<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1996
REGISTRATION NO. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 6711 56-0906609
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Code Number) Identification No.)
</TABLE>
NATIONSBANK CORPORATE CENTER
100 NORTH TRYON STREET
CHARLOTTE, NORTH CAROLINA 28255
(704) 386-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
PAUL J. POLKING
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
NATIONSBANK CORPORATION
NATIONSBANK CORPORATE CENTER
100 NORTH TRYON STREET
CHARLOTTE, NORTH CAROLINA 28255
(704) 386-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
BOYD C. CAMPBELL, JR. L. PROCTOR THOMAS
SMITH HELMS MULLISS & MOORE, L.L.P. BAKER & BOTTS, L.L.P.
227 NORTH TRYON STREET 3000 ONE SHELL PLAZA
CHARLOTTE, NORTH CAROLINA 28202 HOUSTON, TEXAS 77002
(704) 343-2000 (713) 229-1234
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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
[CAPTION]
<TABLE>
<S> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE
<S> <C> <C> <C>
Common Stock................ 1,420,000 shares (1) $180,138,739(2)
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock................ $62,117
</TABLE>
(1) Not applicable.
(2) Computed in accordance with Rule 457(f) under the Securities Act of 1933, as
amended, based on (i) the average of the high and low sale price reported on
The Nasdaq Stock Market on March 27, 1996 of the Charter Bancshares, Inc.
Common Stock and (ii) the December 31, 1995 book value of the Charter
Bancshares, Inc. Special Common Stock, to be received by the Registrant in
exchange for the securities registered hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
NATIONSBANK CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE>
<CAPTION>
FORM S-4 ITEM PROXY STATEMENT-PROSPECTUS HEADING
<C> <S> <C>
Information About the Transaction
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Facing Page of Registration Statement; The Cross Reference Sheet;
Outside Front Cover Page of Proxy Statement-Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... TABLE OF CONTENTS; AVAILABLE INFORMATION; INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information........................... SUMMARY
4. Terms of the Transaction........................ SUMMARY; THE MERGER; COMPARISON OF NATIONSBANK COMMON STOCK AND CHARTER
CAPITAL STOCK
5. Pro Forma Financial Information................. *
6. Material Contacts with the Company Being
Acquired........................................ THE MERGER -- Background of and Reasons for the Merger, -- Interests of
Certain Persons in the Merger
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters.................................... *
8. Interests of Named Experts and Counsel.......... LEGAL OPINIONS; EXPERTS
9. Disclosure of Commission Position on Indemni-
fication for Securities Act Liabilities......... *
Information About the Registrant
10. Information with Respect to S-3 Registrants..... INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE; SUMMARY; INFORMATION
ABOUT NATIONSBANK
11. Incorporation of Certain Information by
Reference....................................... INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
12. Information with Respect to S-2 or
S-3 Registrants................................. *
13. Incorporation of Certain Information............ *
14. Information with Respect to Registrants other
than S-2 or S-3 Registrants..................... *
Information About the Company Being Acquired
15. Information with Respect to S-3 Companies....... *
16. Information with Respect to S-2 or
S-3 Companies................................... INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE; SUMMARY; INFORMATION
ABOUT CHARTER
17. Information with Respect to Companies other than
S-2 or S-3 Companies............................ *
Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited.............. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE; SUMMARY; THE SPECIAL
MEETING OF SHAREHOLDERS OF CHARTER; THE MERGER -- Dissenters' Rights of
Charter Shareholders; THE MERGER -- Interests of Certain Persons in the
Merger; INFORMATION ABOUT NATIONSBANK -- Management and Additional
Information; INFORMATION ABOUT CHARTER -- Management and Additional
Information; CHARTER ANNUAL MEETING
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an
Exchange Offer.................................. *
</TABLE>
* Item is omitted because answer is negative or item is inapplicable.
<PAGE>
A registration statement relating to these securities has been
filed with the Securities and Exchange Commission but has not yet
become effective. Information contained herein is subject to
completion or amendment. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
SUBJECT TO COMPLETION
PROXY STATEMENT-PROSPECTUS APRIL , 1996
NATIONSBANK(R)
COMMON STOCK
This Proxy Statement-Prospectus relates to the shares of common stock (the
"NationsBank Common Stock") of NationsBank Corporation, a North Carolina
corporation ("NationsBank"), offered hereby to the shareholders of Charter
Bancshares, Inc., a Texas corporation ("Charter"), upon consummation of a
proposed merger (the "Merger") of Charter with and into NB Holdings Corporation,
a Delaware corporation and a wholly owned subsidiary of NationsBank
("Holdings"), or a newly formed direct wholly owned subsidiary of NationsBank
(Holdings or such new subsidiary being referred to herein as the "Merger
Subsidiary") with the Merger Subsidiary as the surviving corporation, pursuant
to an Agreement and Plan of Merger between NationsBank and Charter dated as of
January 25, 1996 (the "Agreement"). Upon completion of the Merger, each share of
Charter common stock, par value $1.00 per share ("Charter Common Stock"), and
each share of Charter Class B Special Common Stock, par value $1.00 per share,
and each share of Charter Series C Special Common Stock, par value $1.00 per
share (collectively, the "Charter Special Common Stock" and, together with the
Charter Common Stock, the "Charter Capital Stock") will be converted into the
right to receive 0.385 shares of NationsBank Common Stock (the "Exchange
Ratio"). Each holder of Charter Capital Stock who would otherwise be entitled to
receive a fraction of a share of NationsBank Common Stock (after taking into
account all of a shareholder's certificates) will receive, in lieu thereof, the
equivalent cash value of such fraction of a share, without interest.
Consummation of the Merger is subject to several conditions, including, among
others, the affirmative vote of the holders of two-thirds of the votes
represented by the outstanding shares of Charter Capital Stock, voting together
without distinction as to class, to approve the Agreement and the transactions
contemplated thereby and the approval of appropriate regulatory authorities. See
"THE MERGER -- Conditions to the Merger."
NationsBank Common Stock is listed on the New York Stock Exchange, Inc.
(the "NYSE") and The Pacific Stock Exchange Incorporated (the "PSE") under the
trading symbol "NB," and certain shares of NationsBank Common Stock are listed
also on the Tokyo Stock Exchange. The last reported sales price of NationsBank
Common Stock on the NYSE Composite Transactions List on April , 1996 was
$ per share and on January 24, 1996, the last full trading day preceding
public announcement of the proposed Merger, was $67.00 per share. Charter Common
Stock is quoted and traded on The Nasdaq Stock Market under the trading symbol
"SAIL." The last reported sales price per share of Charter Common Stock as
reported by The Nasdaq Stock Market ("Nasdaq") on April , 1996 was $ per
share and on January 24, 1996 was $23.50 per share. There is no trading market
for Charter Special Common Stock. See "PRICE RANGE OF COMMON STOCK AND
DIVIDENDS."
ANY SHAREHOLDER OF CHARTER WHO DESIRES TO DISSENT FROM THE MERGER HAS THE
RIGHT TO DISSENT UNDER APPLICABLE PROVISIONS OF TEXAS LAW AND, UPON STRICT
COMPLIANCE WITH APPLICABLE STATUTORY PROCEDURES, TO RECEIVE PAYMENT OF THE FAIR
VALUE OF HIS OR HER SHARES OF CHARTER CAPITAL STOCK. A SHAREHOLDER WHO WANTS TO
DISSENT FROM THE MERGER MUST NOT VOTE ANY SHARES OF CHARTER CAPITAL STOCK IN
FAVOR OF THE AGREEMENT. SEE "THE MERGER -- DISSENTERS' RIGHTS OF CHARTER
SHAREHOLDERS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH
CAROLINA (THE "COMMISSIONER") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION, THE COMMISSIONER OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF NATIONSBANK COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR BANK DEPOSITS, ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR
NONBANKING AFFILIATE OF NATIONSBANK AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS OF
CHARTER BANCSHARES, INC. TO BE HELD
MAY , 1996
THIS PROXY STATEMENT-PROSPECTUS SERVES AS A PROXY STATEMENT OF CHARTER IN
CONNECTION WITH THE SOLICITATION OF PROXIES TO BE USED AT THE SPECIAL MEETING OF
SHAREHOLDERS OF CHARTER TO BE HELD ON MAY , 1996 FOR THE PURPOSES DESCRIBED
HEREIN (THE "SPECIAL MEETING") AND IS FIRST BEING MAILED TO SHAREHOLDERS OF
CHARTER ON OR ABOUT APRIL , 1996.
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NATIONSBANK OR CHARTER.
THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO EXCHANGE OR
SELL, OR A SOLICITATION OF AN OFFER TO EXCHANGE OR PURCHASE, THE SECURITIES
OFFERED BY THIS PROXY STATEMENT-PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR TO OR
FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS SPEAKS AS OF THE DATE
HEREOF UNLESS OTHERWISE SPECIFICALLY INDICATED. INFORMATION CONTAINED IN THIS
PROXY STATEMENT-PROSPECTUS REGARDING NATIONSBANK, AND PRO FORMA INFORMATION, HAS
BEEN FURNISHED BY NATIONSBANK, AND INFORMATION HEREIN REGARDING CHARTER HAS BEEN
FURNISHED BY CHARTER.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
AVAILABLE INFORMATION............................. PAGE3
<S> <C>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....... 3
SUMMARY............................................... 4
THE SPECIAL MEETING OF SHAREHOLDERS OF CHARTER........ 15
General............................................. 15
Proxies............................................. 15
Solicitation of Proxies............................. 15
Record Date and Voting Rights....................... 15
Recommendation of Charter Board..................... 16
THE MERGER............................................ 16
Description of the Merger........................... 16
Effective Time of the Merger........................ 17
Exchange of Certificates............................ 17
NationsBank Ownership of Charter Common Stock....... 17
Background of and Reasons for the Merger............ 18
Opinion of Charter's Financial Advisor.............. 20
Conditions to the Merger............................ 22
Conduct of Business Prior to the Merger............. 23
Modification, Waiver and Termination;
Expenses......................................... 24
Certain Federal Income Tax Consequences............. 26
Interests of Certain Persons in the Merger.......... 26
Dissenters' Rights of Charter Shareholders.......... 27
Accounting Treatment................................ 28
Bank Regulatory Matters............................. 28
Restrictions on Resales by Affiliates............... 29
Dividend Reinvestment and Stock Purchase
Plan............................................. 29
PRICE RANGE OF COMMON STOCK AND DIVIDENDS............. 30
Market Prices....................................... 30
Dividends........................................... 30
INFORMATION ABOUT NATIONSBANK......................... 31
General............................................. 31
Operations.......................................... 31
Management and Additional Information............... 31
Supervision and Regulation.......................... 32
INFORMATION ABOUT CHARTER............................. 34
General............................................. 34
Operations.......................................... 34
Management and Additional Information............... 34
Supervision and Regulation.......................... 35
COMPARISON OF NATIONSBANK COMMON STOCK AND CHARTER
CAPITAL STOCK....................................... 36
NationsBank Common Stock............................ 36
Charter Capital Stock............................... 39
Comparison of Voting and Other Rights............... 39
LEGAL OPINIONS........................................ 41
EXPERTS............................................... 41
CHARTER ANNUAL MEETING................................ 41
APPENDIX A -- Agreement and Plan of Merger............ A-1
APPENDIX B -- Opinion of Fox-Pitt, Kelton Inc......... B-1
APPENDIX C -- Provisions of the Texas Business
Corporation Act Regarding Dissenters' Rights........ C-1
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
NationsBank has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 under the Securities Act of
1933, as amended (the "Securities Act"), relating to the shares of NationsBank
Common Stock to be issued in connection with the Merger. For further information
pertaining to the shares of NationsBank Common Stock to which this Proxy
Statement-Prospectus relates, reference is made to such Registration Statement,
including the exhibits and schedules filed as a part thereof. As permitted by
the rules and regulations of the Commission, certain information included in the
Registration Statement is omitted from this Proxy Statement-Prospectus. In
addition, NationsBank and Charter are subject to certain of the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file certain reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference room of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
copies of such materials can be obtained by mail from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, at prescribed rates. In addition, copies of such materials are available
for inspection and reproduction at the public reference facilities of the
Commission at its New York Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048; and at its Chicago Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Reports,
proxy statements and other information concerning NationsBank also may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005
and at the offices of the PSE, 301 Pine Street, San Francisco, California 94104.
