10.00 ("Common
Stock"), of Issuer at a price of $58.75 share; provided, however, that in the
event Issuer issues or agrees to issue any shares of Common Stock at a price
less than $58.75 per share (as adjusted pursuant to subsection 5(b)), such price
shall be equal to such lesser price (such price, as adjusted if applicable, the
"Option Price"); provided further that in no event shall the number of shares
for which this Option is exercisable together with the number of shares owned by
Grantee other than Trust Account Shares (as defined in the Agreement) exceed
19.9% of the Issuer's issued and outstanding common shares without giving effect
to any shares subject or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Stock Option Agreement, the
number of shares of Common Stock subject to the Option shall be increased so
that, after such issuance, together with the number of shares owned by Grantee
other than Trust Account Shares equals 19.9% of the number of shares of Common
Stock then issued and outstanding without giving effect to any shares subject or
issued pursuant to the Option. Nothing contained in this Section 1(b) or
elsewhere in this Stock Option Agreement shall be deemed to authorize Issuer or
Grantee to breach any provision of the Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as hereinafter
defined) and a Subsequent Triggering Event (as hereinafter defined) shall have
occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2) within
30 days following such Subsequent Triggering Event (or such later date as
provided in Section 10). Each of the following shall be an Exercise Termination
Event: (i) immediately prior to the Effective Time of the Merger; (ii)
termination of the Agreement in accordance with the provisions thereof (other
than a termination resulting from a willful breach by Issuer of a provision of
the Agreement) if such termination occurs prior to the occurrence of an Initial
Triggering Event; or (iii) the passage of twelve months after termination of the
Agreement if such termination follows the occurrence of an Initial Triggering
Event (provided that if an Initial Triggering Event continues or another Initial
Triggering Event occurs beyond such termination, the Exercise Termination Event
shall be twelve months from the expiration of the Last Triggering Event but in
no event more than 18 months after such termination). The "Last Triggering
Event" shall mean the last Initial Triggering Event to occur. The term "Holder"
shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have entered
into an agreement to engage in, or the Issuer's board of directors
recommends that shareholders of the Issuer approve or accept, an
Acquisition Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Stock Option Agreement having the
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meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the Securities
Exchange Act of 1934 (the "1934 Act"), and the rules and regulations
thereunder) other than Grantee or any of its subsidiaries (each a "Grantee
Subsidiary") or the board of directors of Issuer shall have recommended
that the shareholders of Issuer approve or accept any Acquisition
Transaction other than as contemplated by the Agreement. For purposes of
this Stock Option Agreement, "Acquisition Transaction" shall mean (a) a
merger or consolidation, or any similar transaction, involving Issuer or
any Issuer Subsidiary, (b) a purchase, lease or other acquisition of all or
substantially all of the assets of Issuer or any Subsidiary, (c) a purchase
or other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of the voting
power of Issuer or Subsidiary or (d) any substantially similar transaction;
(The term Acquisition Transaction specifically does not include any merger
or consolidation among Issuer and/or Issuer Subsidiaries.)
(ii) The Board of Directors of Issuer does not recommend that the
shareholders of Issuer approve the Agreement or publicly withdraws or
modifies, or publicly announces its intention to withdraw or modify, in any
manner adverse to the Grantee, its recommendation that its shareholders
approve the Agreement in anticipation of engaging in an Acquisition
Transaction;
(iii) Any person other than Grantee or any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity shall have acquired
beneficial ownership or the right to acquire beneficial ownership of 10% or
more of the outstanding shares of Common Stock (the term "beneficial
ownership" for purposes of this Stock Option Agreement having the meaning
assigned thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After a proposal is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Agreement and such
breach (x) would entitle Grantee to terminate the Agreement and (y) shall
not have been cured prior to the Notice Date (as defined below); or
(vi) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with The Board
of Governors of the Federal Reserve System (the "FRB"), the Office of
Thrift Supervision ("OTS") or other governmental authority or regulatory or
administrative agency or commission, domestic or foreign (each, a
"Government Entity"), for approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person, other than any Grantee Subsidiary
or any Issuer Subsidiary acting in a fiduciary capacity, of beneficial
ownership of 15% or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection 2(b), except that the percentage referred to in
clause (c) shall be 15%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and 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 shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided that if prior
notification to or approval of the FRB, OTS or any other Governmental Entity is
required in connection with such purchase, the Holder shall promptly file the
required notice or application for approval and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this sentence
shall run from the later of (x) the date on which any required notification
periods have expired or been terminated and (y)
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the date on which such approvals have been obtained and any requisite waiting
period or periods shall have passed. Any exercise of the option shall be deemed
to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, provided that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Stock Option Agreement and a letter
agreeing that the Holder will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this Stock Option
Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder shall be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act") in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the Securities and Exchange Commission (the "SEC"), or an opinion of counsel,
in form and substance satisfactory to Issuer, to the effect that such legend is
not required for purposes of the 1933 Act; (ii) the reference to the provisions
of this Stock Option Agreement in the above legend shall be removed by delivery
of substitute certificate(s) without such reference if the shares have been sold
or transferred in compliance with the provisions of this Stock Option Agreement
and under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States Federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. sec.18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of 1956, as
amended, or the Change in Bank Control Act of 1978, as amended, or any state
banking law, prior approval of or notice to the FRB, OTS or to any other
Governmental Entity is necessary before the Option may be exercised, cooperating
fully with the Holder in preparing such applications or notices and providing
such information to each such Governmental Entity as they may require) in order
to permit the Holder to exercise the
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Option and Issuer duly and effectively to issue shares of Common Stock pursuant
hereto; and (iv) promptly to take all action provided herein to protect the
rights of the Holder against dilution.
4. This Stock Option Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Stock Option Agreement at the principal office of Issuer,
for other agreements providing for Options of different denominations entitling
the holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Stock Option Agreement" and
"Option" as used herein include any Stock Option Agreements and related options
for which this Stock Option 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 Stock Option Agreement, and
(in the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Stock Option
Agreement, if mutilated, Issuer will execute and deliver a new Stock Option
Agreement of like tenor and date. Any such new Stock Option Agreement executed
and delivered shall constitute an additional contractual obligation on the part
of Issuer, whether or not the Stock Option Agreement so lost, stolen, destroyed
or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Stock Option Agreement, the number of shares of Common Stock purchasable upon
the exercise of the Option shall be subject to adjustment from time to time as
provided in this Section 5.
(a) In the event of any change in Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof shall be
appropriately adjusted.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be
equal to the number of shares of Common Stock purchasable after the
adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 30 days (or such later date as may be provided pursuant to
Section 10) of such Subsequent Triggering Event (whether on its own behalf or on
behalf of any subsequent holder of this Option (or part thereof) or any of the
shares of Common Stock issued pursuant hereto), promptly prepare, file and keep
current a shelf registration statement under the 1933 Act covering any shares
issued and issuable pursuant to this Option and shall use its best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this option ("Option Shares") in
accordance with any plan of disposition requested by Grantee; provided, however,
that Issuer may postpone filing a registration statement relating to a
registration request by Grantee under this Section 6 for a period of time (not
in excess of 180 days) if in its judgment such filing would require the
disclosure of material information that Issuer has a bona fide business purpose
for preserving as confidential. Issuer will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. If requested by any such Holder in
connection with such registration, Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements. The foregoing notwithstanding, if, at the time of any request by
Grantee for registration of Option Shares as provided above, Issuer is in the
process of registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the offering or inclusion of the Holder's Option
or Option Shares would interfere with the successful marketing of the shares of
Common Stock offered by Issuer, the number of Option Shares otherwise to be
covered in the registration statement contemplated hereby may be reduced;
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provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be issued by the Holder
and Issuer in the aggregate; provided further, however, that if such reduction
occurs, then the Issuer shall file a registration statement for the balance as
promptly as practical and no reduction shall thereafter occur. Each such Holder
shall provide all information reasonably requested by Issuer for inclusion in
any registration statement to be filed hereunder. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
7. (a) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, (i) at the request of the Holder,
delivered within 30 days of the Subsequent Trigger Event (or such later period
as may be provided pursuant to Section 10), Issuer shall repurchase the Option
from the Holder at a price (the "Option Repurchase Price") equal to (x) the
amount by which (A) the market/offer price (as defined below) exceeds (B) the
Option Price, multiplied by the number of shares for which this Option may then
be exercised plus (y) Grantee's Out-of-Pocket Expenses (as defined below) (to
the extent not previously reimbursed) and (ii) at the request of the owner of
Option Shares from time to time (the "Owner"), delivered within 30 days of a
Subsequent Trigger Event (or such later period as may be provided pursuant to
Section 10), Issuer shall repurchase such number of the Option Shares from the
Owner as the Owner shall designate at a price (the "Option Share Repurchase
Price") equal to (x) the market/ offer price multiplied by the number of Option
Shares so designated plus (y) Grantee's Out-of-Pocket Expenses (to the extent
not previously reimbursed). The term "Out-of-Pocket Expenses" shall mean
Grantee's reasonable out-of-pocket expenses incurred in connection with the
transactions contemplated by the Agreement, including, without limitation,
legal, accounting and investment banking fees. The term "market/offer price"
shall mean the highest of (i) the price per share of Common Stock at which a
tender offer or exchange offer therefor has been made after the date hereof,
(ii) the price per share of Common Stock to be paid by any third party pursuant
to an agreement with Issuer, (iii) the highest closing price for shares of
Common Stock within the 30-day period immediately preceding the date the Holder
gives notice of the required repurchase of this Option or the Owner gives notice
of the required repurchase of Option Shares, as the case may be, or (iv) in the
event of a sale of all or substantially all of Issuer's assets, 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 the Holder or the Owner, as the case may be, divided by
the number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the market/offer price, the value of consideration other
than cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be, whose determination shall
be conclusive and binding on all parties.
(b) The Holder or the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Stock Option Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within five business
days after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the portion
thereof that Issuer is not then prohibited under applicable law and regulation
from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
subsection (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the
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Option Repurchase Price and the Option Share Repurchase Price, respectively, in
full (and Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish such repurchase), the Holder or
Owner may revoke its notice of repurchase of the Option or the Option Shares
either in whole or to the extent of the prohibition, whereupon, in the latter
case, Issuer shall promptly (i) deliver to the Holder and/or the Owner, as
appropriate, that portion of the Option Purchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of Common
Stock obtained by multiplying the number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the Option
Repurchase Price less the sum of (x) the portion thereof theretofore delivered
to the Holder and (y) Out-of-Pocket Expenses and the denominator of which is the
Option Repurchase Price less Out-of-Pocket Expenses, or (B) to the Owner, a
certificate for the Option Shares it is then so prohibited from repurchasing,
assuming that the portion of the Option Share Repurchase Price theretofore
delivered is first applied to the payment of Out-of-Pocket Expenses and then to
the repurchase of Option Shares.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate or merge with 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 Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company, or (iii) 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 provision 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 the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock to be issued
by the issuer of the Substitute Option upon exercise of the Substitute
Option.
(3) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(4) "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 or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger 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 the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
(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 the Holder. The issuer of the Substitute Option shall
also enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Stock Option Agreement, which
shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be
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the number of shares of Common Stock for which the Option is then exercisable
and the denominator of which shall be the number of shares of Substitute Common
Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for a number of shares that together with the
number of shares owned by Grantee, other than Trust Account Shares, is more than
19.9% of the shares of 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 shares of Substitute Common Stock
outstanding prior to exercise but for this clause (e), the issuer of the
Substitute Option (the "Substitute Option Issuer") shall make a cash payment to
the Holder equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (e). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to (x) the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised plus (y) Grantee's Out-of-Pocket Expenses (to the extent
not previously reimbursed), and at the request of the owner (the "Substitute
Share Owner") of shares of Substitute Common Stock (the "Substitute Shares"),
the Substitute Option issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price") equal to (x) the Highest Closing Price
multiplied by the number of Substitute Shares so designated plus (y) Grantee's
Out-of-Pocket Expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the 30-day period immediately preceding the date
the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder or the Substitute Share Owner, as the case
may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Stock Option Agreement) and
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the provisions
of this Section 9. As promptly as practicable, and in any event within five
business days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or the portion thereof which the Substitute Option Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer shall immediately so notify the Substitute
Option Holder and/or the Substitute Share Owner and thereafter deliver or cause
to be delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
Substitute Option Issuer is at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 9 prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
Substitute Option Repurchase Price and the Substitute Share Repurchase Price,
respectively, in full (and the Substitute Option Issuer shall use its best
efforts
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to receive all required regulatory and legal approvals as promptly as
practicable in order to accomplish such repurchase), the Substitute Option
Holder or Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the extent of
the prohibition, whereupon, in the latter case, the Substitute Option Issuer
shall promptly (i) deliver to the Substitute Option Holder or Substitute Share
Owner, as appropriate, that portion of the Substitute Option Repurchase Price or
the Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the sum of (x) the portion
thereof theretofore delivered to the Substitute Option Holder and (y)
Out-of-Pocket Expenses and the denominator of which is the Substitute Option
Repurchase Price less Out-of-Pocket Expenses, or (B) to the Substitute Share
Owner, a certificate for the Substitute Option Shares it is then so prohibited
from repurchasing, assuming that the portion of the Substitute Share Repurchase
Price theretofore delivered is first applied to the payment of Out-of-Pocket
Expenses and then to the repurchase of Substitute Shares.
10. The 30-day period for exercise of certain rights under Sections 2, 6, 7
and 12 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, and for the expiration of all
statutory waiting periods; (ii) during the pendency of any temporary restraining
order, injunction or other legal ban to the exercise of such rights and (iii) to
the extent necessary to avoid liability under Section 16(b) of the 1934 Act by
reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Stock Option Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Stock Option Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer and no other corporate
proceedings on the part of Issuer are necessary to authorize this Stock Option
Agreement or to consummate the transactions so contemplated. This Stock Option
Agreement has been duly and validly executed and delivered by Issuer. This Stock
Option Agreement is the valid and legally binding obligation of Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Stock Option Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights and
obligations under this Stock Option Agreement or the Option created hereunder to
any other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 30
days following such Subsequent Triggering Event (or such later period as may be
provided pursuant to Section 10); provided, however, that until the date 30 days
following the date of any required approvals of the FRB under the Bank Holding
Company Act and the OTS under the Federal Home Owners Loan Act of 1933, as
amended to acquire the shares of Common Stock subject to the Option are received
by the Grantee, Grantee may not assign its rights under the Option except in (i)
a widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf, or (iv) any other manner approved by the FRB and OTS.
13. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and Governmental
Entities necessary to the consummation of the transactions contemplated by this
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Stock Option Agreement, including without limitation making application to list
the shares of Common Stock issuable hereunder on the New York Stock Exchange
upon official notice of issuance and making any necessary applications to the
FRB under the Bank Holding Company Act and the OTS under the Federal Home Owners
Loan Act of 1933, as amended for approval to acquire the shares issuable
hereunder.
14. Notwithstanding anything to the contrary herein, in the event that the
Holder or Owner or any affiliate (as defined in Rule 12b-2 of the rules and
regulations under the 1934 Act) thereof is a person making an offer or proposal
to engage in an Acquisition Transaction (other than the Merger), then (i) in the
case of a Holder or any affiliate thereof, the Option held by it shall
immediately terminate and be of no further force or effect, and (ii) in the case
of an Owner or any affiliate thereof, the Option Shares held by it shall be
immediately repurchasable by Issuer at the Option Price.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Stock Option Agreement by either party hereto and
that the obligations of the parties shall hereto be enforceable by either party
hereto through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this Stock
Option Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Stock
Option 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 Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 7, the full number of shares of
Common Stock provided in Section 1(a) hereof (as adjusted pursuant to Section
1(b) or 5 hereof), it is the express intention of Issuer to allow the Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Agreement.
18. This Stock Option Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
19. This Stock Option Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
20. Except as otherwise expressly provided herein, 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.
21. Except as otherwise expressly provided herein or in the Agreement, this
Stock Option Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Stock Option Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Stock Option Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors except as assigns, any rights, remedies, obligations or
liabilities under or by reason of this Stock Option Agreement, except as
expressly provided herein.
22. Terms used in this Stock Option Agreement and not defined herein but
defined in the Agreement shall have the meanings assigned thereto in the
Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed on its behalf by their officers thereunto duly
authorized, all as of the date first above written.
NATIONAL CITY CORPORATION
By: /s/ VINCENT A. DIGIROLAMO
-------------------------------------
Vincent A. DiGirolamo
Vice Chairman
FIRST OF AMERICA BANK CORPORATION
By: /s/ RICHARD F. CHORMANN
-------------------------------------
Richard F. Chormann
Chairman, President and
Chief Executive Officer
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APPENDIX F
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of November 30, 1997, between National
City Corporation, a Delaware corporation ("Issuer"), and First of America Bank
Corporation, a Michigan corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, as a condition to, and contemporaneous with the execution of this
Stock Option Agreement the parties are entering into an Agreement and Plan of
Merger dated November 30 1997 ("Agreement") and in consideration therefor,
Issuer has agreed to grant Grantee the Option (as hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Agreement, the parties hereto agree
as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 21,110,884 fully
paid and nonassessable shares of Common Stock, par value $4.00 ("Common Stock"),
of Issuer at a price of $66.75 share; provided, however, that in the event
Issuer issues or agrees to issue any shares of Common Stock at a price less than
$66.75 per share (as adjusted pursuant to subsection 5(b)), such price shall be
equal to such lesser price (such price, as adjusted if applicable, the "Option
Price"); provided further that in no event shall the number of shares for which
this Option is exercisable together with the number of shares owned by Grantee
other than Trust Account Shares (as defined in the Agreement exceed 10.0% of the
Issuer's issued and outstanding common shares without giving effect to any
shares subject or issued pursuant to the Option. The number of shares of Common
Stock that may be received upon the exercise of the Option and the Option Price
are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Stock Option Agreement, the
number of shares of Common Stock subject to the Option shall be increased so
that, after such issuance, together with the number of shares owned by Grantee
other than Trust Account Shares equals 10.0% of the number of shares of Common
Stock then issued and outstanding without giving effect to any shares subject or
issued pursuant to the Option. Nothing contained in this Section 1(b) or
elsewhere in this Stock Option Agreement shall be deemed to authorize Issuer or
Grantee to breach any provision of the Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as hereinafter
defined) and a Subsequent Triggering Event (as hereinafter defined) shall have
occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2) within
30 days following such Subsequent Triggering Event (or such later date as
provided in Section 10). Each of the following shall be an Exercise Termination
Event: (i) immediately prior to the Effective Time of the Merger; (ii)
termination of the Agreement in accordance with the provisions thereof (other
than a termination resulting from a willful breach by Issuer of any provision of
the Agreement) if such termination occurs prior to the occurrence of an Initial
Triggering Event; or (iii) the passage of twelve months after termination of the
Agreement if such termination follows the occurrence of an Initial Triggering
Event (provided that if an Initial Triggering Event continues or another Initial
Triggering Event occurs beyond such termination, the Exercise Termination Event
shall be twelve months from the expiration of the Last Triggering Event but in
no event more than 18 months after such termination). The "Last Triggering
Event" shall mean the last Initial Triggering Event to occur. The term "Holder"
shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have entered
into an agreement to engage in, or the Issuer's board of directors
recommends that stockholders of the Issuer approve or accept, an
Acquisition Transaction (as hereinafter
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defined) with any person (the term "person" for purposes of this Stock
Option Agreement having the meaning assigned thereto in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934 (the "1934 Act"), and
the rules and regulations thereunder) other than Grantee or any of its
subsidiaries (each a "Grantee Subsidiary") or the board of directors of
Issuer shall have recommended that the stockholders of Issuer approve or
accept any Acquisition Transaction other than as contemplated by the
Agreement. For purposes of this Stock Option Agreement, "Acquisition
Transaction" shall mean (a) a merger or consolidation, or any similar
transaction, involving Issuer or any of Issuer's subsidiaries where the
Issuer or any Issuer Subsidiary is not the surviving entity, (b) a
purchase, lease or other acquisition of all or substantially all of the
assets of Issuer or any Issuer Subsidiary, (c) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 20% or more of the voting power of
Issuer or (d) any substantially similar transaction; (The term Acquisition
Transaction specifically does not include any merger or consolidation among
Issuer and/or Issuer Subsidiaries.)