A copy of Charter's Annual Report on Form 10-K for the year ended December
31, 1995 (the "1995 Annual Report") accompanies this Proxy Statement-Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by NationsBank with the Commission
are hereby incorporated by reference in this Proxy Statement-Prospectus: (a) the
NationsBank Annual Report on Form 10-K for the year ended December 31, 1995; (b)
the description of NationsBank Common Stock contained in the NationsBank
registration statement filed pursuant to Section 12 of the Exchange Act and any
amendment or report filed for the purpose of updating such description,
including the NationsBank Current Report on Form 8-K filed September 21, 1994
and (c) the NationsBank Current Reports on Form 8-K filed January 12, 1996,
February 1, 1996 and March 8, 1996.
The following documents previously filed by Charter with the Commission are
hereby incorporated by reference in this Proxy Statement-Prospectus: (a) the
Charter Annual Report on Form 10-K for the year ended December 31, 1995; and (b)
the Charter Current Report on Form 8-K filed January 31, 1996.
In addition, all documents filed by NationsBank and Charter with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date hereof and prior to the time at which the Special Meeting has
been finally adjourned are hereby deemed to be incorporated by reference herein.
Any statements 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 Proxy Statement-Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement-Prospectus.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS RELATING TO
NATIONSBANK (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH EXHIBITS ARE NOT
SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST FROM JOHN E. MACK, SENIOR VICE PRESIDENT AND TREASURER,
NATIONSBANK CORPORATION, NATIONSBANK CORPORATE CENTER, CHARLOTTE, NORTH CAROLINA
28255, TELEPHONE (704) 386-5833. THE DOCUMENTS RELATING TO CHARTER (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS WHICH EXHIBITS ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM
MICHAEL A. ROY, SENIOR VICE PRESIDENT AND SECRETARY, CHARTER BANCSHARES, INC.,
2600 CITADEL PLAZA DRIVE, SUITE 600, HOUSTON, TEXAS 77008, TELEPHONE (713)
692-6121. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY MAY , 1996. PERSONS REQUESTING COPIES OF EXHIBITS TO SUCH
DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS
WILL BE CHARGED THE COSTS OF REPRODUCTION AND MAILING.
3
<PAGE>
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION SET FORTH ELSEWHERE
IN THIS PROXY STATEMENT-PROSPECTUS AND IS NOT INTENDED TO BE COMPLETE. IT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION CONTAINED
ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS, THE ACCOMPANYING APPENDICES AND
THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
GENERAL
This Proxy Statement-Prospectus, Notice of Special Meeting of Charter
shareholders to be held on May , 1996 and form of proxy solicited in
connection therewith are first being mailed to Charter shareholders on or about
April , 1996. At the Special Meeting, the holders of Charter Capital Stock
will consider and vote on whether to approve the Agreement and the transactions
contemplated thereby. A copy of the Agreement is attached hereto as Appendix A.
THE COMPANIES
NATIONSBANK. NationsBank is a multi-bank holding company registered under
the Bank Holding Company Act of 1956, as amended (the "BHCA"), was organized
under the laws of the State of North Carolina in 1968 and has as its principal
assets the stock of its subsidiaries. Through its banking subsidiaries (the
"NationsBank Banks") and its various non-banking subsidiaries, NationsBank
provides banking and banking-related services, primarily throughout the
Southeast and Mid-Atlantic states and Texas. At December 31, 1995, NationsBank
had total assets of $187 billion, making it the third largest banking company in
the United States. The principal executive offices of NationsBank are located at
NationsBank Corporate Center, Charlotte, North Carolina 28255, and its telephone
number is (704) 386-5000. All references herein to NationsBank refer to
NationsBank Corporation and its subsidiaries, unless the context otherwise
requires.
For additional information regarding NationsBank and the combined company
that would result from the Merger, see "THE MERGER" and "INFORMATION ABOUT
NATIONSBANK."
CHARTER. Charter is a multi-bank holding company registered under the BHCA,
was organized under the laws of the State of Texas in 1978 and has as its
principal assets the stock of its subsidiaries. Charter provides commercial and
related financial banking services through its bank subsidiaries (the "Charter
Banks") which in the aggregate form a network of 21 offices in the
Houston-Galveston area. At December 31, 1995, Charter had total assets of $915
million. Charter's principal executive offices are located at 2600 Citadel Plaza
Drive, Houston, Texas 77008, and its telephone number is (713) 692-6121.
For additional information regarding Charter, see "THE MERGER" and
"INFORMATION ABOUT CHARTER."
SPECIAL MEETING AND VOTE REQUIRED
The Special Meeting will be held on May , 1996 at 10:00 a.m., Houston
time, at the Houstonian Hotel and Conference Center, 111 North Post Oak Lane,
Houston, Texas, at which time the shareholders of Charter will be asked to
approve the Agreement and the transactions contemplated thereby. The record
holders of Charter Capital Stock at the close of business on April 1, 1996 (the
"Record Date") are entitled to notice of and to vote at the Special Meeting. On
the Record Date, there were outstanding 6,061,625 shares of Charter Common Stock
held by 520 holders of record, 219,718 shares of Charter Class B Special Common
Stock held by 13 holders of record and 49,518 shares of Charter Series C Special
Common Stock held by one holder of record.
Each share of Charter Common Stock outstanding on the Record Date is
entitled to one vote, and each share of Charter Special Common Stock outstanding
on the Record Date is entitled to 14 votes.
Approval of the Agreement and the transactions contemplated thereby will
require the affirmative vote of the holders of two-thirds of the votes
represented by the outstanding shares of Charter Capital Stock, voting together
without distinction as to class. As of the Record Date, the directors and
executive officers of Charter and their affiliates beneficially owned an
aggregate of 1,764,817 shares, or 29.1%, of the Charter Common Stock entitled to
vote at the Special Meeting and 268,722 shares, or 99.8%, of the Charter Special
Common Stock entitled to vote at the Special Meeting, which shares, in the
aggregate, represent 56.2% of the votes entitled to be cast at the Special
Meeting. These amounts include 1,639,356 shares of Charter Common Stock and
268,475 shares of Charter Special Common Stock entitled to be voted at the
Special Meeting, representing 54.91% of the votes entitled to be cast at the
Special Meeting, as to which Jerry E. Finger, Chairman and Chief Executive
Officer of Charter, has sole voting power and has agreed to vote in favor of the
Agreement and the transactions contemplated thereby; but do not include shares
of Charter Common Stock owned by NationsBank. As of the Record Date, NationsBank
owned 2,659,249 shares, or 43.87%, of the Charter Common Stock entitled to be
voted at the Special Meeting,
4
<PAGE>
representing 27.05% of the votes entitled to be cast at the Special Meeting and
which NationsBank intends to vote in favor of the Agreement and the transactions
contemplated thereby. See "THE SPECIAL MEETING OF SHAREHOLDERS OF CHARTER."
SINCE JERRY E. FINGER AND NATIONSBANK INTEND TO VOTE THEIR SHARES OF
CHARTER CAPITAL STOCK IN FAVOR OF THE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND, IN THE AGGREGATE, THEY HOLD SHARES OF CHARTER CAPITAL
STOCK REPRESENTING 81.96% OF THE VOTES ENTITLED TO BE CAST AT THE SPECIAL
MEETING, APPROVAL OF THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY IS
CURRENTLY EXPECTED.
Approval of the Agreement by the shareholders of NationsBank is not
required.
THE MERGER
Under the Agreement, after satisfaction of the conditions set forth
therein, at the effective time of the Merger (the "Effective Time"), Charter
will merge with and into the Merger Subsidiary, with the Merger Subsidiary as
the surviving entity. At the Effective Time, each share of Charter Capital Stock
outstanding immediately prior to the Effective Time (other than shares (i) held
by Charter or its subsidiaries or NationsBank or any of its subsidiaries (in
each case other than those shares held in a fiduciary capacity or as a result of
debts previously contracted) or (ii) as to which dissenters' rights have been
perfected) will be converted into the right to receive 0.385 shares of
NationsBank Common Stock, with cash to be paid in lieu of any resulting
fractional shares of NationsBank Common Stock. At the Effective Time, any shares
of Charter Capital Stock held by Charter or its subsidiaries or NationsBank or
any of its subsidiaries (other than those held in a fiduciary capacity or as a
result of debts previously contracted) will be canceled and retired without
consideration being paid therefor. Each share of NationsBank capital stock
outstanding prior to the Merger will continue to be outstanding after the
Effective Time.
If the Merger is consummated, and assuming no change in the number of
shares of Charter Capital Stock outstanding after the Record Date, approximately
1,414,000 shares of NationsBank Common Stock would be issued in the Merger to
Charter shareholders, representing approximately 0.47% of the NationsBank Common
Stock to be outstanding immediately after the Effective Time.
The Merger is subject to the satisfaction of certain conditions, including,
among others, an affirmative vote to approve the Agreement by holders of shares
of Charter Capital Stock representing two-thirds of the votes entitled to be
cast at the Special Meeting, the effectiveness under the Securities Act of a
Registration Statement for shares of NationsBank Common Stock to be issued in
the Merger, and the approval of appropriate regulatory agencies.
For additional information relating to the Merger, see "THE MERGER."
RECOMMENDATION OF THE CHARTER BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CHARTER (THE "CHARTER BOARD") HAS APPROVED THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, BELIEVES THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, CHARTER AND ALL OF ITS SHAREHOLDERS AND
RECOMMENDS THAT CHARTER'S SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY. SUCH APPROVAL AND RECOMMENDATION WERE
UNANIMOUS AMONG THE CHARTER BOARD EXCEPT THAT FRANK L. GENTRY, WHO IS A SENIOR
EXECUTIVE OF NATIONSBANK AND W.J. SMITH, JR., WHO IS A RETIRED SENIOR EXECUTIVE
OF NATIONSBANK, DID NOT TAKE PART IN THE CONSIDERATION OF OR VOTE ON THE
AGREEMENT. FOR A DISCUSSION OF THE FACTORS CONSIDERED BY THE CHARTER BOARD IN
REACHING ITS CONCLUSIONS, SEE "THE MERGER -- BACKGROUND OF AND REASONS FOR THE
MERGER."
OPINION OF CHARTER'S FINANCIAL ADVISOR
Fox-Pitt, Kelton Inc. ("Fox-Pitt, Kelton"), which has served as financial
advisor to Charter in connection with the Merger, has rendered its opinion to
the Charter Board that, as of January 25, 1996, consideration to be received by
the holders of Charter Capital Stock in the Merger (other than NationsBank and
its affiliates) is fair to such holders from a financial point of view. A copy
of such opinion, dated January 25, 1996, is attached hereto as Appendix B and
should be read in its entirety with respect to assumptions made, matters
considered and limitations of the review undertaken by Fox-Pitt, Kelton in
rendering such opinion. See "THE MERGER -- Opinion of Charter's Financial
Advisor."