(ii) The Board of Directors of Issuer does not recommend that the
stockholders of Issuer approve the Agreement or publicly withdraws or
modifies, or publicly announces its intention to withdraw or modify, in any
manner adverse to the Grantee, its recommendation that its stockholders
approve the Agreement in anticipation of engaging in a an Acquisition
Transaction;
(iii) Any person other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity shall have acquired
beneficial ownership or the right to acquire beneficial ownership of 20% or
more of the outstanding shares of Common Stock (the term "beneficial
ownership" for purposes of this Stock Option Agreement having the meaning
assigned thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its stockholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After a proposal is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Agreement and such
breach (x) would entitle Grantee to terminate the Agreement and (y) shall
not have been cured prior to the Notice Date (as defined below); or
(vi) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with The Board
of Governors of the Federal Reserve System (the "FRB"), the Office of
Thrift Supervision ("OTS") or other governmental authority or regulatory or
administrative agency or commission, domestic or foreign (each, a
"Government Entity"), for approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person, other than any Grantee Subsidiary
or any Issuer Subsidiary in a fiduciary capacity, of beneficial ownership
of 30% or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection 2(b), except that the percentage referred to in
clause (c) shall be 30%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and 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 shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided that if prior
notification to or approval of the FRB or any other Governmental Entity is
required in connection with such purchase, the Holder shall promptly file the
required notice or application for approval and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this sentence
shall run
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from the later of (x) the date on which any required notification periods have
expired or been terminated and (y) the date on which such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the option shall be deemed to occur on the Notice Date relating
thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, provided, that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Stock Option Agreement and a letter
agreeing that the Holder will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this Stock Option
Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder shall be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder
hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on file
at the principal office of Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a written request
therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act") in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the Securities and Exchange Commission (the "SEC"), or an opinion of counsel,
in form and substance satisfactory to Issuer, to the effect that such legend is
not required for purposes of the 1933 Act; (ii) the reference to the provisions
of this Stock Option Agreement in the above legend shall be removed by delivery
of substitute certificate(s) without such reference if the shares have been sold
or transferred in compliance with the provisions of this Stock Option Agreement
and under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States Federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. sec. 18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of 1956, as
amended, or the Change in Bank Control Act of 1978, as amended, or any state
banking law, prior approval of or notice to the FRB or to any other Governmental
Entity is necessary before the Option may be exercised,
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cooperating fully with the Holder in preparing such applications or notices and
providing such information to each such Governmental Entity as they may require)
in order to permit the Holder to exercise the Option and Issuer duly and
effectively to issue shares of Common Stock pursuant hereto; and (iv) promptly
to take all action provided herein to protect the rights of the Holder against
dilution.
4. This Stock Option Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Stock Option Agreement at the principal office of Issuer,
for other agreements providing for Options of different denominations entitling
the holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Stock Option Agreement" and
"Option" as used herein include any Stock Option Agreements and related options
for which this Stock Option 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 Stock Option Agreement, and
(in the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Stock Option
Agreement, if mutilated, Issuer will execute and deliver a new Stock Option
Agreement of like tenor and date. Any such new Stock Option Agreement executed
and delivered shall constitute an additional contractual obligation on the part
of Issuer, whether or not the Stock Option Agreement so lost, stolen, destroyed
or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Stock Option Agreement, the number of shares of Common Stock purchasable upon
the exercise of the Option shall be subject to adjustment from time to time as
provided in this Section 5.
(a) In the event of any change in Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares or the like, the type and number of shares of
Common Stock purchasable upon exercise hereof shall be appropriately adjusted.
(b) Whenever the number of shares of Common Stock purchasable upon exercise
hereof is adjusted as provided in this Section 5, the Option Price shall be
adjusted by multiplying the Option Price by a fraction, the numerator of which
shall be equal to the number of shares of Common Stock purchasable prior to the
adjustment and the denominator of which shall be equal to the number of shares
of Common Stock purchasable after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 30 days (or such later date as may be provided pursuant to
Section 10) of such Subsequent Triggering Event (whether on its own behalf or on
behalf of any subsequent holder of this Option (or part thereof) or any of the
shares of Common Stock issued pursuant hereto), promptly prepare, file and keep
current a shelf registration statement under the 1933 Act covering any shares
issued and issuable pursuant to this Option and shall use its best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this option ("Option Shares") in
accordance with any plan of disposition requested by Grantee; provided, however,
that Issuer may postpone filing a registration statement relating to a
registration request by Grantee under this Section 6 for a period of time (not
in excess of 180 days) if in its judgment such filing would require the
disclosure of material information that Issuer has a bona fide business purpose
for preserving as confidential. Issuer will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. If requested by any such Holder in
connection with such registration, Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements. The foregoing notwithstanding, if, at the time of any request by
Grantee for registration of Option Shares as provided above, Issuer is in the
process of registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the offering or inclusion of the Holder's Option
or Option Shares
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would interfere with the successful marketing of the shares of Common Stock
offered by Issuer, the number of Option Shares otherwise to be covered in the
registration statement contemplated hereby may be reduced; provided, however,
that after any such required reduction the number of Option Shares to be
included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be issued by the Holder and Issuer in
the aggregate; provided further, however, that if such reduction occurs, then
the Issuer shall file a registration statement for the balance as promptly as
practical and no reduction shall thereafter occur. Each such Holder shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. Upon receiving any request under
this Section 6 from any Holder, Issuer agrees to send a copy thereof to any
other person known to Issuer to be entitled to registration rights under this
Section 6, in each case by promptly mailing the same, postage prepaid, to the
address of record of the persons entitled to receive such copies.
7. (a) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, (i) at the request of the Holder,
delivered within 30 days of the Subsequent Trigger Event (or such later period
as may be provided pursuant to Section 10), Issuer shall repurchase the Option
from the Holder at a price (the "Option Repurchase Price") equal to (x) the
amount by which (A) the market/offer price (as defined below) exceeds (B) the
Option Price, multiplied by the number of shares for which this Option may then
be exercised plus (y) Grantee's Out-of-Pocket Expenses (as defined below) (to
the extent not previously reimbursed) and (ii) at the request of the owner of
Option Shares from time to time (the "Owner"), delivered within 30 days of a
Subsequent Trigger Event (or such later period as may be provided pursuant to
Section 10), Issuer shall repurchase such number of the Option Shares from the
Owner as the Owner shall designate at a price (the "Option Share Repurchase
Price") equal to (x) the market/offer price multiplied by the number of Option
Shares so designated plus (y) Grantee's Out-of-Pocket Expenses (to the extent
not previously reimbursed). The term "Out-of-Pocket Expenses" shall mean
Grantee's reasonable out-of-pocket expenses incurred in connection with the
transactions contemplated by the Agreement, including, without limitation,
legal, accounting and investment banking fees. The term "market/offer price"
shall mean the highest of (i) the price per share of Common Stock at which a
tender offer or exchange offer therefor has been made after the date hereof,
(ii) the price per share of Common Stock to be paid by any third party pursuant
to an agreement with Issuer, (iii) the highest closing price for shares of
Common Stock within the 30-day period immediately preceding the date the Holder
gives notice of the required repurchase of this Option or the Owner gives notice
of the required repurchase of Option Shares, as the case may be, or (iv) in the
event of a sale of all or substantially all of Issuer's assets, 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 the Holder or the Owner, as the case may be, divided by
the number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the market/offer price, the value of consideration other
than cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be, whose determination shall
be conclusive and binding on all parties.
(b) The Holder or the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Stock Option Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within five business
days after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the portion
thereof that Issuer is not then prohibited under applicable law and regulation
from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a
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notice of repurchase pursuant to subsection (b) of this Section 7 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from delivering to the Holder and/or the Owner, as appropriate, the
Option Repurchase Price and the Option Share Repurchase Price, respectively, in
full (and Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish such repurchase), the Holder or
Owner may revoke its notice of repurchase of the Option or the Option Shares
either in whole or to the extent of the prohibition, whereupon, in the latter
case, Issuer shall promptly (i) deliver to the Holder and/or the Owner, as
appropriate, that portion of the Option Purchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of Common
Stock obtained by multiplying the number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the Option
Repurchase Price less the sum of (x) the portion thereof theretofore delivered
to the Holder and (y) Out-of-Pocket Expenses and the denominator of which is the
Option Repurchase Price less Out-of-Pocket Expenses, or (B) to the Owner, a
certificate for the Option Shares it is then so prohibited from repurchasing,
assuming that the portion of the Option Share Repurchase Price theretofore
delivered is first applied to the payment of Out-of-Pocket Expenses and then to
the repurchase of Option Shares.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate or merge with 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 Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company, or (iii) 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 provision 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 the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than Issuer),
(ii) Issuer in a merger in which Issuer is the continuing or surviving person,
and (iii) the transferee of all or substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock to be issued
by the issuer of the Substitute Option upon exercise of the Substitute
Option.
(3) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(4) "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 or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger 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 the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
(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 the Holder. The issuer of the Substitute Option shall
also enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Stock Option Agreement, which
shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then
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exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for a number of shares that together with the
number of shares owned by Grantee, other than Trust Account Shares, is more than
10.0% of the shares of Substitute Common Stock outstanding prior to exercise of
the Substitute Option. In the event that the Substitute Option would be
exercisable for more than 10.0% of the shares of Substitute Common Stock
outstanding prior to exercise but for this clause (e), the issuer of the
Substitute Option (the "Substitute Option Issuer") shall make a cash payment to
the Holder equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (e). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to (x) the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised plus (y) Grantee's Out-of-Pocket Expenses (to the extent
not previously reimbursed), and at the request of the owner (the "Substitute
Share Owner") of shares of Substitute Common Stock (the "Substitute Shares"),
the Substitute Option issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price") equal to (x) the Highest Closing Price
multiplied by the number of Substitute Shares so designated plus (y) Grantee's
Out-of-Pocket Expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the 30-day period immediately preceding the date
the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder or the Substitute Share Owner, as the case
may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Stock Option Agreement) and
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the provisions
of this Section 9. As promptly as practicable, and in any event within five
business days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or the portion thereof which the Substitute Option Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer shall immediately so notify the Substitute
Option Holder and/or the Substitute Share Owner and thereafter deliver or cause
to be delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
Substitute Option Issuer is at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 9 prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Substitute
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Option Holder and/or the Substitute Share Owner, as appropriate, the Substitute
Option Repurchase Price and the Substitute Share Repurchase Price, respectively,
in full (and the Substitute Option Issuer shall use its best efforts to receive
all required regulatory and legal approvals as promptly as practicable in order
to accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the sum of (x) the portion
thereof theretofore delivered to the Substitute Option Holder and (y)
Out-of-Pocket Expenses and the denominator of which is the Substitute Option
Repurchase Price less Out-of-Pocket Expenses, or (B) to the Substitute Share
Owner, a certificate for the Substitute Option Shares it is then so prohibited
from repurchasing, assuming that the portion of the Substitute Share Repurchase
Price theretofore delivered is first applied to the payment of Out-of-Pocket
Expenses and then to the repurchase of Substitute Shares.
10. The 30-day period for exercise of certain rights under Sections 2, 6, 7
and 12 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, and for the expiration of all
statutory waiting periods; (ii) during the pendency of any temporary restraining
order, injunction or other legal ban to the exercise of such rights and (iii) to
the extent necessary to avoid liability under Section 16(b) of the 1934 Act by
reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Stock Option Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Stock Option Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer and no other corporate
proceedings on the part of Issuer are necessary to authorize this Stock Option
Agreement or to consummate the transactions so contemplated. This Stock Option
Agreement has been duly and validly executed and delivered by Issuer. This Stock
Option Agreement is the valid and legally binding obligation of Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Stock Option Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights and
obligations under this Stock Option Agreement or the Option created hereunder to
any other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 30
days following such Subsequent Triggering Event (or such later period as may be
provided pursuant to Section 10); provided, however, that until the date 30 days
following the date of any required approvals of the FRB under the Bank Holding
Company Act to acquire the shares of Common Stock subject to the Option is
received by the Grantee, Grantee may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of Issuer, (iii) an assignment to a single party (e.g., a broker
or investment banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf, or (iv) any other manner approved by the FRB.
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13. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and Governmental
Entities necessary to the consummation of the transactions contemplated by this
Stock Option Agreement, including without limitation making application to list
the shares of Common Stock issuable hereunder on the New York Stock Exchange
upon official notice of issuance and making any necessary applications to the
FRB under the Bank Holding Company Act for approval to acquire the shares
issuable hereunder.
14. Notwithstanding anything to the contrary herein, in the event that the
Holder or Owner or any affiliate (as defined in Rule 12b-2 of the rules and
regulations under the 1934 Act) thereof is a person making an offer or proposal
to engage in an Acquisition Transaction (other than the Merger), then (i) in the
case of a Holder or any affiliate thereof, the Option held by it shall
immediately terminate and be of no further force or effect, and (ii) in the case
of an Owner or any affiliate thereof, the Option Shares held by it shall be
immediately repurchasable by Issuer at the Option Price.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Stock Option Agreement by either party hereto and
that the obligations of the parties shall hereto be enforceable by either party
hereto through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this Stock
Option Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Stock
Option 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 Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 7, the full number of shares of
Common Stock provided in Section 1(a) hereof (as adjusted pursuant to Section
1(b) or 5 hereof), it is the express intention of Issuer to allow the Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Agreement.
18. This Stock Option Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
19. This Stock Option Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
20. Except as otherwise expressly provided herein, 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.
21. Except as otherwise expressly provided herein or in the Agreement, this
Stock Option Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Stock Option Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Stock Option Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors except as assigns, any rights, remedies, obligations or
liabilities under or by reason of this Stock Option Agreement, except as
expressly provided herein.
22. Terms used in this Stock Option Agreement and not defined herein but
defined in the Agreement shall have the meanings assigned thereto in the
Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed on its behalf by their officers thereunto duly
authorized, all as of the date first above written.
NATIONAL CITY CORPORATION
By: /s/ VINCENT A. DIGIROLAMO
------------------------------------
Vincent A. DiGirolamo
Vice Chairman
FIRST OF AMERICA BANK CORPORATION
By: /s/ RICHARD F. CHORMANN
------------------------------------
Richard F. Chormann
Chairman, President and
Chief Executive Officer
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PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
person who was or is, or is threatened to be made, a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation, by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise). The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, such person had no reasonable cause to believe
his conduct was unlawful. A Delaware corporation may indemnify such persons in
actions brought by or in the right of the corporation to procure a judgment in
its favor under the same conditions, except that no indemnification is permitted
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and to the extent the Court of
Chancery of the state of Delaware or the court in which such action or suit was
brought shall determine upon application that, in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses as the Court of Chancery or other such court shall deem proper. To the
extent such person has been successful on the merits or otherwise in defense of
any action referred to above, or in defense of any claim, issue or matter
therein, the corporation must indemnify him against expenses (including
attorney's fees) actually and reasonably incurred by him in connection
therewith. The indemnification and advancement of expenses provided for, or
granted pursuant to, Section 145 are not exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise. Section 145 also provides that a corporation may maintain insurance
against liabilities for which indemnification is not expressly provided by the
statute.
Article VI of National City's By-Laws provides for the mandatory
indemnification of directors, officers or employees of National City or any of
its subsidiaries and of those persons serving at the request of National City as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise in accordance with and to the full
extent permitted by the DGCL. National City has purchased liability insurance
covering certain liabilities which may be incurred by the directors, officers,
employees and agents of National City and its subsidiaries in connection with
the performance of their duties.
In addition, National City's Certificate, as permitted by Section 102(d) of
the DGCL, limits directors' liability to National City and its stockholders by
eliminating liability in damages for breach of fiduciary duty of care. Article
Seventh of National City's Certificate provides that neither National City nor
its stockholders may recover damages from National City's directors or former
directors for breach of their duty of care in the performance of their duties as
directors of National City. As limited by Section 102(b), this provision cannot,
however, have the effect of indemnifying any director or former director of
National City in the case of liability (a) for a breach of the director's duty
of loyalty, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) for unlawful payments
of dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the DGCL or (d) for any transactions for which the director derived an
improper personal benefit.
The Agreement provides that, from and after the Effective Time, National
City will assume and honor any obligation as provided for and permitted by
applicable federal and state law FOA had immediately prior to the Effective Time
with respect to the indemnification of each person (each such person, an
"Indemnitee," and all such persons, collectively, the "Indemnitees") who was on
November 30, 1997, or has been at any time prior to November 30, 1997, or who
becomes prior to the Effective Time, a director or officer of FOA or any of its
subsidiaries or was serving at the request of FOA as a director or officer of
any domestic or foreign corporation joint venture, trust, employee benefit plan
or other enterprise arising out of FOA's Articles of Incorporation or FOA's
By-laws or any indemnification (to the maximum extent available thereunder and
permitted by applicable
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law or regulation) against any and all losses in connection with or arising out
of any claim which is based upon, arises out of or in any way relates to any
actual or alleged act or omission occurring at or prior to the Effective Time in
the Indemnitee's capacity as a director or officer (whether elected or
appointed) of FWNC or any of its subsidiaries. The Agreement further provides
that, for a period of six years after the Effective Time, National City will use
all reasonable efforts to cause to be maintained in effect current directors'
and officers' liability insurance in an aggregate limit of at least equal to the
aggregate limits of FOA's insurance in place on November 30, 1997 which will
insure FOA's directors and officers for events which occurred before the
Effective Time but were undiscovered at the Effective Time; provided, however,
that the Agreement does not obligate National City to expend, in order to
maintain or provide insurance coverage pursuant to the Agreement, any amount per
annum in excess of 200% of the amount of the annual premium paid as of the date
of the Agreement by National City for its current directors and officers
liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated as of November 30, 1997 by and between National
City Corporation and First of America Bank Corporation (filed as Exhibit 2.1 to
Form 8-K dated December 9, 1997 and incorporated herein by reference).
2.2 Agreement and Plan of Merger dated as of January 12, 1998 by and between National
City Corporation and Fort Wayne National Corporation (filed as Appendix A to the
Prospectus and Proxy Statement contained in Registration Statement No. on
Form S-4 dated as of February 4, 1998 and incorporated herein by reference).
3.1 Restated Certificate of Incorporation of National City Corporation, as amended
(filed as Exhibit 3.1 to National City Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 and incorporated herein by reference).
3.2 National City Corporation First Restatement of By-laws adopted April 27, 1987 (As
Amended through October 24, 1994) (filed as Exhibit 3.2 to Registrant's Form S-4
Registration Statement No. 33-56539 dated November 18, 1994 and incorporated herein
by reference).
4.1 Instruments defining the rights of holders of certain long-term debt of National
City and its consolidated subsidiaries are not filed as exhibits because the amount
of debt under such instruments is less than 10% of the total consolidated assets of
National City. National City undertakes to file these instruments with the
Commission upon request.
4.2 Credit Agreement dated as of February 2, 1996, by and between National City and the
banks named therein (filed as Exhibit 4.2 to Registrants' Proxy Statement Form 14A
#001-10074 dated February 6, 1996 and incorporated herein by reference).
5.1 Opinion of Carlton E. Langer as to the legality of the National City Common being
registered (filed as Exhibit 5-1).
8.1 Opinion of Wachtell, Lipton, Rosen & Katz as to certain tax consequences of the
Merger (filed as Exhibit 8.1).
10.1 National City Corporation Short Term Incentive Compensation Plan for Senior
Officers As Amended and Restated Effective January 1, 1995 (filed as Exhibit 10.1
to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).
10.2 National City Corporation Long Term Incentive Compensation Plan for Senior Officers
as Amended and Restated Effective January 1, 1995 (filed as Exhibit 10.2 to
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994
and incorporated herein by reference).
10.3 National City Corporation Annual Corporate Performance Incentive Plan Effective
January 1, 1995 (filed as Exhibit 10.21 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated herein by reference).
</TABLE>
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<PAGE> 166
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
10.4 National City Savings and Investment Plan, As Amended and Restated Effective July
1, 1992 (filed as Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and incorporated herein by reference).
10.5 The National City Savings and Investment Plan No. 2, As Amended and Restated
Effective January 1, 1992 (filed as Exhibit 10.25 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by
reference).
10.6 National City Corporation's Amended and Restated 1973 Stock Option Plan, as amended
(filed as Exhibit 10.4 to Registration Statement No. 2-91434) and amended 1984
Stock Option Plan (filed as Exhibit 10.2 to NCC's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987); both incorporated herein by reference).
10.7 National City Corporation 1989 Stock Option Plan (filed as Exhibit 10.7 to NCC's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and
incorporated herein by reference).
10.8 National City Corporation's 1993 Stock Option Plan as Amended and Restated (filed
as Appendix F to Registration Statement No. 333-01697 and incorporated herein by
reference).
10.9 National City Corporation 150th Anniversary Stock Option Plan (filed as Exhibit
10.9 to Registration Statement No. 33-59487 and incorporated herein by reference).
10.10 National City Corporation 1997 Stock Option Plan (filed as Exhibit A to National
City Corporation's Proxy Statement Form 14A #000-07229 dated February 19, 1997 and
incorporated herein by reference).
10.11 National City Corporation Plan for Deferred Payment of Directors' Fees, as amended
(filed as Exhibit 10.5 to Registration Statement No. 2-914334 and incorporated
herein by reference).
10.12 National City Corporation Supplemental Executive Retirement Plan, as Amended and
Restated effective January 1, 1997 (filed as Exhibit 10.12 to Registration
Statement No. on Form S-4 dated as of February 4, 1998 and incorporated
herein by reference).
10.13 National City Corporation Executive Savings Plan As Amended and Restated Effective
January 1, 1995 (filed as Exhibit 10.9 to NCC's Annual Report on Form 10-K for its
fiscal year ended December 31, 1994, and incorporated herein by reference).
10.14 National City Corporation Amended and Second Restated 1991 Restricted Stock Plan
(filed as Exhibit 10.9 to Registration Statement No. 33-49823 and incorporated
herein by reference).
10.15 National City Corporation 1997 Restricted Stock Plan (filed as Exhibit B to
National City Corporation's Proxy Statement Form 14A #000-07229 dated February 19,
1997 and incorporated herein by reference).