EFFECTIVE TIME OF THE MERGER
Unless otherwise agreed by NationsBank and Charter, the Effective Time is
expected to occur on the business day and at the time the Articles of Merger to
be executed and filed with the Secretary of State of the State of Texas (the
"Texas Articles
5
<PAGE>
of Merger") and the Certificate of Merger to be executed and filed with the
Secretary of State of the State of Delaware (the "Delaware Certificate of
Merger") become effective with the respective Secretaries of State of such
states. The parties have agreed to use their reasonable efforts to cause the
Effective Time to occur on or before the tenth business day (as designated by
NationsBank) following the last to occur of (i) the effective date of the last
required consent of any state or federal regulatory authority having authority
over the Merger (including the expiration of all applicable waiting periods
following such consents) or (ii) satisfaction or waiver of all conditions to
consummation of the Merger, unless otherwise agreed by NationsBank and Charter.
If approved by the Charter shareholders and applicable regulatory authorities,
the parties expect that the Effective Time will occur on or before June 30,
1996, although there can be no assurance as to whether or when the Merger will
occur. See "THE MERGER -- Effective Time of the Merger" and " -- Conditions to
the Merger."
COMPARISON OF NATIONSBANK COMMON STOCK AND CHARTER CAPITAL STOCK
The rights of NationsBank shareholders and other corporate matters relating
to NationsBank Common Stock are controlled by the NationsBank Restated Articles
of Incorporation ("NationsBank Articles") and Amended and Restated Bylaws
("NationsBank Bylaws") and by the North Carolina Business Corporation Act (the
"NCBCA"). The rights of Charter shareholders and other corporate matters
relating to Charter Capital Stock are controlled by the Charter Restated
Articles of Incorporation (the "Charter Articles") and Amended and Restated
Bylaws (the "Charter Bylaws") and the Texas Business Corporation Act (the
"TBCA"). Upon consummation of the Merger, shareholders of Charter will become
shareholders of NationsBank whose rights will be governed by the NationsBank
Articles and NationsBank Bylaws and by the provisions of the NCBCA. See
"COMPARISON OF NATIONSBANK COMMON STOCK AND CHARTER CAPITAL STOCK."
MODIFICATION, WAIVER AND TERMINATION
The Agreement provides that it may be amended by a subsequent writing
signed by each party upon the approval of its Board of Directors. However, no
amendment modifying the manner or basis in which shares of Charter Capital Stock
will be exchanged for shares of NationsBank Common Stock in the Merger may be
made after the Special Meeting without the further approval of holders of
Charter Capital Stock. The Agreement provides that each party may waive any of
the conditions precedent to its obligations to consummate the Merger, to the
extent legally permitted.
The Agreement may be terminated by mutual agreement of the Board of
Directors of NationsBank (the "NationsBank Board") and the Charter Board. The
Agreement may also be terminated by either the NationsBank Board or the Charter
Board (i) if the Board of Governors of the Federal Reserve System (the "Federal
Reserve") has denied approval of the Merger and such denial has become final and
nonappealable or has approved the Merger subject to conditions that, in the
judgment of NationsBank, would restrict NationsBank or its subsidiaries or
affiliates in their respective spheres of operations and business activities
after the Effective Time, (ii) in the event of certain breaches or failures by
the other party to satisfy conditions to consummation of the Merger, or (iii) if
the Effective Time does not occur by December 31, 1996. NationsBank may also
terminate the Agreement if Charter's shareholders fail to approve the Agreement
and the transactions contemplated thereby at the Special Meeting.
Charter may also terminate the Agreement if Charter has not materially
breached the Agreement and the Charter Board receives a proposal or offer from
another party to acquire all or any significant part of the business and
properties or capital stock of Charter that the Charter Board determines in its
good faith judgment and in the exercise of its fiduciary duties (based as to
legal matters on the written opinion of legal counsel and as to financial
matters on the written opinion of an investment banking firm of national
reputation) is more favorable to the Charter shareholders than the Exchange
Ratio and the Merger and that the failure to terminate the Agreement and accept
such offer would be inconsistent with the proper exercise of its fiduciary
duties. However, a termination for this reason would not be effective until
Charter pays NationsBank a termination fee of $2,000,000, plus up to $500,000 of
certain reasonable out-of-pocket expenses incurred by NationsBank in connection
with or arising out of the transactions contemplated by the Agreement.
In addition, the Agreement may be terminated by the Charter Board, at its
sole option, if either:
(1) both (a) the Average Closing Price on the Determination Date
(I.E., the average closing price of NationsBank Common Stock for the ten
full trading days ending on the date the Federal Reserve approves the
Merger) is less than $56.419 and (b) (i) the number obtained by dividing
the Average Closing Price on the Determination Date by $66.375 is less than
(ii) the number obtained by dividing the Index Price (being the weighted
average closing price per share of the common stocks of the "Index Group",
a group of 20 bank holding companies selected by NationsBank and Charter as
being relevant for purposes of distinguishing changes in NationsBank's
stock prices that are unique from those reflective
6
<PAGE>
of general changes in comparable companies) on the Determination Date, by
$48.67 (being the Index Price on January 17, 1996) and subtracting 0.15
from the quotient in this clause (1)(b)(ii); or
(2) The Average Closing Price on the Determination Date is less than
$53.100.
See "THE MERGER -- Modification, Waiver and Termination; Expenses."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code"). Blanchfield Cordle &
Moore, P.A., tax counsel to NationsBank, has delivered an opinion, based upon
certain customary assumptions and representations, to the effect that, for
federal income tax purposes, no gain or loss will be recognized by the Charter
shareholders as a result of the Merger to the extent that they receive
NationsBank Common Stock solely in exchange for their Charter Capital Stock. For
a more complete description of the federal income tax consequences, see "THE
MERGER -- Certain Federal Income Tax Consequences."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Charter's management and Board of Directors may be
deemed to have interests in the Merger in addition to their interests, if any,
as shareholders of Charter generally. Among those interests are certain
employment and change in control agreements that provide for severance pay and
other benefits upon the occurrence of a merger or other change in control, the
agreement of NationsBank to pay severance payments to certain employees of
Charter and/or to make cash payments in lieu of options or to grant options on
NationsBank Common Stock to certain employees of Charter who would have received
benefits under a stock option plan proposed by the Compensation Committee of the
Charter Board for submission to a vote of Charter shareholders, and agreements
by NationsBank to indemnify directors, officers, employees and agents of Charter
and its subsidiaries from and after the Effective Time against certain
liabilities arising prior to the Effective Time to the full extent permitted
under Texas law and the Charter Articles and the Charter Bylaws. NationsBank has
also agreed to use its reasonable efforts to maintain Charter's existing
directors' and officers' liability insurance policy for a period of six years
after the Merger, subject to certain limitations. See "THE MERGER -- Interests
of Certain Persons in the Merger."
DISSENTERS' RIGHTS
If the Agreement and the transactions contemplated thereby are approved by
Charter shareholders, any Charter shareholder who follows certain statutory
procedures may demand payment of the fair value of such shareholder's Charter
Capital Stock in lieu of the NationsBank Common Stock to be received pursuant to
the Agreement. A Charter shareholder who wishes to demand such payment must
strictly comply with statutory procedures set forth in Sections 5.12 and 5.13 of
the TBCA, copies of which are attached hereto as Appendix C. These statutory
procedures require that Charter shareholders who desire to exercise dissenters'
rights (1) must file with Charter, prior to the Special Meeting, a written
objection stating that such shareholder will exercise his or her right of
dissent if the Agreement and the transactions contemplated thereby are approved
and (2) may not vote in favor of the Agreement and the transactions contemplated
thereby. Holders of Charter Capital Stock who vote against the Agreement and the
transactions contemplated thereby will receive NationsBank Common Stock and cash
in lieu of fractional shares in the event the Agreement and the transactions
contemplated thereby are approved if such holders do not properly exercise their
dissenters' rights. See "THE MERGER -- Dissenters' Rights of Charter
Shareholders."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a purchase under
generally accepted accounting principles. See "THE MERGER -- Accounting
Treatment."
REGULATORY APPROVALS
The Merger is subject to the approval of the Federal Reserve. The Merger
may not be consummated until expiration of applicable waiting periods.
NationsBank and Charter have filed all required applications for regulatory
review and approval or notice with the Federal Reserve in connection with the
Merger. There can be no assurance that such approval will be obtained or as to
the date of such approval.
7
<PAGE>
See "THE MERGER -- Conditions to the Merger" and " -- Bank Regulatory
Matters."
RESALES BY AFFILIATES
Charter has obtained from each of those individuals identified by it as an
affiliate of Charter an agreement to the effect that such individual will not
transfer any shares of NationsBank Common Stock received by it as a result of
the Merger except in compliance with the applicable provisions of the Securities
Act. See "THE MERGER -- Restrictions on Resales by Affiliates."
SHARE INFORMATION AND MARKET PRICES
NationsBank Common Stock is listed on the NYSE and the PSE under the symbol
"NB," and certain shares of NationsBank Common Stock are listed also on the
Tokyo Stock Exchange. As of December 31, 1995, there were 274,268,773 shares of
NationsBank Common Stock outstanding held by approximately 103,137 holders of
record. Charter Common Stock is quoted and traded on Nasdaq under the trading
symbol "SAIL." On the Record Date, there were outstanding 6,061,625 shares of
Charter Common Stock held by 520 holders of record, 219,718 shares of Charter
Class B Special Common Stock held by 13 holders of record and 49,518 shares of
Charter Series C Special Common Stock held by one holder of record. There is no
trading market for the Charter Special Common Stock. The most recent trades of
Charter Capital Stock involved only shares of Charter Common Stock.
The following table sets forth the last sales price reported on the NYSE
Composite Transactions List for shares of NationsBank Common Stock on January
24, 1996, the last full trading day preceding public announcement of the
proposed Merger, and on April , 1996. It also sets forth the last reported
sales price per share reported by Nasdaq for shares of Charter Common Stock on
January 24, 1996 and on April , 1996. The "Charter Equivalent" represents the
last sales price of a share of NationsBank Common Stock on such date multiplied
by the Exchange Ratio.
<TABLE>
<CAPTION>
CHARTER
NATIONSBANK CHARTER EQUIVALENT
<S> <C> <C> <C>
January 24, 1996.................................................. $67.00 $23.50 $25.80
April , 1996.................................................... $ $ $
</TABLE>
For additional information regarding the market prices of the NationsBank
Common Stock and Charter Common Stock during the previous two years, see "PRICE
RANGE OF COMMON STOCK AND DIVIDENDS -- Market Prices."
8
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth (a) selected comparative per share data for
each of NationsBank and Charter on an historical basis and (b) selected
unaudited pro forma comparative per share data assuming the Merger had been
effective during the period presented for NationsBank and Charter combined. The
unaudited pro forma data reflects the Merger using the purchase method of
accounting and a preliminary allocation of the purchase price. For a description
of the effect of purchase method of accounting on the Merger and the historical
financial statements of NationsBank, see "THE MERGER -- Accounting Treatment."
In addition, actual pro forma adjustments, which may include adjustments to
additional assets and liabilities, will be made on the basis of evaluations as
of the Effective Time and, therefore, will differ from those reflected in the
unaudited pro forma comparative per share data. The Charter pro forma equivalent
amounts are presented with respect to each set of pro forma information.