10.16 First Kentucky National Corporation 1985 Stock Option Plan (filed as Exhibit 10.2
to First Kentucky National Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, and incorporated herein by reference).
10.17 First Kentucky National Corporation 1982 Stock Option Plan (filed as Exhibit 10.3
to First Kentucky National Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, and incorporated herein by reference).
10.18 Form of grant made under National City Corporation 1991 Restricted Stock Plan made
in connection with National City Corporation Supplemental Executive Retirement Plan
as amended (filed as Exhibit 10.10 to NCC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, and incorporated herein by reference).
10.19 Amended Employment Agreement dated July 21, 1989 by and between Merchants National
Corporation or a subsidiary and Otto N. Frenzel, III (filed as Exhibit 10(21) to
Merchants National Corporation Annual Report of Form 10-K for the fiscal year ended
December 31, 1987 and incorporated herein by reference).
</TABLE>
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<PAGE> 167
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
10.20 Split Dollar Insurance Agreement dated January 4, 1988 between Merchants National
Corporation and Otto N. Frenzel, III Irrevocable Trust II (filed as Exhibit 10(26)
to Merchants National Corporation Annual Report on Form 10-K for the fiscal year
ended December 31, 1989 and incorporated herein by reference).
10.21 Merchants National Corporation Director's Deferred Compensation Plan, as amended
and restated August 16, 1983 (filed as Exhibit 10(3) to Merchants National
Corporation Registration Statement as Form S-2 filed June 28, 1985, incorporated
herein by reference).
10.22 Merchants National Corporation Supplemental Pension Plan dated November 20, 1984;
First Amendment to the Supplemental Pension Plans dated January 21, 1986; Second
Amendment to the Supplemental Pension Plans dated July 3, 1989; and Third Amendment
to the Supplemental Pension Plans dated November 21, 1990 (filed respectively as
exhibit 10(n) to Merchants National Corporation Annual Report on Form 10-K for the
year ended December 31, 1984; as Exhibit 10(q) to the Merchants National
Corporation Annual Report on Form 10-K for the year ended December 31, 1985; as
Exhibit 10(49) to Merchants National Corporation Annual Report on Form 10-K for the
year ended December 31, 1990; and as Exhibit 10(50) to the Merchants National
Corporation Annual Report on Form 10-K for the year ended December 31, 1990; all
incorporated herein by reference).
10.23 Merchants National Corporation Employee Benefit Trust Agreement, effective July 1,
1987 (filed as Exhibit 10(27) to Merchants National Corporation Annual Report on
Form 10-K for the year ended December 31, 1987, incorporated herein by reference).
10.24 Merchants National Corporation Non-qualified Stock Option Plan effective January
20, 1987, and the First Amendment to that Merchants National Non-qualified Stock
Option Plan, effective October 16, 1990 (filed respectively as Exhibit 10(23) to
Merchants National Corporation Annual Report on Form 10-K by the year ended
December 31, 1986, and as Exhibit 10(55) to Merchants National Corporation Annual
Report on Form 10-K for the year ended December 31, 1990, both of which are
incorporated herein by reference).
10.25 Merchants National Corporation 1987 Non-qualified Stock Option Plan, effective
November 17, 1987, and the First Amendment to Merchants National Corporation 1987
Non-qualified Stock Option Plan, effective October 16, 1990, (filed respectively as
Exhibit 10(30) to Merchants National Corporation Annual Report on Form 10-K by the
year ended December 31, 1987, and as Exhibit 10(61) to Merchants National
Corporation Annual Report on Form 10-K for the year ended December 31, 1990, both
of which are incorporated herein by reference).
10.26 Merchants National Corporation Directors Non-qualified Stock Option Plan and the
First Amendment to Merchants National Corporation Directors Non-qualified Stock
Option Plan effective October 16, 1990 (filed respectively as Exhibit 10(44) to
Merchants National Corporation Annual Report on Form 10-K for the year ended
December 31, 1988, and as Exhibit 10(68) to Merchants National Corporation Annual
Report on Form 10-K for the year ended December 31, 1990, both of which are
incorporated herein by reference).
10.27 Central Indiana Bancorp Option Plan effective March 15, 1991 (filed as Exhibit
10.26 to Registrants Annual Report on Form 10-K for the fiscal year ended December
31, 1994 and incorporated herein by reference).
10.28 Central Indiana Bancorp 1993 Option Plan effective October 12, 1993 (filed as
Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10.29 Forms of contracts with David A. Daberko, Vincent A. DiGirolamo, William E.
MacDonald III, Jon L. Gorney, Harold B. Todd, Jr., Robert G. Siefers, Robert J.
Ondercik, Jeffrey D. Kelly, David L. Zoeller, Thomas A. Richlovsky, James P.
Gulick, Gary A. Glaser, J. Christopher Graffeo, Herbert R. Martens, Jr, Robert E.
Showalter, Thomas W. Golonski and James R. Bell (filed as Exhibit 10.29 to
Registration Statement No. on Form S-4 dated as of February 4, 1998 and
incorporated herein by reference).
</TABLE>
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<PAGE> 168
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
10.30 Split Dollar Insurance Agreement effective January 1, 1994 between National City
Corporation and those individuals listed in Exhibit 10.27 and other key employees
(filed as exhibit 10.28 to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by reference).
10.31 National City Corporation Short-Term Incentive Compensation Plan for Senior
Officers--Corporate Results As Amended and Restated Effective January 1, 1996
(filed as Exhibit 10.31 to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 and incorporated herein by reference).
10.32 Consulting Agreement dated as of August 27, 1995 by and between Integra Financial
Corporation and William F. Roemer, (filed as Exhibit 10.30 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 and incorporated
herein by reference).
10.33 Stock Option Agreement dated as of November 30, 1997 between National City
Corporation ("Grantee") and First of America Bank Corporation ("Issuer") (filed as
Exhibit 2.2 to Form 8-K dated December 9, 1997 and incorporated herein by
reference).
10.34 Stock Option Agreement dated as of November 30, 1997 between National City
Corporation ("Issuer") and First of America Bank Corporation ("Grantee") (filed as
Exhibit 2.3 to Form 8-K dated December 9, 1997 and incorporated herein by
reference).
10.35 Stock Option Agreement dated as of January 12, 1998 between National City
Corporation ("Grantee") and Fort Wayne National Corporation ("Issuer") (filed as
Appendix C to the Prospectus and Proxy Statement contained in Registration
Statement No. on Form S-4 dated as of February 4, 1998 and incorporated
herein by reference).
11.1 Computation of Earnings per share (filed as Exhibit 11.1 to Registration Statement
No. on Form S-4 dated as of February 4, 1998 and incorporated herein by
reference).
21.1 Subsidiaries (filed as Exhibit 21.1 to Registration Statement No. on Form S-4
dated as of February 4, 1998 and incorporated herein by reference).
23.1 Consent of Ernst & Young LLP, Independent Auditors for National City Corporation
and Fort Wayne National Corporation (filed as Exhibit 23.1).
23.2 Consent of Merrill Lynch & Co. (filed as Exhibit 23.2).
23.3 Consent of UBS Securities LLC (included in its fairness opinion as filed as
Appendix C to the Prospectus and Joint Proxy Statement contained in this
Registration Statement and incorporated herein by reference).
23.4 Consent of NationsBanc Montgomery Securities, Inc. (included in its fairness
opinion as filed as Appendix D to the Prospectus and Joint Proxy Statement
contained in this Registration Statement and incorporated herein by reference).
23.5 Consent of KPMG Peat Marwick LLP, Independent Auditors for First of America Bank
Corporation (filed as Exhibit 23.5).
23.6 Consent of Wachtell, Lipton, Rosen & Katz (included in their opinion filed as
Exhibit 8.1 to the Registration Statement and incorporated herein by reference).
23.7 Consent of Carlton E. Langer (included in his opinion filed as Exhibit 5.1 to this
Registration Statement and incorporated herein by reference).
23.8 Consent of Richard F. Chormann (filed as Exhibit 23.8).
23.9 Consent of John E. Barfield (filed as Exhibit 23.9).
23.10 Consent of John W. Brown (filed as Exhibit 23.10).
23.11 Consent of Clifford L. Greenwalt (filed as Exhibit 23.11).
23.12 Consent of Dorothy A. Johnson (filed as Exhibit 23.12).
24.1 Powers of Attorney (filed as Exhibit 24.1).
</TABLE>
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<PAGE> 169
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
27.1 Financial Data Schedule (filed as Exhibit 27.1 to National City Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference).
99.1 Form of Proxy to be used in soliciting holders of National City Common for its
Annual Meeting of Stockholders (filed as Exhibit 99.1)
99.2 Form of Proxy to be used in soliciting holders of FOA Common for its Special
Meeting of Shareholders (filed as Exhibit 99.2)
</TABLE>
ITEM 22. UNDERTAKINGS.
"The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request."
"The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
"The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof."
"The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information."
"(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to the initial bona fide offering
thereof."
"Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the
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<PAGE> 170
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue."
"The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof."
II-7
<PAGE> 171
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO,
ON FEBRUARY 18, 1998.
NATIONAL CITY CORPORATION
By: /s/ ROBERT G. SIEFERS
----------------------------------
Robert G. Siefers,
Vice Chairman
and Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ----------------------------------- ------------------
<S> <C> <C>
/s/ DAVID A DABERKO* Chairman and Chief Executive February 18, 1998
- ---------------------------------------- Officer, Director
David A. Daberko
/s/ ROBERT G. SIEFERS Vice Chairman and Chief Financial February 18, 1998
- ---------------------------------------- Officer
Robert G. Siefers
/s/ THOMAS A. RICHLOVSKY Senior Vice President and Treasurer February 18, 1998
- ----------------------------------------
Thomas A. Richlovsky
/s/ SANDRA H. AUSTIN* Director February 18, 1998
- ----------------------------------------
Sandra H. Austin
/s/ CHARLES H. BOWMAN* Director February 18, 1998
- ----------------------------------------
Charles H. Bowman
/s/ EDWARD B. BRANDON* Director February 18, 1998
- ----------------------------------------
Edward B. Brandon
/s/ JOHN G. BREEN* Director February 18, 1998
- ----------------------------------------
John G. Breen
/s/ DUANE E. COLLINS* Director February 18, 1998
- ----------------------------------------
Duane E. Collins
/s/ DANIEL E. EVANS* Director February 18, 1998
- ----------------------------------------
Daniel E. Evans
/s/ OTTO N. FRENZEL III* Director February 18, 1998
- ----------------------------------------
Otto N. Frenzel III
/s/ BERNADINE P. HEALY, M.D.* Director February 18, 1998
- ----------------------------------------
Bernadine P. Healy, M.D.
/s/ JOSEPH H. LEMIEUX* Director February 18, 1998
- ----------------------------------------
Joseph H. Lemieux
/s/ W. BRUCE LUNSFORD* Director February 18, 1998
- ----------------------------------------
W. Bruce Lunsford
/s/ ROBERT A. PAUL* Director February 18, 1998
- ----------------------------------------
Robert A. Paul
/s/ WILLIAM R. ROBERTSON* Director February 18, 1998
- ----------------------------------------
William R. Robertson
/s/ WILLIAM F. ROEMER* Director February 18, 1998
- ----------------------------------------
William F. Roemer
</TABLE>
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<PAGE> 172
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ----------------------------------- ------------------
<S> <C> <C>
/s/ MICHAEL A. SCHULER* Director February 18, 1998
- ----------------------------------------
Michael A. Schuler
/s/ STEPHEN A. STITLE* Director February 18, 1998
- ----------------------------------------
Stephen A. Stitle
/s/ MORRY WEISS* Director February 18, 1998
- ----------------------------------------
Morry Weiss
</TABLE>
*David L. Zoeller, the undersigned attorney-in-fact, by signing his name
below, does hereby sign this Registration Statement on behalf of each of the
above-indicated officers and directors of National City (constituting a majority
of the directors) pursuant to a power of attorney executed by such persons and
filed with the Securities and Exchange Commission contemporaneously herewith.
Dated: February 18, 1998
/s/ DAVID L. ZOELLER
------------------------------------
David L. Zoeller
Attorney-in-Fact
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<PAGE> 173
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY NUMBERED
NUMBER EXHIBIT DESCRIPTION COPY
- ----- ------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of November 30, 1997 by and between
National City Corporation and First of America Bank Corporation (filed as
Exhibit 2.1 to Form 8-K dated December 9, 1997 and incorporated herein by
reference).
2.2 Agreement and Plan of Merger dated as of January 12, 1998 by and between
National City Corporation and Fort Wayne National Corporation (filed as
Appendix A to the Prospectus and Proxy Statement contained in Registration
Statement No. on Form S-4 dated as of February 4, 1998 and
incorporated herein by reference).
3.1 Restated Certificate of Incorporation of National City Corporation, as
amended (filed as Exhibit 3.1 to National City Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 and incorporated
herein by reference).
3.2 National City Corporation First Restatement of By-laws adopted April 27,
1987 (As Amended through October 24, 1994) (filed as Exhibit 3.2 to
Registrant's Form S-4 Registration Statement No. 33-56539 dated November
18, 1994 and incorporated herein by reference).
4.1 Instruments defining the rights of holders of certain long-term debt of
National City and its consolidated subsidiaries are not filed as exhibits
because the amount of debt under such instruments is less than 10% of the
total consolidated assets of National City. National City undertakes to
file these instruments with the Commission upon request.
4.2 Credit Agreement dated as of February 2, 1996, by and between National City
and the banks named therein (filed as Exhibit 4.2 to Registrants' Proxy
Statement Form 14A #001-10074 dated February 6, 1996 and incorporated
herein by reference).
5.1 Opinion of Carlton E. Langer as to the legality of the National City Common
being registered (filed as Exhibit 5.1).
8.1 Opinion of Wachtell, Lipton, Rosen & Katz as to certain tax consequences of
the Merger (filed as Exhibit 8.1).
10.1 National City Corporation Short Term Incentive Compensation Plan for Senior
Officers As Amended and Restated Effective January 1, 1995 (filed as
Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
10.2 National City Corporation Long Term Incentive Compensation Plan for Senior
Officers as Amended and Restated Effective January 1, 1995 (filed as
Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
10.3 National City Corporation Annual Corporate Performance Incentive Plan
Effective January 1, 1995 (filed as Exhibit 10.21 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.4 National City Savings and Investment Plan, As Amended and Restated
Effective July 1, 1992 (filed as Exhibit 10.24 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.5 The National City Savings and Investment Plan No. 2, As Amended and
Restated Effective January 1, 1992 (filed as Exhibit 10.25 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
</TABLE>
<PAGE> 174
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY NUMBERED
NUMBER EXHIBIT DESCRIPTION COPY
- ----- ------------------------------------------------------------------------------------------------
<S> <C> <C>
10.6 National City Corporation's Amended and Restated 1973 Stock Option Plan, as
amended (filed as Exhibit 10.4 to Registration Statement No. 2-91434) and
amended 1984 Stock Option Plan (filed as Exhibit 10.2 to NCC's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987); both
incorporated herein by reference).
10.7 National City Corporation 1989 Stock Option Plan (filed as Exhibit 10.7 to
NCC's Annual Report on Form 10-K for the fiscal year ended December 31,
1989, and incorporated herein by reference).
10.8 National City Corporation's 1993 Stock Option Plan as Amended and Restated
(filed as Appendix F to Registration Statement No. 333-01697 and
incorporated herein by reference).
10.9 National City Corporation 150th Anniversary Stock Option Plan (filed as
Exhibit 10.9 to Registration Statement No. 33-59487 and incorporated herein
by reference).
10.10 National City Corporation 1997 Stock Option Plan (filed as Exhibit A to
National City Corporation's Proxy Statement Form 14A #000-07229 dated
February 19, 1997 and incorporated herein by reference).
10.11 National City Corporation Plan for Deferred Payment of Directors' Fees, as
amended (filed as Exhibit 10.5 to Registration Statement No. 2-914334 and
incorporated herein by reference).
10.12 National City Corporation Supplemental Executive Retirement Plan, as
Amended and Restated effective January 1, 1997 (filed as Exhibit 10.12 to
Registration Statement No. on Form S-4 dated as of February 4,
1998 and incorporated herein by reference).
10.13 National City Corporation Executive Savings Plan As Amended and Restated
Effective January 1, 1995 (filed as Exhibit 10.9 to NCC's Annual Report on
Form 10-K for its fiscal year ended December 31, 1994, and incorporated
herein by reference).
10.14 National City Corporation Amended and Second Restated 1991 Restricted Stock
Plan (filed as Exhibit 10.9 to Registration Statement No. 33-49823 and
incorporated herein by reference).
10.15 National City Corporation 1997 Restricted Stock Plan (filed as Exhibit B to
National City Corporation's Proxy Statement Form 14A #000-07229 dated
February 19, 1997 and incorporated herein by reference).
10.16 First Kentucky National Corporation 1985 Stock Option Plan (filed as
Exhibit 10.2 to First Kentucky National Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1987, and incorporated herein
by reference).
10.17 First Kentucky National Corporation 1982 Stock Option Plan (filed as
Exhibit 10.3 to First Kentucky National Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1987, and incorporated herein
by reference).
10.18 Form of grant made under National City Corporation 1991 Restricted Stock
Plan made in connection with National City Corporation Supplemental
Executive Retirement Plan as amended (filed as Exhibit 10.10 to NCC's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and
incorporated herein by reference).
10.19 Amended Employment Agreement dated July 21, 1989 by and between Merchants
National Corporation or a subsidiary and Otto N. Frenzel, III (filed as
Exhibit 10(21) to Merchants National Corporation Annual Report of Form 10-K
for the fiscal year ended December 31, 1987 and incorporated herein by
reference).
</TABLE>
<PAGE> 175
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY NUMBERED
NUMBER EXHIBIT DESCRIPTION COPY
- ----- ------------------------------------------------------------------------------------------------
<S> <C> <C>
10.20 Split Dollar Insurance Agreement dated January 4, 1988 between Merchants
National Corporation and Otto N. Frenzel, III Irrevocable Trust II (filed
as Exhibit 10(26) to Merchants National Corporation Annual Report on Form
10-K for the fiscal year ended December 31, 1989 and incorporated herein by
reference).
10.21 Merchants National Corporation Director's Deferred Compensation Plan, as
amended and restated August 16, 1983 (filed as Exhibit 10(3) to Merchants
National Corporation Registration Statement as Form S-2 filed June 28,
1985, incorporated herein by reference).
10.22 Merchants National Corporation Supplemental Pension Plan dated November 20,
1984; First Amendment to the Supplemental Pension Plans dated January 21,
1986; Second Amendment to the Supplemental Pension Plans dated July 3,
1989; and Third Amendment to the Supplemental Pension Plans dated November
21, 1990 (filed respectively as exhibit 10(n) to Merchants National
Corporation Annual Report on Form 10-K for the year ended December 31,
1984; as Exhibit 10(q) to the Merchants National Corporation Annual Report
on Form 10-K for the year ended December 31, 1985; as Exhibit 10(49) to
Merchants National Corporation Annual Report on Form 10-K for the year
ended December 31, 1990; and as Exhibit 10(50) to the Merchants National
Corporation Annual Report on Form 10-K for the year ended December 31,
1990; all incorporated herein by reference).
10.23 Merchants National Corporation Employee Benefit Trust Agreement, effective
July 1, 1987 (filed as Exhibit 10(27) to Merchants National Corporation
Annual Report on Form 10-K for the year ended December 31, 1987,
incorporated herein by reference).
10.24 Merchants National Corporation Non-qualified Stock Option Plan effective
January 20, 1987, and the First Amendment to that Merchants National
Non-qualified Stock Option Plan, effective October 16, 1990 (filed
respectively as Exhibit 10(23) to Merchants National Corporation Annual
Report on Form 10-K by the year ended December 31, 1986, and as Exhibit
10(55) to Merchants National Corporation Annual Report on Form 10-K for the
year ended December 31, 1990, both of which are incorporated herein by
reference).
10.25 Merchants National Corporation 1987 Non-qualified Stock Option Plan,
effective November 17, 1987, and the First Amendment to Merchants National
Corporation 1987 Non-qualified Stock Option Plan, effective October 16,
1990, (filed respectively as Exhibit 10(30) to Merchants National
Corporation Annual Report on Form 10-K by the year ended December 31, 1987,
and as Exhibit 10(61) to Merchants National Corporation Annual Report on
Form 10-K for the year ended December 31, 1990, both of which are
incorporated herein by reference).
10.26 Merchants National Corporation Directors Non-qualified Stock Option Plan
and the First Amendment to Merchants National Corporation Directors
Non-qualified Stock Option Plan effective October 16, 1990 (filed
respectively as Exhibit 10(44) to Merchants National Corporation Annual
Report on Form 10-K for the year ended December 31, 1988, and as Exhibit
10(68) to Merchants National Corporation Annual Report on Form 10-K for the
year ended December 31, 1990, both of which are incorporated herein by
reference).
10.27 Central Indiana Bancorp Option Plan effective March 15, 1991 (filed as
Exhibit 10.26 to Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
10.28 Central Indiana Bancorp 1993 Option Plan effective October 12, 1993 (filed
as Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by reference).