The comparative per share data presented are based on and derived from, and
should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of each of NationsBank and Charter
incorporated by reference herein. Pro forma amounts are not necessarily
indicative of results of operations or combined financial position that would
have resulted had the Merger been consummated at the beginning of the period
indicated.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
<S> <C>
Earnings per common share (primary)
NationsBank
Historical............................................................................................... $ 7.13
Pro forma combined....................................................................................... 7.12
Charter
Historical............................................................................................... 1.69
Pro forma equivalent (1)................................................................................. 2.74
Cash dividends declared per common share
NationsBank historical...................................................................................... 2.08
NationsBank pro forma combined (2).......................................................................... 2.08
Charter historical.......................................................................................... .30
Charter pro forma equivalent (1)............................................................................ .80
</TABLE>
<TABLE>
<CAPTION>
AT
DECEMBER 31,
1995
<S> <C>
Shareholders' equity per common share (period end)
NationsBank historical........................................................................................ $46.52
NationsBank pro forma combined................................................................................ 46.62
Charter historical............................................................................................ 9.69
Charter pro forma equivalent (1).............................................................................. 17.95
</TABLE>
(1) Charter pro forma equivalent amounts are calculated by multiplying the pro
forma combined amounts by the Exchange Ratio.
(2) Pro forma combined dividends per common share represent the historical
dividends per common share paid by NationsBank.
9
<PAGE>
SELECTED FINANCIAL DATA
The following table presents (a) summary selected financial data for each
of NationsBank and Charter on an historical basis and (b) summary unaudited pro
forma selected financial data for NationsBank and Charter giving effect to the
Merger as if it had been consummated (i) on January 1, 1995 for income statement
information for the year ended December 31, 1995, and (ii) December 31, 1995 for
balance sheet information. The unaudited pro forma data reflect the Merger using
the purchase method of accounting and a preliminary allocation of the purchase
price. For a description of the effect of purchase accounting on the Merger and
the historical financial statements of NationsBank, see "THE
MERGER -- Accounting Treatment." In addition, actual adjustments, which may
include adjustments to additional assets and liabilities, will be made on the
basis of evaluations as of the Effective Time and, therefore, will differ from
those reflected in the summary unaudited pro forma selected financial data.
The summary selected financial data are based on and derived from, and
should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of each of NationsBank and Charter
incorporated by reference herein. The pro forma amounts are not necessarily
indicative of results of operations or combined financial position that would
have resulted had the Merger been consummated at the beginning of the period
indicated.
SELECTED HISTORICAL FINANCIAL DATA OF NATIONSBANK
(DOLLARS IN MILLIONS, EXCEPT PER SHARE INFORMATION AND RATIOS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income statement
Income from earning assets..................................... $ 13,220 $ 10,529 $ 8,327 $ 7,780 $ 9,398
Interest expense............................................... 7,773 5,318 3,690 3,682 5,599
Net interest income............................................ 5,447 5,211 4,637 4,098 3,799
Provision for credit losses.................................... 382 310 430 715 1,582
Gains (losses) on sales of securities.......................... 29 (13) 84 249 454
Noninterest income............................................. 3,078 2,597 2,101 1,913 1,742
Restructuring expenses......................................... -- -- 30 -- 330
Noninterest expense............................................ 5,181 4,930 4,371 4,149 3,974
Income before income taxes and effect of change in method of
accounting for income taxes................................. 2,991 2,555 1,991 1,396 109
Income tax expense (benefit)................................... 1,041 865 690 251 (93)
Net income..................................................... 1,950 1,690 1,501(1) 1,145 202
Net income applicable to common shareholders................... 1,942 1,680 1,491(1) 1,121 171
Per common share
Net income (primary)........................................... 7.13 6.12 5.78(1) 4.60 0.76
Net income (fully diluted)..................................... 7.04 6.06 5.72(1) 4.52 0.75
Cash dividends declared........................................ 2.08 1.88 1.64 1.51 1.48
Shareholders' equity (period end).............................. 46.52 39.70 36.39 30.80 27.03
Balance sheet (period end)
Total assets................................................... 187,298 169,604 157,686 118,059 110,319
Total loans, leases and factored accounts receivable, net of
unearned income............................................. 117,033 103,371 92,007 72,714 69,108
Total deposits................................................. 100,691 100,470 91,113 82,727 88,075
Long-term debt and obligations under capital leases............ 17,775 8,488 8,352 3,066 2,876
Common shareholders' equity.................................... 12,759 10,976 9,859 7,793 6,252
Total shareholders' equity..................................... 12,801 11,011 9,979 7,814 6,518
</TABLE>
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF NATIONSBANK (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE INFORMATION AND RATIOS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Common shares outstanding at period end (in thousands)........... 274,269 276,452 270,905 252,990 216,071
Performance ratios
Return on average assets....................................... 1.03% 1.02% .97%(2) 1.00% .17%
Return on average common shareholders' equity (3).............. 17.01 16.10 15.00(2) 15.83 2.70
Risk-based capital ratios
Tier 1......................................................... 7.24 7.43 7.41 7.54 6.38
Total.......................................................... 11.58 11.47 11.73 11.52 10.30
Leverage capital ratio........................................... 6.27 6.18 6.00 6.16 5.07
Total equity to total assets..................................... 6.83 6.49 6.33 6.62 5.91
Asset quality ratios
Allowance for credit losses as a percentage of total loans,
leases and factored accounts receivable, net of unearned
income, outstanding (period end)............................ 1.85% 2.11% 2.36% 2.00% 2.32%
Allowance for credit losses as a percentage of nonperforming
loans (period end).......................................... 306.49 273.07 193.38 103.11 81.82
Net charge-offs as a percentage of average loans, leases and
factored accounts receivable................................ .38 .33 .51 1.25 1.86
Nonperforming assets as a percentage of net loans, leases,
factored accounts receivable and other real estate owned
(period end)................................................ .73 1.10 1.92 2.72 4.01
</TABLE>
(1) Includes cumulative effect benefit of $200 million for the adoption of
Statement of Financial Accounting Standards No. 109 ("SFAS 109") "Accounting
for Income Taxes". The effect on primary earnings per share was $.78 for the
year ended December 31, 1993. The effect on fully diluted earnings per share
was $.77 for the year ended December 31, 1993.
(2) In 1993, return on average assets and return on average common shareholders'
equity after the tax benefit from the impact of adopting SFAS 109 were 1.12%
and 17.33%, respectively.
(3) Average common shareholders' equity does not include the effect of market
value adjustments to securities available for sale and marketable equity
securities.
11
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF CHARTER
(DOLLARS IN MILLIONS, EXCEPT PER SHARE INFORMATION AND RATIOS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income statement
Income from earning assets................................................. $ 66 $ 44 $ 39 $ 40 $ 45
Interest expense........................................................... 27 15 14 16 24
Net interest income........................................................ 39 29 25 24 21
Provision for credit losses................................................ 1 -- 1 1 2
Gains (losses) on sales of securities...................................... -- -- -- 1 2
Noninterest income......................................................... 18 12 9 7 6
Noninterest expense........................................................ 39 30 27 24 23
Income before income taxes and effect of change in
method of accounting for income taxes................................... 17 11 6 7 4
Effect of change in method of accounting for income taxes.................. -- -- 3 -- --
Income tax expense (benefit)............................................... 6 3 1 -- --
Net income................................................................. 11 8 8 7 4
Net income applicable to common shareholders............................... 11 8 8 7 4
Per common share
Net income (primary)....................................................... 1.69 1.21 1.29 1.10 .70
Net income (fully diluted)................................................. 1.69 1.21 1.29 1.05 .69
Cash dividends declared.................................................... .30 .24 .18 -- --
Shareholders' equity (period end).......................................... 9.69 7.61 7.14 6.01 4.96
Balance sheet (period end)
Total assets............................................................... 915 722 667 597 556
Total loans, leases and factored accounts receivable, net of
unearned income......................................................... 513 344 291 237 222
Total deposits............................................................. 734 617 589 525 499
Long-term debt and obligations under capital leases........................ 15 15 14 8 8
Common shareholders' equity................................................ 61 48 45 38 33
Total shareholders' equity................................................. 62 49 46 39 34
Common shares outstanding at period end (in thousands)....................... 6,331 6,331 6,331 6,297 6,264
Performance ratios
Return on average assets................................................... 1.26% 1.13% 1.25% 1.16% .79%
Return on average common shareholders' equity.............................. 20.18 16.10 19.49 19.90 14.89
Risk-based capital ratios
Tier 1..................................................................... 10.75 12.55 14.78 14.41 13.12
Total...................................................................... 13.99 16.57 19.07 16.58 15.47
Leverage capital ratio....................................................... 6.24 7.04 6.90 6.74 6.35
Total equity to total assets................................................. 6.78 6.77 6.86 6.47 6.15
Asset quality ratios
Allowance for credit losses as a percentage of total loans, leases and
factored accounts receivable, net of unearned income, outstanding
(period end)............................................................ 1.10% 1.29% 1.59% 1.60% 1.40%
Allowance for credit losses as a percentage of nonperforming loans (period
end).................................................................... 139.60 156.00 182.90 227.20 81.40
Net charge-offs as a percentage of average loans, leases and factored
accounts receivable..................................................... .18 .14 .22 .36 .68
Nonperforming assets as a percentage of net loans, leases, factored
accounts receivable and other real estate owned (period end)............ .85 1.11 1.44 2.52 4.51
</TABLE>
12
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE INFORMATION AND RATIOS)
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
DECEMBER 31, 1995
HISTORICAL PRO FORMA
NATIONSBANK CHARTER COMBINED
<S> <C> <C> <C>
Income statement
Income from earning assets............................................................ $ 13,220 $ 66 $ 13,286
Interest expense...................................................................... 7,773 27 7,800
Net interest income................................................................... 5,447 39 5,486
Provision for credit losses........................................................... 382 1 383
Gains (losses) on sales of securities................................................. 29 -- 29
Noninterest income.................................................................... 3,078 18 3,096
Restructuring expenses................................................................
Noninterest expense................................................................... 5,181 39 5,222
Income before income taxes............................................................ 2,991 17 3,006
Income tax expense.................................................................... 1,041 6 1,047
Net income............................................................................ 1,950 11 1,959
Net income applicable to common shareholders.......................................... 1,942 11 1,951
Per common share
Net income (primary).................................................................. 7.13 1.69 7.12
Net income (fully diluted)............................................................ 7.04 1.69 7.03
Cash dividends declared (1)........................................................... 2.08 .30 2.08
Shareholders' equity (period end)..................................................... 46.52 9.69 46.62
Balance sheet (period end)
Total assets.......................................................................... 187,298 915 188,208
Total loans, leases and factored accounts receivable, net of unearned income.......... 117,033 513 117,546
Total deposits........................................................................ 100,691 734 101,402
Long-term debt and obligations under capital leases................................... 17,775 15 17,780
Common shareholders' equity........................................................... 12,759 61 12,854
Total shareholders' equity............................................................ 12,801 62 12,896
Common shares outstanding at period end (in thousands).................................. 274,269 6,331 275,683
Performance ratios
Return on average assets.............................................................. 1.03% 1.26% 1.03%
Return on average common shareholders' equity (2)..................................... 17.01 20.18 16.96
Risk-based capital ratios
Tier 1................................................................................ 7.24 10.75 7.24
Total................................................................................. 11.58 13.99 11.57
Leverage capital ratio.................................................................. 6.27 6.24 6.26
Total equity to total assets............................................................ 6.83 6.78 6.85
Asset quality ratios
Allowance for credit losses as a percentage of total loans, leases and factored
accounts receivable, net of unearned income, outstanding (period end).............. 1.85% 1.10% 1.84%
Allowance for credit losses as a percentage of nonperforming loans
(period end)....................................................................... 306.49 139.60 306.17
Net charge-offs as a percentage of average loans, leases and factored accounts
receivable......................................................................... .38 .18 .38
Nonperforming assets as a percentage of net loans, leases, factored accounts
receivable and other real estate owned (period end)................................ .73 .85 .73
</TABLE>
(1) Pro forma combined dividends per common share represent the historical
dividends per common share paid by NationsBank.
(2) Average common shareholders' equity does not include the effect of market
value adjustments to securities available for sale and marketable equity
securities.