</TABLE>
<PAGE> 176
<TABLE>
<CAPTION>
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<S> <C> <C>
10.29 Forms of contracts with David A. Daberko, Vincent A. DiGirolamo, William E.
MacDonald III, Jon L. Gorney, Harold B. Todd, Jr., Robert G. Siefers,
Robert J. Ondercik, Jeffrey D. Kelly, David L. Zoeller, Thomas A.
Richlovsky, James P. Gulick, Gary A. Glaser, J. Christopher Graffeo,
Herbert R. Martens, Jr, Robert E. Showalter, Thomas W. Golonski and James
R. Bell (filed as Exhibit 10.29 to Registration Statement No. on Form S-4
dated as of February 4, 1998 and incorporated herein by reference).
10.30 Split Dollar Insurance Agreement effective January 1, 1994 between National
City Corporation and those individuals listed in Exhibit 10.27 and other
key employees (filed as exhibit 10.28 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 and incorporated herein by
reference).
10.31 National City Corporation Short-Term Incentive Compensation Plan for Senior
Officers--Corporate Results As Amended and Restated Effective January 1,
1996 (filed as Exhibit 10.31 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 and incorporated herein by
reference).
10.32 Consulting Agreement dated as of August 27, 1995 by and between Integra
Financial Corporation and William F. Roemer, (filed as Exhibit 10.30 to
Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1996 and incorporated herein by reference).
10.33 Stock Option Agreement dated as of November 30, 1997 between National City
Corporation ("Grantee") and First of America Bank Corporation ("Issuer")
(filed as Exhibit 2.2 to Form 8-K dated December 9, 1997 and incorporated
herein by reference).
10.34 Stock Option Agreement dated as of November 30, 1997 between National City
Corporation ("Issuer") and First of America Bank Corporation ("Grantee")
(filed as Exhibit 2.3 to Form 8-K dated December 9, 1997 and incorporated
herein by reference).
10.35 Stock Option Agreement dated as of January 12, 1998 between National City
Corporation ("Grantee") and Fort Wayne National Corporation ("Issuer")
(filed as Appendix C to the Prospectus and Proxy Statement contained in
Registration Statement No. on Form S-4 dated as of February 4,
1998 and incorporated herein by reference).
11.1 Computation of Earnings per share (filed as Exhibit 11.1 to Registration
Statement No. on Form S-4 dated as of February 4, 1998 and
incorporated herein by reference).
21.1 Subsidiaries (filed as Exhibit 21.1 to Registration Statement No. on Form
S-4 dated as of February 4, 1998 and incorporated herein by reference).
23.1 Consent of Ernst & Young LLP, Independent Auditors for National City
Corporation and Fort Wayne National Corporation (filed as Exhibit 23.1).
23.2 Consent of Merrill Lynch & Co. (filed as Exhibit 23.2).
23.3 Consent of UBS Securities LLC (included in its fairness opinion as filed as
Appendix C to the Prospectus and Joint Proxy Statement contained in this
Registration Statement and incorporated herein by reference).
23.4 Consent of NationsBanc Montgomery Securities, Inc. (included in its
fairness opinion as filed as Appendix D to the Prospectus and Joint Proxy
Statement contained in this Registration Statement and incorporated herein
by reference).
23.5 Consent of KPMG Peat Marwick LLP, Independent Auditors for First of America
Bank Corporation (filed as Exhibit 23.5).
23.6 Consent of Wachtell, Lipton, Rosen & Katz (included in their opinion filed
as Exhibit 8.1 to the Registration Statement and incorporated herein by
reference).
</TABLE>
<PAGE> 177
<TABLE>
<CAPTION>
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NUMBER EXHIBIT DESCRIPTION COPY
- ----- ------------------------------------------------------------------------------------------------
<S> <C> <C>
23.7 Consent of Carlton E. Langer (included in his opinion filed as Exhibit 5.1
to this Registration Statement and incorporated herein by reference).
23.8 Consent of Richard F. Chormann (filed as Exhibit 23.8).
23.9 Consent of John E. Barfield (filed as Exhibit 23.9).
23.10 Consent of John W. Brown (filed as Exhibit 23.10).
23.11 Consent of Clifford L. Greenwalt (filed as Exhibit 23.11).
23.12 Consent of Dorothy A. Johnson (filed as Exhibit 23.12).
24.1 Powers of Attorney (filed as Exhibit 24.1).
27.1 Financial Data Schedule (filed as Exhibit 27.1 to National City
Corporation's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference).
99.1 Form of Proxy to be used in soliciting holders of National City Common for
its Annual Meeting of Stockholders (filed as Exhibit 99.1)
99.2 Form of Proxy to be used in soliciting holders of FOA Common for its
Special Meeting of Shareholders (filed as Exhibit 99.2)
</TABLE>
<PAGE> 1
Exhibit 5.1
February 18, 1998
National City Corporation
1900 East Ninth Street
Cleveland, OH 44114
Re: Shares of Common Stock, par value $4.00 per share of National City
Corporation to be Registered in connection with the Merger of First of
America Bank Corporation with and into National City Corporation
Gentlemen:
The Law Department acts as counsel to National City Corporation
("National City") and in connection with the transaction contemplated under the
Merger Agreement as hereinafter defined, we are delivering this opinion in
connection with the Merger (the "Merger") of First of America Bank Corporation
("FOA") with and into National City in accordance with the Agreement and Plan of
Merger, dated as of November 30, 1997 (the "Merger Agreement"), by and between
FOA and National City, pursuant to which National City may issue and deliver up
to 108,121,561 shares of its common stock, par value $4.00 per share (the
"National City Common Shares").
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion, and based thereon we are of the
opinion that the National City Common Shares which may be exchanged will be,
when exchanged or transferred, validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as to the Registration
Statement on Form S-4 filed by National City to effect registration of the
National City Common Shares in connection with the Merger under the Securities
Act of 1933, and to the reference to us under the caption "LEGAL OPINIONS" in
the prospectus comprising a part of such Registration Statement.
Very truly yours,
/s/ Carlton E. Langer
National City Corporation
Carlton E. Langer
Assistant General Counsel
<PAGE> 1
Exhibit 8.1
[Letterhead of Wachtell, Lipton, Rosen & Katz]
[Form of Tax Opinion]
February 19, 1998
National City Corporation
1900 East Ninth Street
Cleveland, Ohio 44114
First of America Bank Corporation
211 South Rose Street
Kalamazoo, Michigan 49007
Ladies/Gentlemen:
We have acted as special counsel to First of America Bank Corporation,
a Michigan corporation ("FOA"), in connection with the proposed merger
(the "Merger") of FOA with and into National City Corporation, a Delaware
corporation ("National City"), upon the terms and conditions set forth in the
Agreement and Plan of Merger dated as of November 30, 1997, by and between
National City and FOA (the "Agreement"). At your request, in connection with
the filing of the Registration Statement on Form S-4 filed with the Securities
and Exchange Commission in connection with the Merger (the "Registration
Statement"), we are rendering our opinion concerning certain federal income tax
consequences of the Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of FOA and the consent of National City, upon the accuracy and
completeness of the statements and representations (which statements and
representations we have neither investigated nor verified) contained,
respectively, in the certificates of the officers of FOA and National City
dated the date hereof, and have assumed that
<PAGE> 2
National City Corporation
First of America Corporation
February 19, 1998
Page 2
such certificates will be complete and accurate as of the Effective Time. We
have also relied upon the accuracy of the Registration Statement and the
Prospectus and Joint Proxy Statement included therein (together, the "Proxy
Statement"). Any capitalized term used and not defined herein has the meaning
given to it in the Proxy Statement or the appendices thereto (including the
Agreement).
We have assumed certain factual circumstances will exist at the
Effective Time, including (i) the Merger being qualified as a statutory merger
under the applicable laws of the states of Michigan and Delaware and (ii)
certain representations made or to be made by National City, FOA and others. We
are unable to render an opinion as to the qualification of the Merger as a
statutory merger under the laws of the states of Michigan and Delaware at this
time because such qualifications are contingent on future factors on which we
cannot presently render an opinion.
Based upon and subject to the foregoing, it is our opinion that, under
currently applicable United States federal income tax law, the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code and, accordingly, for United States federal income
tax purposes:
(i) No gain or loss will be recognized by National City or FOA as a
result of the Merger;
(ii) No gain or loss will be recognized by the shareholders of FOA
who exchange their shares of FOA Common solely for shares of National City
Common pursuant to the Merger (except with respect to cash received in lieu
of fractional share interest in National City Common);
(iii) The tax basis of shares of National City Common received by
shareholders of FOA who exchange all of their shares of FOA Common solely
for shares of National City Common in the Merger will be the same as the
aggregate tax basis of the shares of FOA Common surrendered in exchange
therefor (reduced by any amount allocable to a fractional share interest
for which cash is received); and
(iv) The holding period of the shares of National City Common
received in the Merger will include the period during which the shares of
FOA Common surrendered in exchange therefor were held, provided such shares
of FOA Common were held as capital assets at the Effective Time.
<PAGE> 3
National City Corporation
First of America Corporation
February 19, 1998
Page 3
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement, and to the
references to us under the captions "SUMMARY -- Certain Federal Income Tax
Consequences" and "MERGER -- Certain Federal Income Tax Consequences" and
elsewhere in the Proxy Statement. In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
This opinion may not be applicable to shareholders subject to special
treatment under U.S. federal income tax law (including, for example, non-U.S.
persons, financial institutions, dealers in securities, insurance companies or
tax-exempt entities, holders who acquired FOA Common pursuant to the exercise of
an employee stock option or right or otherwise as compensation, and holders who
hold FOA Common as part of a hedge, straddle or conversion transaction).
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
<PAGE> 1
Exhibit 23.1
FWNC
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus and Joint Proxy
Statement of National City Corporation for the proposed merger of National City
Corporation and First of America Bank Corporation for the registration of
approximately 108 million shares of National City Corporation's common stock and
to the incorporation by reference therein of our reports dated January 21, 1998
and January 19, 1998, with respect to the consolidated financial statements of
National City Corporation and Fort Wayne National Corporation, respectively,
included in their respective Annual Reports on Form 10-K for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 17, 1998
<PAGE> 1
Exhibit 23.2
[FORM OF MERRILL LYNCH CONSENT]
February 18, 1998
First of America Bank Corporation
211 South Rose Street
Kalamazoo, MI 49007
Dear Sirs:
We hereby consent to the use of our opinion letter to the Board of
Directors of First of America Bank Corporation included as Appendix B to the
Prospectus and Joint Proxy Statement which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of First of America Bank
Corporation with National City Corporation, and to the references to our Firm
and such opinion in such Prospectus and Joint Proxy Statement under the
captions "Summary - Opinion of Financial Advisors," "Merger - Background of
and Reasons for the Merger - FOA" and "Merger - Opinions of Financial
Advisors - Opinion to FOA." In giving such consent, we do not admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we hereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
<PAGE> 1
Exhibit 23.5
[KPMG PEAT MARWICK LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
The Board of Directors
First of America Bank Corporation:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
February 18, 1998
<PAGE> 1
Exhibit 23.8
CONSENT OF RICHARD F. CHORMANN
I hereby consent to the reference of my name as being one of the
individuals who is anticipated to be named to the Board of Directors of National
City Corporation at the Effective Time of the merger of National City
Corporation and First of America Bank Corporation in the Prospectus and Proxy
Statement filed with the Securities and Exchange Commission as part of the Form
S-4 Registration Statement of National City Corporation.