13
<PAGE>
RECENT DEVELOPMENTS
RECENT AND PENDING ACQUISITIONS OF CHARTER
Charter entered into agreements to acquire three banking organizations
prior to entering into the negotiations leading up to the execution of the
Agreement. On November 9, 1995, Charter National Bank-Colonial,
("Charter-Colonial") one of the Charter Banks, agreed to purchase for cash
substantially all of the assets and to assume substantially all of the
liabilities of Cypress National Bank, a national bank with three locations in
the northwest Houston area ("Cypress National"). At December 31, 1995, Cypress
National had total assets of $20.5 million, total loans of $12.1 million and
total deposits of $18.6 million. The acquisition of Cypress National was
consummated on March 15, 1996.
On November 22, 1995, Charter and two of the Charter Banks entered into an
agreement and plan of merger to acquire for cash, Texas Bank, a Texas state bank
with a location in Baytown, Texas and another in Mont Belvieu, Texas. At
December 31, 1995, Texas Bank had total assets of $38.5 million, total loans of
$19 million and total deposits of $35 million. The acquisition of Texas Bank is
not expected to close until after the Effective Time.
On January 10, 1996, Charter National Bank-Houston, one of the Charter
Banks, agreed to purchase for cash substantially all of the assets and to assume
substantially all of the liabilities of Houston Independent Bank, National
Association, a national bank with one office in southwest Houston ("Houston
Independent"). At December 31, 1995, Houston Independent had total assets of
$32.8 million, total loans of $6.8 million and total deposits of $29.3 million.
The requisite regulatory applications for the acquisition of Houston Independent
have been filed, and the transaction is currently expected to close prior to the
Effective Time.
The acquisitions of Texas Bank and Houston Independent are each subject to
regulatory and shareholder approval and other conditions. There can be no
assurance as to whether or when either acquisition will occur.
REDEMPTION OF PREFERRED STOCK
In accordance with the terms of the Agreement, the Charter Board called for
redemption on March 31, 1996, all 14,201 outstanding shares of Charter preferred
stock, initial series, par value $50.00 per share (the "Preferred Stock") at the
redemption price of $50.00 per share, plus an accrued dividend of $2.00 per
share.
MERGER OF CHARTER BANK, SSB AND CHARTER NATIONAL BANK-HOUSTON
To facilitate the Merger as well as the merger of the Charter Banks into
NationsBank of Texas, National Association, ("NationsBank Texas"), which will
occur subsequent to the Effective Time, Charter National Bank-Houston, a
national banking association subsidiary of Charter ("Charter-Houston"), and
Charter Bank, SSB, a Texas state savings bank subsidiary of Charter
("Charter-SSB"), have entered into a plan of merger pursuant to which
Charter-SSB will merge with and into Charter-Houston. The requisite regulatory
applications for the merger of Charter-SSB into Charter-Houston have been filed,
and the transaction is currently expected to close prior to the Effective Time.
14
<PAGE>
THE SPECIAL MEETING OF SHAREHOLDERS OF CHARTER
GENERAL
This Proxy Statement-Prospectus is first being mailed to Charter
shareholders on or about April , 1996, and is accompanied by the Notice of
Special Meeting and a form of proxy that is solicited by the Charter Board for
use at the Special Meeting of shareholders of Charter to be held on May ,
1996, at 10:00 a.m., local time, at the Houstonian Hotel and Conference Center,
111, North Post Oak Lane, Houston, Texas and at any adjournments or
postponements thereof. The purpose of the Special Meeting is to take action with
respect to the approval of the Agreement and the transactions contemplated
thereby.
PROXIES
A shareholder of Charter may use the accompanying proxy if such shareholder
is unable to attend the Special Meeting in person or wishes to have his or her
shares voted by proxy even if such shareholder does attend the meeting. A
shareholder may revoke any proxy given pursuant to this solicitation by
delivering to the Corporate Secretary of Charter, prior to or at the Special
Meeting, a written notice revoking the proxy or a duly executed proxy relating
to the same shares bearing a later date, or by voting in person at the Special
Meeting. All written notices of revocation and other communications with respect
to the revocation of Charter proxies should be addressed to Charter Bancshares,
Inc., 2600 Citadel Plaza Drive, Suite 600, Houston, Texas 77008, Attention:
Secretary. For such notice of revocation or later proxy to be valid, it must
actually be received by Charter prior to the vote of the shareholders. All
shares represented by valid proxies received pursuant to this solicitation, and
not revoked before they are exercised, will be voted in the manner specified
therein. If no specification is made, the proxies will be voted in favor of
approval of the Agreement and the transactions contemplated thereby. The Charter
Board is unaware of any other matters that may be presented for action at the
Special Meeting. If other matters do properly come before the Special Meeting,
it is intended that shares represented by proxies in the accompanying form will
be voted or not voted by the persons named in the proxies in their discretion.
SOLICITATION OF PROXIES
Solicitation of proxies may be made in person or by mail, telephone or
facsimile, by directors, officers and employees of Charter, who will not be
specially compensated for such solicitation. Nominees, fiduciaries and other
custodians will be requested to forward solicitation materials to beneficial
owners and to secure their voting instructions, if necessary, and will be
reimbursed for the expenses incurred in sending proxy materials to beneficial
owners. In addition, Charter has engaged the services of Society National Bank
to assist the solicitation of proxies at an estimated cost of $2,000 plus
expenses.
All costs of solicitation of proxies from Charter shareholders will be
borne by Charter; provided, however, that NationsBank has agreed to pay the
printing expenses and filing fees incurred in connection with the Agreement, the
Registration Statement and this Proxy Statement-Prospectus.
RECORD DATE AND VOTING RIGHTS
The Charter Board has fixed April 1, 1996 as the Record Date for the
determination of shareholders of Charter entitled to receive notice of and to
vote at the Special Meeting. At the close of business on the Record Date, there
were outstanding 6,061,625 shares of Charter Common Stock held by 520 holders of
record, 219,718 shares of Charter Class B Special Common Stock held by 13
holders of record and 49,518 shares of Charter Series C Special Common Stock
held by one holder of record. Each share of Charter Common Stock outstanding on
the Record Date is entitled to one vote, and each share of Charter Special
Common Stock outstanding on the Record Date is entitled to 14 votes as to (i)
the approval of the Agreement and the transactions contemplated thereby and (ii)
any other proposal that may properly come before the Special Meeting.
Abstentions and broker non-votes will have the same effect as negative votes.
Approval of the Agreement and the transactions contemplated thereby will
require the affirmative vote of the holders of two-thirds of the votes
represented by the outstanding shares of Charter Capital Stock, voting together
without distinction as to class. As of the Record Date, the directors and
executive officers of Charter and their affiliates beneficially owned an
aggregate of 1,764,817 shares, or 29.1%, of the Charter Common Stock entitled to
vote at the Special Meeting and 268,722 shares, or 99.8%, of the Charter Special
Common Stock entitled to vote at the Special Meeting, which shares, in the
aggregate, represent 56.2% of the votes entitled to be cast at the Special
Meeting. These amounts include 1,639,356 shares of Charter Common Stock and
268,475 shares of Charter Special Common Stock, representing 54.91% of the votes
entitled to be cast at the Special Meeting, as to which Jerry E. Finger,
Chairman and Chief Executive Officer of Charter, has sole voting power and has
agreed to vote in favor of the Agreement and the transactions contemplated
thereby, but do not include shares
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of Charter Common Stock owned by NationsBank. As of the Record Date, NationsBank
owned 2,659,249 shares, or 43.87%, of the Charter Common Stock entitled to vote
at the Special Meeting, representing 27.05% of the votes entitled to be cast at
the Special Meeting and which NationsBank intends to vote in favor of the
Agreement and the transactions contemplated thereby.
SINCE JERRY E. FINGER AND NATIONSBANK INTEND TO VOTE THEIR SHARES OF
CHARTER CAPITAL STOCK IN FAVOR OF THE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND, IN THE AGGREGATE, THEY HOLD SHARES OF CHARTER COMMON
STOCK REPRESENTING 81.96% OF THE VOTES ENTITLED TO BE CAST AT THE SPECIAL
MEETING, APPROVAL OF THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY IS
CURRENTLY EXPECTED.
Approval of the Agreement by the shareholders of NationsBank is not
required.
RECOMMENDATION OF CHARTER BOARD
The Charter Board has approved the Agreement and the transactions
contemplated thereby, believes that the Merger is fair to, and in the best
interests of, Charter and all of its shareholders and recommends that Charter's
shareholders vote "FOR" approval of the Agreement and the transactions
contemplated thereby. Such approval and recommendation were unanimous among the
Charter Board except that Frank L. Gentry, who is a senior executive of
NationsBank, and W.J. Smith, Jr., who is a retired senior executive of
NationsBank, did not take part in the consideration of or vote on the Agreement.
See "THE MERGER -- Background of and Reasons for the Merger."
THE MERGER
THE FOLLOWING SUMMARY OF CERTAIN TERMS AND PROVISIONS OF THE AGREEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE AGREEMENT, WHICH IS INCORPORATED
HEREIN BY REFERENCE AND, WITH THE EXCEPTION OF CERTAIN EXHIBITS THERETO, IS
INCLUDED AS APPENDIX A TO THIS PROXY STATEMENT-PROSPECTUS.
DESCRIPTION OF THE MERGER
At the Effective Time, Charter will merge with and into the Merger
Subsidiary, with the Merger Subsidiary as the surviving entity. The Certificate
of Incorporation and Bylaws of the Merger Subsidiary in effect at the Effective
Time will continue to govern the Merger Subsidiary until amended or repealed in
accordance with applicable law. The Merger is subject to the approval of the
Federal Reserve. See " -- Bank Regulatory Matters."
At the Effective Time, each share of Charter Capital Stock outstanding
immediately prior to the Effective Time (other than shares (i) held by Charter
or its subsidiaries or NationsBank or any of its subsidiaries (in each case
other than those shares held in a fiduciary capacity or as a result of debts
previously contracted) or (ii) as to which dissenters' rights have been
perfected) will be converted into the right to receive 0.385 shares of
NationsBank Common Stock (the "Exchange Ratio"). At the Effective Time, any
shares of Charter Capital Stock held by Charter or its subsidiaries or
NationsBank or any of its subsidiaries (other than those shares held in a
fiduciary capacity or as a result of debts previously contracted) will be
canceled and retired without consideration being paid therefor. If the Merger is
consummated, and assuming no change in the number of shares of Charter Capital
Stock outstanding after the Record Date, approximately 1,414,000 shares of
NationsBank Common Stock would be issued in the Merger to Charter shareholders,
representing approximately 0.47% of the NationsBank Common Stock to be
outstanding immediately after the Effective Time.
No fractional shares of NationsBank Common Stock will be issued in the
Merger. Instead, each holder of shares of Charter Capital Stock who would
otherwise have been entitled to receive a fraction of a share of NationsBank
Common Stock (after taking into account all certificates delivered by such
holder) will receive, in lieu of such fractional shares, cash (without interest)
in an amount equal to such fraction of a share of NationsBank Common Stock
multiplied by the market value of NationsBank Common Stock, which is defined in
the Agreement as the closing price of one share of NationsBank Common Stock on
the NYSE Composite Transactions List (as reported by THE WALL STREET JOURNAL or,
if not reported thereby, by any other authoritative source selected by
NationsBank) on the last trading day preceding the Effective Time. No holder
will be entitled to dividends, voting rights or any other rights as a
shareholder in respect of any fractional shares. See " -- Exchange of
Certificates."
The shares of NationsBank capital stock outstanding immediately prior to
the Merger will continue to be outstanding after the Effective Time.
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Subsequent to the Merger, NationsBank intends to cause the Charter Banks to
be merged with and into NationsBank Texas.
EFFECTIVE TIME OF THE MERGER
Unless otherwise agreed by NationsBank and Charter, the Effective Time is
expected to occur on the date and at the time the Texas Articles of Merger and
the Delaware Certificate of Merger become effective with the respective
Secretaries of State of such states. The parties have agreed to use their
reasonable efforts to cause the Effective Time to occur on or before the tenth
business day (as designated by NationsBank) following the last to occur of (i)
the effective date of the last required consent of any state or federal
regulatory authority having authority over the Merger (including the expiration
of all applicable waiting periods following such consents) or (ii) satisfaction
or waiver of all conditions to consummation of the Merger, unless otherwise
agreed by NationsBank and Charter. If approved by the Charter shareholders and
applicable regulatory authorities, the parties expect the Effective Time of the
Merger to occur on or before June 30, 1996, although there can be no assurance
as to whether or when the Merger will occur.
EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, NationsBank and Charter shall cause an
exchange agent selected by NationsBank (the "Exchange Agent") to mail to each
holder of record of Charter Capital Stock as of the Effective Time a letter of
transmittal and related forms (the "Letter of Transmittal") for use in
forwarding stock certificates previously representing Charter Capital Stock for
surrender in exchange for certificates representing NationsBank Common Stock.
Risk of loss and title to the certificates theretofore representing shares of
Charter Capital Stock shall pass only upon proper delivery of such certificates
to the Exchange Agent.
CHARTER SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
Upon surrender to the Exchange Agent of one or more certificates
representing shares of Charter Capital Stock, together with a properly completed
Letter of Transmittal, there will be issued and mailed to the holder thereof a
certificate or certificates representing the aggregate number of whole shares of
NationsBank Common Stock to which such holder is entitled, together with all
declared but unpaid dividends in respect of such shares and, where applicable, a
check for the amount (without interest) representing any fractional shares. A
certificate for shares of NationsBank Common Stock, or any check representing
cash in lieu of fractional shares or declared but unpaid dividends, may be
issued in a name other than the name in which the surrendered certificate is
registered only if (i) the certificate surrendered is properly endorsed,
accompanied by a guaranteed signature if required by the Letter of Transmittal
and otherwise in proper form for transfer, and (ii) the person requesting the
issuance of such certificate either pays to the Exchange Agent any transfer or
other taxes required by reason of the issuance of a certificate for such shares
in a name other than the registered holder of the certificate surrendered or
establishes to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable. The Exchange Agent will issue stock certificates
evidencing NationsBank Common Stock in exchange for lost, stolen, mutilated or
destroyed certificates of Charter Capital Stock only upon receipt of a lost
stock affidavit and a bond indemnifying NationsBank against any claim arising
out of the allegedly lost, stolen, mutilated or destroyed certificate. In no
event will the Exchange Agent, NationsBank or Charter be liable to any persons
for any NationsBank Common Stock or dividends thereon or cash delivered in good
faith to a public official pursuant to any applicable abandoned property,
escheat or similar law.
On and after the Effective Time and until surrender of certificates
representing shares of Charter Capital Stock to the Exchange Agent, each
certificate that represented outstanding Charter Capital Stock immediately prior
to the Effective Time will be deemed to evidence ownership of the number of
whole shares of NationsBank Common Stock into which such shares have been
converted, and the holders thereof shall be entitled to vote at any meeting of
NationsBank shareholders. No shareholder will receive dividends or other
distributions on such NationsBank Common Stock until the certificates
representing Charter Capital Stock have been surrendered. Upon surrender of
certificates representing shares of Charter Capital Stock, Charter shareholders
will be paid any dividends or other distributions on NationsBank Common Stock
that are payable to holders as of any dividend record date on or following the
Effective Time. No interest will be payable with respect to withheld dividends
or other distributions.
NATIONSBANK OWNERSHIP OF CHARTER COMMON STOCK
In December 1986, Charter and NationsBank entered into an Investment
Agreement pursuant to which NationsBank purchased 60,000 shares of Charter
Series B Preferred Stock for an aggregate purchase price of $6 million. In
November
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1987, the parties entered into a second Investment Agreement (the "Second
Investment Agreement") in connection with the purchase by NationsBank of
1,238,750 shares of Charter Common Stock and 11,250 shares of Charter Series C
Special Common Stock for an aggregate purchase price of $7 million. NationsBank
subsequently converted or exchanged its Charter Series B Preferred Stock and
Charter Series C Special Common Stock into Charter Common Stock and has, like
other holders of Charter Common Stock, received Common Stock dividends payable
in additional shares of Charter Common Stock. As a result, NationsBank currently
owns 2,659,249 shares of Charter Common Stock and no other shares of Charter
Capital Stock. The Second Investment Agreement provides that, among other
things, for as long as NationsBank owns shares of Charter Capital Stock
representing more than 10% of the total voting power, Charter will nominate for
election to the Charter Board at least one person designated by NationsBank.
Since 1987, Frank L. Gentry has been the NationsBank designee nominated by
Charter and elected to the Charter Board pursuant to this provision. The Second
Investment Agreement also contains provisions which would apply in the event
Charter were to receive a proposal (other than from NationsBank) for the merger
or consolidation of Charter with and into, or the sale of all or substantially
all of Charter's assets to a third party ("Proposal") or in the event any third
party made a tender offer or exchange offer ("Offer") for any class of Charter's
securities. Under the Second Investment Agreement, NationsBank has agreed to
vote its shares of Charter Common Stock with respect to any Proposal in
accordance with the recommendation of the Charter Board and to tender its shares
of Charter Common Stock in any Offer as to which the Charter Board has
recommended that its shareholders do so; provided, however, that NationsBank is
not committed to so vote or tender shares of its Charter Common Stock if it
makes a Proposal (or, in the case of an Offer, it makes a Proposal or an Offer)
which in its good faith opinion is equivalent to or more favorable than the
original Proposal or Offer, as the case may be.
BACKGROUND OF AND REASONS FOR THE MERGER
NATIONSBANK REASONS FOR THE MERGER. The strategy of the NationsBank Board
of Directors for building long-term value for NationsBank stockholders includes,
in part, having a significant market share in each of the markets its subsidiary
banks serve. Pursuant to this strategy, management of NationsBank continually
explores and evaluates acquisition opportunities, both in the banking and
non-banking areas. NationsBank conducted discussions and negotiated an agreement
with Charter beginning in December 1995 and continuing into January 1996 and, on
January 25, 1996, entered into the Agreement.
NationsBank considered several factors in arriving at its decision to
approve the acquisition of Charter. It did not assign any relative or specific
weights to the factors considered. Such factors included, without limitation,
the following:
(i) The Merger will improve the NationsBank deposit share in the
Houston-Galveston area as well as in the State of Texas. Houston is the
eighth largest metropolitan area in the country and has a projected growth
rate that exceeds the state average. Houston represents 21% of the total
deposits in the State of Texas. The State of Texas is also rapidly growing,
ranking as the tenth fastest growing state in the country and the fifth
fastest growing among populous states.
(ii) The Merger will maximize the consolidated resources of
NationsBank and Charter and, therefore, will enhance the financial
performance of each institution.
(iii) Charter's supermarket branches will provide an alternative
delivery channel to NationsBank customers.
CHARTER REASONS FOR THE MERGER. While Charter has achieved strong financial
performance and a substantial increase in shareholder value over the last five
years, Charter management believes the changing dynamics of the banking industry
is expected to inhibit Charter's ability to continue to attain these levels of
performance in future years. Charter's strong operating results and stock
appreciation in the recent past have resulted almost exclusively from
acquisitions that have been accretive to earnings and non-dilutive to asset
quality. While Charter continued to pursue acquisition opportunities prior to
entering into negotiations with NationsBank, such opportunities are expected to
become increasingly limited in Houston and the surrounding area. Charter's
earnings growth and market performance are thus expected to be largely dependent
for the foreseeable future on significant improvement in Charter's rate of
internal asset growth, which in recent years for Charter has not kept pace with
capital formation.
In developing a strategic plan for Charter, management has been concerned
with various external factors that could adversely impact Charter in both the
short and long term. The efficiencies of larger banking organizations like
NationsBank, whose cost of doing business is on average less than that of
Charter and its peer group, creates an inherent competitive advantage for such
larger concerns. This advantage is expected to be magnified in the future as the
role of technology in the banking industry, and the concomitant deployment of
substantial capital to develop and deliver such technology, escalates. In order
to deliver competitive products and services, medium-sized banking organizations
like Charter will have to invest substantial resources in new technologies, with
the return on such investment being highly uncertain. Additional external
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factors that are regarded as impediments to future financial performance are the
ongoing banking industry consolidation, the contracting of net interest margins,
the recent enactment of interstate banking legislation, the ability of nonbank
competition to provide banking-related services without becoming subject to
banking regulation, the regulatory preclusion of banking institutions from
engaging in complementary lines of business, and the movement of savings
accounts and time deposits to alternative investments.
From time to time during the last several years, Frank L. Gentry, a senior
executive of NationsBank and a member of the Charter Board, and Jerry E. Finger,
Chairman and Chief Executive Officer of Charter, have informally discussed the
possibility of a business combination of Charter and NationsBank in general
terms without any formal offer being solicited or made. Discussions commencing
on December 15, 1995, however, resulted in a verbal outline of terms by Mr.
Gentry following the regular meeting of the Charter Board on December 21, 1995.
Charter's decision to give serious consideration to such terms was based, in
significant part, on the Charter Board's appraisal of the challenges facing
Charter. Charter's management thus decided to proceed to negotiate with
representatives of NationsBank to reach agreement on a fixed exchange ratio of
NationsBank Common Stock for each share of Charter Capital Stock, subject to
protection against a significant reduction in the market price of NationsBank
Common Stock. On January 17, 1996, representatives of Charter and NationsBank
reached an agreement in principle on an exchange ratio, subject to further due
diligence and negotiation of a definitive merger agreement. During the
succeeding days, representatives of Charter and NationsBank concluded due
diligence and negotiation of the terms of the Agreement for submission to the
respective boards of directors of Charter and NationsBank.
At the Charter Board meeting on January 25, 1996, the Charter Board
reviewed and discussed the terms of the Agreement, the ability of Charter to
remain independent, and the reasons for pursuing the merger with NationsBank
relative to Charter's shareholders, customers and employees. At this meeting,
representatives of Fox-Pitt, Kelton made an extensive presentation and
distributed materials to the directors of Charter relating to current banking
markets, industry trends and conditions, the current value of and future
prospects for Charter and NationsBank, the value of the Merger and a comparison
of the Exchange Ratio to those used in comparable bank mergers. Fox-Pitt, Kelton
also presented its fairness opinion, a copy of which is attached as Appendix B
to this Prospectus-Proxy Statement.
Following a discussion of the terms and provisions of the Agreement, the
Fox-Pitt, Kelton presentation and fairness opinion, and other relevant
considerations, the Charter Board approved the Agreement and directed that it be
submitted to the shareholders of Charter for their approval. Due to their
existing and prior affiliations with NationsBank, Mr. Gentry and W. J. Smith,
Jr. were not present during and did not otherwise participate in any of the
Charter Board's discussions or vote on the Agreement.