/s/ Richard F. Chormann
---------------------------------------
Richard F. Chormann
<PAGE> 1
Exhibit 23.9
CONSENT OF JON E. BARFIELD
I hereby consent to the reference of my name as being one of the
individuals who is anticipated to be named to the Board of Directors of National
City Corporation at the Effective Time of the merger of National City
Corporation and First of America Bank Corporation in the Prospectus and Proxy
Statement filed with the Securities and Exchange Commission as part of the Form
S-4 Registration Statement of National City Corporation.
/s/ Jon E. Barfield
---------------------------------------
Jon E. Barfield
<PAGE> 1
Exhibit 23.10
CONSENT OF JOHN W. BROWN
I hereby consent to the reference of my name as being one of the
individuals who is anticipated to be named to the Board of Directors of National
City Corporation at the Effective Time of the merger of National City
Corporation and First of America Bank Corporation in the Prospectus and Proxy
Statement filed with the Securities and Exchange Commission as part of the Form
S-4 Registration Statement of National City Corporation.
/s/ Jon W. Brown
---------------------------------------
John W. Brown
<PAGE> 1
Exhibit 23.11
CONSENT OF CLIFFORD L. GREENWALT
I hereby consent to the reference of my name as being one of the
individuals who is anticipated to be named to the Board of Directors of National
City Corporation at the Effective Time of the merger of National City
Corporation and First of America Bank Corporation in the Prospectus and Proxy
Statement filed with the Securities and Exchange Commission as part of the Form
S-4 Registration Statement of National City Corporation.
/s/ Clifford L. Greenwalt
---------------------------------------
Clifford L. Greenwalt
<PAGE> 1
Exhibit 23.12
CONSENT OF DOROTHY A. JOHNSON
I hereby consent to the reference of my name as being one of the
individuals who is anticipated to be named to the Board of Directors of National
City Corporation at the Effective Time of the merger of National City
Corporation and First of America Bank Corporation in the Prospectus and Proxy
Statement filed with the Securities and Exchange Commission as part of the Form
S-4 Registration Statement of National City Corporation.
/s/ Dorothy A Johnson
---------------------------------------
Dorothy A. Johnson
<PAGE> 1
Exhibit 24.1
DIRECTORS AND OFFICERS OF
NATIONAL CITY CORPORATION
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned Directors and Officers of National City Corporation, a
Delaware corporation (the "Corporation"), hereby constitute and appoint David L.
Zoeller, Carlton E. Langer and Thomas A. Richlovsky, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
us and in our names, in the capacities indicated below, under the Securities Act
of 1933, as amended, a Registration Statement on Form S-4 relating to the
registration of the shares of Common Stock, par value $4.00 per share, of the
Corporation to be issued pursuant to an Agreement and Plan of Merger by and
between the Corporation and First of America Bank Corporation dated as of
November 30, 1997, and any and all amendments and exhibits thereto, including
post-effective amendments, and any and all applications or other documents to be
filed with the Securities and Exchange Commission pertaining thereto, with full
power and authority to do and perform any and all acts and things whatsoever
required and necessary to be done in the premises, as fully to all intents and
purposes as we could do if personally present, hereby ratifying and approving
the acts of said attorneys, and any of them, and any such substitute.
EXECUTED this 22nd day of December, 1997.
/s/ Sandra H. Austin Director
- ----------------------------------
Sandra H. Austin
/s/ Charles H. Bowman Director
- ----------------------------------
Charles H. Bowman
/s/ Edward B. Brandon Director
- ----------------------------------
Edward B. Brandon
/s/ John G. Breen Director
- ----------------------------------
John G. Breen
/s/ James S Broadhurst Director
- ----------------------------------
James S. Broadhurst
/s/ Duane E. Collins Director
- ----------------------------------
Duane E. Collins
<PAGE> 2
<TABLE>
<S> <C> <C>
/s/ David A Daberko Chairman of the Board and Chief
- ---------------------------------- Executive Officer (Principal Executive Officer)
David A. Daberko
</TABLE>
/s/ Daniel E. Evans Director
- ----------------------------------
Daniel E. Evans
/s/ Otto N. Frenzel III Director
- ----------------------------------
Otto N. Frenzel III
/s/ Bernadine P Healy, M.D. Director
- ----------------------------------
Bernadine P. Healy, M.D.
/s/ Joseph H. Lemieux Director
- ----------------------------------
Joseph H. Lemieux
/s/ W. Bruce Lunsford Director
- ----------------------------------
W. Bruce Lunsford
/s/ Robert A. Paul Director
- ----------------------------------
Robert A. Paul
/s/ William R. Robertson Director
- ----------------------------------
William R. Robertson
/s/ William F. Roemer Director
- ----------------------------------
William F. Roemer
/s/ Michael A. Schuler Director
- ----------------------------------
Michael A. Schuler
/s/ Stephen A. Stitle Director
- ----------------------------------
Stephen A. Stitle
/s/ Morry Weiss Director
- ----------------------------------
Morry Weiss
<PAGE> 1
Exhibit 99.1
DETACH CARD
- --------------------------------------------------------------------------------
[NATIONAL CITY CORPORATION LOGO] PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR MARCH 30, 1998
ANNUAL MEETING
The undersigned stockholder of National City Corporation hereby
appoints Thomas A. Richlovsky and David L. Zoeller and each of
them, with power of substitution, proxies for the undersigned
to vote all the shares of Common Stock of National City which
the undersigned is entitled to vote at the Annual Meeting of
Stockholders of National City to be held on March 30, 1998 and
any adjournment thereof as follows and in their discretion to
vote and act upon such other business as may properly come
before the meeting. The Board of Directors recommends a vote
FOR the following:
1. THE ELECTION OF DIRECTORS
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as otherwise marked below) to vote for all
nominees listed below
S. H. Austin, E. B. Brandon, J. G. Breen, J. S. Broadhurst,
D. E. Collins, D. A. Daberko, D. E. Evans, B. P. Healy,
J. H. Lemieux, W. B. Lunsford, R. A. Paul, W. F. Roemer,
M. A. Schuler, S. A. Stitle and M. Weiss.
(Instructions: to withhold authority to vote for any
individual nominee, strike a line through that nominee's
name.)
2. APPROVE THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. ADOPTION OF THE AGREEMENT AND PLAN OF MERGER DATED AS OF
NOVEMBER 30, 1997 BY AND BETWEEN NATIONAL CITY CORPORATION
AND FIRST OF AMERICA BANK CORPORATION
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed, on the reverse side)
P
R
O
X
Y
<PAGE> 2
DETACH CARD
- --------------------------------------------------------------------------------
Proxy No. (Continued from reverse side) Shares
UNLESS OTHERWISE INDICATED, THE PROXIES ARE INSTRUCTED TO VOTE
FOR THE ELECTION OF DIRECTORS, FOR THE SELECTION OF ERNST &
YOUNG LLP, AND FOR THE ADOPTION OF THE AGREEMENT AND PLAN OF
MERGER DATED NOVEMBER 30, 1997 BY AND BETWEEN NATIONAL CITY
CORPORATION AND FIRST OF AMERICA BANK CORPORATION.
DATE: , 1998
---------------
--------------------------
--------------------------
(Sign here)
INSTRUCTIONS: Please sign
exactly as shown hereon.
When signing as a
fiduciary or on behalf of
a corporation, bank, trust
company, or other similar
entity, your title or
capacity should be shown.
PLEASE SIGN, DATE, AND RETURN YOUR PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE TO STOCK TRANSFER DEPT., (NCC),
NATIONAL CITY BANK, P.O. BOX 92301,
CLEVELAND, OHIO 44193-0900.
<PAGE> 1
Exhibit 99.2
[FIRST LOGO]
Tear at Perforation
- --------------------------------------------------------------------------------
1. Approval of the Agreement and Plan of Merger, dated as
of November 30, 1997, by and between National City
Corporation and First of America Bank Corporation (the
"Merger Agreement").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE MERGER AGREEMENT.
In their discretion, the proxies are authorized to vote
with respect to matters incident to the conduct of the
Meeting and upon such other matters as may properly come
before the Meeting. This proxy may be revoked at any time
before it is exercised.
The undersigned hereby acknowledges receipt of a Notice
of Special Meeting of Shareholders of FOA called for March
30, 1998, and a Prospectus and Joint Proxy Statement for
the Meeting prior to the signing of this proxy.
DATE: , 1998
------------------
-----------------------------
-----------------------------
(Sign here)
Please sign exactly as your
name(s) appear(s) on this
proxy. When signing in a
representing capacity, please
give title.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD
USING THE ENCLOSED ENVELOPE.
FIRST OF AMERICA BANK CORPORATION
ARROW Tear at Perforation ARROW
<PAGE> 2
FIRST OF AMERICA BANK CORPORATION
211 South Rose Street
Kalamazoo, Michigan 49007 PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
SPECIAL MEETING OF SHAREHOLDERS MARCH 30, 1998
The undersigned, being a holder of the common stock,
par value $10.00 per share ("Common Stock"), of FIRST OF
AMERICA BANK CORPORATION, a Michigan corporation ("FOA"),
hereby authorizes Thomas W. Lambert and Richard V.
Washburn, and each of them, as proxies, with the full power
of substitution, to represent the undersigned at the
Special Meeting of Shareholders of FOA (the "Meeting") to
be held at the Radisson Plaza Hotel, 100 West Michigan
Avenue, Kalamazoo, Michigan on March 30, 1998, at 9:00
a.m., local time, and at any adjournment of the Meeting,
and at the Meeting to act with respect to all votes that
the undersigned would be entitled to cast, if then
personally present, as follows:
Shares of Common Stock of FOA will be voted as
specified. If no specification is made, shares will be
voted FOR approval of the Merger Agreement and IN
ACCORDANCE WITH THE DISCRETION OF THE PROXIES as to any
other matter which may properly come before the Meeting.
(Continued, and to be signed, on the reverse side.)