The Charter Board believes that the Merger is fair to, and in the best
interests of, Charter and all of its shareholders. In reaching its
determination, the board of directors considered a number of factors, including,
without limitation, the following:
(i) the current and prospective economic and competitive environment
and regulatory constraints facing regional banking institutions generally
and Charter in particular;
(ii) Charter's ability to generate an acceptable return on equity
without taking undue risk;
(iii) the opinion of Fox-Pitt, Kelton as described in "Opinion of
Charter's Financial Advisor";
(iv) the relative benefits of remaining independent, including,
without limitation, the range of possible values to shareholders that
Charter can be expected to obtain as an independent entity and the risks of
remaining independent in an increasingly competitive market;
(v) the effect of NationsBank's existing ownership of Charter Common
Stock, its market share in the Houston-Galveston area and its rights under
the Second Investment Agreement on Charter's prospects for receiving a more
attractive offer from another prospective purchaser;
(vi) the competitive position of NationsBank which, as of December 31,
1995, in terms of asset size, was the third largest bank holding company in
the United States;
(vii) the higher historical dividend yield paid to holders of
NationsBank Common Stock;
(viii) the intention that the Merger will qualify as a tax-free
reorganization for federal income tax purposes;
(ix) the effect of the Merger on Charter's customers, who will have a
broader array of products and services and a more extensive branch network
and delivery system available to them through NationsBank; and
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(x) the general impact of the Merger on the various constituencies
served by Charter, including its customers, employees, communities and
others.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the Charter Board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination. After deliberating
with respect to the Agreement and the transactions contemplated thereby, and
considering, among other things, the matters discussed above and the opinion of
Fox-Pitt, Kelton referred to above, the Charter Board approved the Agreement and
the transactions contemplated thereby, as being in the best interests of Charter
and all of its shareholders.
FOR THE REASONS DESCRIBED ABOVE, THE CHARTER BOARD HAS APPROVED THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE CHARTER BOARD BELIEVES
THAT THE MERGER IS FAIR TO, AND IS IN THE BEST INTERESTS OF, CHARTER AND ALL OF
ITS SHAREHOLDERS AND RECOMMENDS THAT CHARTER'S SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF CHARTER'S FINANCIAL ADVISOR
Fox-Pitt, Kelton was retained by Charter to act as its financial advisor in
connection with the Merger. In connection with such engagement, Charter
requested that Fox-Pitt, Kelton evaluate the fairness, from a financial point of
view, of the consideration to be received by the holders of Charter Capital
Stock in the Merger. At the January 25, 1996 Charter Board meeting, Fox-Pitt,
Kelton delivered a written opinion dated such date to the Charter Board to the
effect that, as of the date of such opinion, and based upon and subject to
certain matters stated in such opinion, the consideration to be received by the
holders of Charter Capital Stock in the Merger (other than NationsBank and its
affiliates) was fair to such holders, from a financial point of view.
In arriving at its opinion, Fox-Pitt, Kelton, among other things, (i)
reviewed and analyzed certain publicly available financial statements for
Charter and NationsBank, respectively; (ii) analyzed certain internal financial
statements, including financial projections, and other financial and operating
data prepared by the managements of Charter and NationsBank; (iii) discussed the
past, present and future operations, financial condition, and prospects of
Charter and NationsBank with the senior managements of the respective companies;
(iv) reviewed the stock prices and trading activity of Charter Capital Stock and
NationsBank Common Stock; (v) compared the financial performance and condition
of Charter and NationsBank and their stock prices and trading levels with that
of certain other comparable publicly traded banking companies; (vi) reviewed and
discussed with the senior managements of Charter and NationsBank the strategic
objectives of the Merger and the synergies and certain other benefits of the
Merger; (vii) reviewed the financial terms, to the extent publicly available, of
certain merger and acquisition transactions comparable to the Merger; (viii)
reviewed the Agreement prior to its execution by Charter and NationsBank; (ix)
reviewed the Second Investment Agreement between Charter and NationsBank; and
(x) performed such other analyses as Fox-Pitt, Kelton deemed appropriate.
In rendering its opinion, Fox-Pitt, Kelton relied upon, without independent
verification, the accuracy and completeness of all financial and other
information reviewed by Fox-Pitt, Kelton for purposes of its opinion. Fox-Pitt,
Kelton did not make an independent valuation of the assets and liabilities of
Charter or NationsBank, nor did Fox-Pitt, Kelton review loan files for either
Charter or NationsBank. With respect to financial projections, Fox-Pitt, Kelton
assumed that they had been prepared by the management of Charter on bases
reflecting the best currently available estimates and judgments of the future
financial performance of Charter and NationsBank. Fox-Pitt, Kelton's opinion is
based upon market and other conditions as of January 23, 1996.
THE FULL TEXT OF THE WRITTEN OPINION OF FOX-PITT, KELTON DATED AS OF
JANUARY 25, 1996, WHICH HAS BEEN INCLUDED IN THIS PROXY STATEMENT-PROSPECTUS
WITH THE CONSENT OF FOX-PITT, KELTON AND SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO
AS APPENDIX B AND INCORPORATED HEREIN BY REFERENCE. CHARTER SHAREHOLDERS ARE
URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. FOX-PITT, KELTON'S OPINION
IS DIRECTED ONLY TO THE FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL
POINT OF VIEW AND HAS BEEN PROVIDED FOR THE USE OF THE CHARTER BOARD IN ITS
EVALUATION OF THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR
RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER
AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING. THIS SUMMARY OF
THE OPINION OF FOX-PITT, KELTON SET FORTH IN THIS PROXY STATEMENT-PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion, Fox-Pitt, Kelton performed a variety of financial
and comparative analyses, including those described below.The summary of such
analyses does not purport to be a complete description of the analyses
underlying Fox-
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Pitt, Kelton's opinion. The preparation of a fairness opinion is a complex
analytic process involving various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. In arriving at its opinion, Fox-Pitt, Kelton
did not attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to significance and relevance of
each analysis and factor. Accordingly, Fox-Pitt, Kelton believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and factors, without considering all analyses and factors, could create
a misleading or incomplete view of the processes underlying such analyses and
its opinion. In its analyses, Fox-Pitt, Kelton made numerous assumptions with
respect to Charter, NationsBank, industry performance, general business,
economic, market and financial conditions, and other matters, many of which are
beyond the control of Charter and NationsBank. The estimates contained in such
analyses are not necessarily indicative of actual values or predictive of future
values or results, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
COMPARABLE COMPANY ANALYSIS. Utilizing publicly available information,
Fox-Pitt, Kelton compared Charter's performance from an operating and
financial perspective with selected publicly traded banking companies based
in Texas, Arkansas, Louisiana and Oklahoma (the "Charter Peer Companies")
as of September 30, 1995. In addition, Fox-Pitt, Kelton reviewed the public
market valuations for the Charter Peer Companies as an indication of the
valuation levels placed on mid-size banking companies in the Southwestern
United States. In addition, utilizing publicly available information,
Fox-Pitt, Kelton compared NationsBank's performance from an operating and
financial perspective with selected publicly traded banking companies
throughout the United States with assets greater than $50 billion,
excluding large California and New York money center banking companies (the
"NationsBank Peer Companies"). In addition, Fox-Pitt, Kelton reviewed the
public market valuations for the NationsBank Peer Companies as an
indication of the valuation levels placed on larger capitalization regional
banking companies.
COMPARABLE MERGER AND ACQUISITION TRANSACTION ANALYSIS. Utilizing
publicly available information, Fox-Pitt, Kelton reviewed all merger and
acquisition transactions announced during 1995 and 1996 (through the date
of its opinion) and selected ten transactions that it believed were
comparable to the proposed Merger. The transactions selected generally
involve commercial banking companies of a similar size to Charter that were
merged with larger companies in transactions predominantly involving common
stock as the form of consideration. In addition, Fox-Pitt, Kelton reviewed
all merger and acquisition transactions announced during 1995 and 1996
(through the date of its opinion) involving Texas-based banking companies
and selected twelve transactions involving Houston area companies. In all
cases, the Texas transactions involved institutions that are smaller in
size than Charter. In reviewing the comparable transactions, Fox-Pitt,
Kelton examined the multiples paid relative to previous twelve month
earnings, book value, tangible book value, core deposits, and the target's
market price six days prior to the announcement of the transaction.
Fox-Pitt, Kelton determined that the price-to-earnings multiple of
comparable nationwide transactions was 15.08x, of Houston area transactions
was 11.99x, and of the proposed Merger was 15.29x. Fox-Pitt, Kelton
determined that the price-to-book value ratio for comparable nationwide
transactions was 202.67%, for Houston area transactions was 167.63%, and
for the proposed Merger was 266.68%. Fox-Pitt, Kelton determined that the
price-to-tangible book value ratio for comparable nationwide transactions
was 231.05%, for Houston area transactions was 168.92%, and for the
proposed Merger was 319.21%. Fox-Pitt, Kelton determined that the tangible
book value premium-to-core deposits ratio was 11.17% for comparable
nationwide transactions, 6.88% for Houston area transactions, and 17.74%
for the proposed Merger. Fox-Pitt, Kelton determined that the premium over
target share price six days prior to announcement was 29.20% for comparable
nationwide transactions, not meaningful for Houston area transactions and
20.20% for the proposed Merger. The calculations of multiples for the
proposed Merger were based on December 31, 1995 draft financial statements
provided to Fox-Pitt, Kelton by Charter.
PRO FORMA PER SHARE ANALYSIS. Fox-Pitt, Kelton reviewed the pro forma
impact resulting from the Merger from an earnings per share and book value
per share basis. In its analysis, Fox-Pitt, Kelton assumed that NationsBank
would be able to achieve annual cost savings in connection with the
proposed Merger of 50%, that goodwill associated with the proposed Merger
will be amortized on a straight-line basis over 15 years and will not be
tax deductible to NationsBank, and that NationsBank will issue NationsBank
Common Stock to Charter shareholders at a price of $67.13 per share.
Fox-Pitt, Kelton also analyzed the dividend increase to Charter's
shareholders resulting from exchanging their shares into NationsBank Common
Stock at a ratio of 0.385 to 1. From an earnings point of view,
NationsBank's pro forma accretion resulting from the proposed Merger, based
on the above assumptions, would be 0.70%. Fox-Pitt, Kelton also
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determined that the accretion in NationsBank's book value would be 0.23% as
a result of the proposed Merger. With respect to dividends, Fox-Pitt,
Kelton determined that, based on an exchange ratio of 0.385 to 1, Charter
shareholders would receive an increase in dividend of $0.59 per share
annually or a percentage increase of 197.73%.
DIVIDEND DISCOUNT ANALYSIS. Fox-Pitt, Kelton performed a dividend
discount analysis to determine a range of present values per share of
Charter Common Stock assuming Charter continued as either a stand-alone
entity ("Stand-alone Case") or was sold at the end of five years ("Sale
Case"). The range was determined by adding the present value of the
estimated future dividend stream that Charter could generate for a period
beginning in January 1996 and ending in December 2000 and the present value
of the terminal values of Charter Common Stock at the end of December 2000
under the two cases. Under one scenario, based on management's projections,
Fox-Pitt, Kelton assumed a steady 5% increase in both assets and earnings
per share growth from 1997 through 2000 following 18.05% and 10% increases
respectively in 1996; and the dividend stream is projected to increase
steadily from a payout ratio of 20% in 1996 to 35% in 1998 and thereafter.
In the second scenario, Fox-Pitt, Kelton utilized management's projections
with respect to earnings and asset growth, but modeled a more aggressive
dividend payout ratio of 50% in order to determine the impact of utilizing
the excess capital generated by Charter in the form of increased dividend
income to its shareholders. The projections assume no new acquisitions, nor
do they anticipate significant changes in interest rates.
The terminal values are based upon two sets of assumptions. In the
Stand-alone Case, Fox-Pitt, Kelton utilized a range of price-to-earnings
multiples consistent with the range of price-to-earnings multiples at which
stocks in the Fox-Pitt, Kelton regional bank stock index have traded over
the last five years (8x to 12x earnings per share). In the Sale Case,
Fox-Pitt, Kelton assumed that Charter would be sold on a price-to-earnings
multiple consistent with those at which similarly sized banking companies
have been sold in recent years (13x to 16x previous twelve month earnings
per share). The dividend streams and terminal values were presently valued
using discount rates of 13%, 14.5% and 16%, which were consistent with the
range of internal discount rates currently utilized by buyers of bank
stocks and banking companies. No cost savings were assumed in any scenarios
other than what management had projected in a normal course of business.
Applying the above multiples and discount rates, Fox-Pitt, Kelton
determined that the fully diluted value of Charter Common Stock in the
Stand-alone Case ranged from approximately $11.45 to $19.73 per share
utilizing management's projections and Fox-Pitt, Kelton's assumptions and,
in the Sale Case at the end of five years, the range of values was
approximately $17.25 to $25.02 per share.
Pursuant to the terms of Fox-Pitt, Kelton's engagement, Charter has agreed
to pay Fox-Pitt, Kelton $250,000. Charter has also agreed to reimburse Fox-Pitt,
Kelton for travel and other out-of-pocket expenses incurred by Fox-Pitt, Kelton
in performing its services, including the fees and expenses of its legal
counsel, and to indemnify Fox-Pitt, Kelton and related persons against
liabilities, including liabilities under the federal securities laws, arising
out of Fox-Pitt, Kelton's engagement.
Fox-Pitt, Kelton has advised Charter that, in the ordinary course of its
business, it may actively trade the securities of both Charter and NationsBank
for its own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
Fox-Pitt, Kelton is a nationally recognized investment banking firm and was
selected by Charter based on Fox-Pitt, Kelton's experience and expertise.
Fox-Pitt, Kelton regularly engages in evaluation of banks and bank holding
company securities in connection with acquisitions, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for various other purposes.
CONDITIONS TO THE MERGER
The Merger will occur only if the Agreement is approved by the requisite
vote of the shareholders of Charter. Consummation of the Merger is subject to
the satisfaction of certain other conditions, unless waived, to the extent
legally permitted. Such conditions include (i) the receipt of all required
governmental orders, permits, approvals or qualifications (and the expiration of
all applicable waiting periods following the receipt of such items or the
delivery of appropriate notices), provided that such approvals shall not have
imposed any condition or restriction (including requirements relating to the
disposition of assets) which in the good faith judgment of NationsBank would so
adversely impact the economic or business benefits of the transactions
contemplated by the Agreement that, had such condition or requirement been
known, NationsBank would not have entered into the Agreement; (ii) the absence
of any active litigation seeking any order, decree or injunction of a
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court of competent jurisdiction to enjoin or prohibit the consummation of the
Merger; (iii) the effectiveness of the Registration Statement under the
Securities Act and the absence of any stop order or threatened stop order
regarding the Registration Statement; (iv) the receipt of authorization to list
on the NYSE, upon official notice of issuance, the NationsBank Common Stock to
be issued in the Merger; and (v) the receipt of the tax opinion referred to in
" -- Certain Federal Income Tax Consequences."
In addition, unless waived, each party's obligation to effect the Merger is
subject to the performance by the other party of its obligations under the
Agreement and the receipt of certain closing certificates and opinions from the
other party. No assurances can be provided as to when or whether all of the
conditions precedent to the Merger can or will be satisfied or waived by the
party entitled to do so.
CONDUCT OF BUSINESS PRIOR TO THE MERGER
In the Agreement, Charter has agreed, except as otherwise contemplated by
the Agreement, to (i) operate its business only in the usual, regular and
ordinary course, consistent with past practice (other than certain transactions
made pursuant to contracts then in existence), (ii) use its best efforts to
preserve intact its business organization, employees and advantageous business
relationships and retain the services of its officers and key employees, and
(iii) in accordance with the terms of the applicable transaction agreements,
diligently proceed to complete its pending acquisitions.
In addition, Charter has agreed that it will not, without the prior written
consent of NationsBank:
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness and indebtedness of
Charter or any of its subsidiaries to Charter or any of its subsidiaries; it
being understood and agreed that incurrence of indebtedness in the ordinary
course of business shall include, without limitation, the creation of deposit
liabilities, purchase of federal funds, sales of certificates of deposit and
entering into Federal Home Loan Bank borrowings with a term of six months or
less or repurchase agreements), assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other individual,
corporation or other entity, or make any loan or advance other than in the
ordinary course of business consistent with past practice;
(b) adjust, split, combine or reclassify any capital stock; make, declare
or pay any dividend (other than regular quarterly cash dividends at a rate not
in excess of $0.08 per share through June 30, 1996 and $0.10 per share
thereafter) or make any other distribution on, or (other than the redemption of
Charter's Preferred Stock which was completed on March 31, 1996 in accordance
with the Agreement) directly or indirectly redeem, purchase or otherwise acquire
any shares of its capital stock or any securities or obligations convertible
into or exchangeable for any shares of its capital stock, or grant any stock
appreciation rights or grant any individual, corporation or other entity any
right to acquire any shares of its capital stock; or issue any additional shares
of capital stock, or any securities or obligations convertible into or
exchangeable for any shares of its capital stock;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of its
properties or assets to any individual, corporation or other entity, or cancel,
release or assign any indebtedness to any such person or any claims held by any
such person, except in the ordinary course of business consistent with past
practice or pursuant to contracts or agreements in force at the date of the
Agreement;
(d) make any material investment (other than trades in investment
securities in the ordinary course) either by purchase of stock or securities,
contributions to capital, property transfers, or purchase of any property or
assets of any other individual, corporation or other entity;
(e) enter into, terminate or fail to exercise any material right under, any
contract or agreement involving annual payments in excess of $50,000 and which
cannot be terminated without penalty upon 30 days' notice, or make any change
in, or extension of (other than automatic extensions), any of its leases or
contracts involving annual payments in excess of $50,000 and which cannot be
terminated without penalty upon 30 days' notice;
(f) modify the terms of any Charter benefit plan (including any severance
pay plan) or increase or modify in any manner the compensation or fringe
benefits of any of its employees or pay any pension or retirement allowance not
required by any existing plan or agreement to any such employees, or become a
party to, amend or commit itself to any pension, retirement, profit-sharing or
welfare benefit plan or agreement or employment agreement with or for the
benefit of any employee other than routine adjustments in compensation and
fringe benefits in the ordinary course of business consistent with past practice
or accelerate the vesting of any stock options or other stock-based
compensation;
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(g) take any action that would prevent or impede the Merger from qualifying
as a reorganization within the meaning of Section 368 of the Code;
(h) settle any claim, action or proceeding involving the payment of money
damages in excess of $50,000, except in the ordinary course of business
consistent with past practice;
(i) amend the Charter Articles or the Charter Bylaws;
(j) fail to maintain its agreements with bank regulators, material licenses
and permits or to file in a timely fashion all federal, state, local and foreign
tax returns;
(k) make any capital expenditures of more than $50,000 individually or
$300,000 in the aggregate;
(l) fail to maintain each Charter benefit plan or timely make all
contributions or accruals required thereunder in accordance with generally
accepted accounting principals applied on a consistent basis;
(m) issue any additional shares of Charter Capital Stock;
(n) agree to, or make any commitment to, take any of the actions prohibited
by (a) - (m);
(o) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in the Agreement
being or becoming untrue in any material respect at any time prior to the
Effective Time, or in any of the conditions to the Merger not being satisfied or
in a violation of any provision of the Agreement, except, in every case, as may
be required by applicable law; or
(p) change any methods of accounting from those used in the preparation of
financial statements delivered to NationsBank.
In the Agreement, Charter has also agreed to terminate the 1991 Charter
Bancshares, Inc. Stock Appreciation Rights Plan and all Charter executive
deferred compensation plans prior to the Effective Time.
The Agreement also provides that, except for the transactions contemplated
thereby, neither Charter nor its affiliates or representatives shall directly or
indirectly solicit the acquisition by any person of a significant part of the
business and properties or capital stock of Charter or its subsidiaries.
Additionally, except to the extent necessary to comply with the fiduciary duties
of the Charter Board, as advised by counsel, neither Charter nor its affiliates
or representatives will provide any non-public information that it is not
legally obligated to furnish, negotiate with respect to any such acquisition
proposal, although Charter may communicate information about such acquisition
proposal to its shareholders if and to the extent that it is required to do so
in order to comply with its legal obligations.
MODIFICATION, WAIVER AND TERMINATION; EXPENSES
The Agreement provides that it may be amended by a subsequent writing
signed by each party upon the approval of its Board of Directors. However, no
amendment modifying the manner or basis in which shares of Charter Capital Stock
will be exchanged for shares of NationsBank Common Stock in the Merger may be
made after the Special Meeting without further approval of holders of Charter
Capital Stock.
The Agreement provides that each party may waive any of the conditions
precedent to its obligations to consummate the Merger, to the extent legally
permitted. Neither of the parties intends, however, to waive any conditions of
the Merger if such waiver would, in the judgment of the waiving party, have a
material adverse effect on its shareholders.
The Agreement may be terminated by mutual agreement of the NationsBank
Board and the Charter Board. The Agreement may also be terminated by either the
NationsBank Board or the Charter Board (i) in the event of breach of the
Agreement by the other party that cannot or has not been cured within 30 days of
notice of such breach, (ii) if the required approval of any applicable
regulatory authority is not obtained, or (iii) if the Effective Time does not
occur by December 31, 1996 (provided that the failure to consummate the Merger
by such date is not caused by any breach of the Agreement by the terminating
party). NationsBank may also terminate the Agreement if Charter shareholders
fail to approve the Agreement and the transactions contemplated thereby at the
Special Meeting.
Charter may also terminate the Agreement if Charter has not materially
breached the Agreement and, prior to the Effective Time, the Charter Board
receives a proposal or offer (an "Alternative Acquisition Proposal") from
another party to acquire all or any significant part of the business and
properties or capital stock of Charter that the Charter Board determines in its
good faith judgment and in the exercise of its fiduciary duties (based as to
legal matters on the written opinion of legal
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counsel and as to financial matters on the written opinion of an investment
banking firm of national reputation) is more favorable to the Charter
shareholders than the Exchange Ratio and the Merger and that the failure to
terminate the Agreement and accept such Alternative Acquisition Proposal would
be inconsistent with the proper exercise of the Charter Board's fiduciary
duties. A termination of the Agreement by the Charter Board for this reason
would not be effective until Charter pays NationsBank a termination fee of
$2,000,000, plus up to $500,000 of certain reasonable out-of-pocket expenses
incurred by NationsBank in connection with or arising out of the transactions
contemplated by the Agreement.
In addition, the Agreement may be terminated by the Charter Board, at its
sole option, if either:
(1) both (a) the Average Closing Price on the Determination Date
(I.E., the average closing price of NationsBank Common Stock for the ten
full trading days ending on the date the Federal Reserve approves the
Merger) is less than $56.419 and (b)(i) the number obtained by dividing the
Average Closing Price on the Determination Date by $66.375 (the
"NationsBank Ratio") is less than (ii) the number obtained by dividing the
Index Price (being the weighted average closing price per share of the
common stocks of the Index Group) on the Determination Date by $48.67
(being the Index Price on January 17, 1996) and subtracting 0.15 from the
quotient in this clause (1)(b)(ii) (such number being referred to as the
"Index Group Ratio"); or
(2) the Average Closing Price on the Determination Date is less than
$53.100.
There can be no assurance that the Charter Board would exercise its right to
terminate the Agreement if a Termination Event (I.E., the conditions in either
(1) or (2) above) exists.
The Average Closing Price on the Determination Date on which the occurrence
of a Termination Event will be determined is based on the average of the last
sale prices of NationsBank Common Stock during a ten-day period ending on the
Determination Date. Accordingly, because the market price of NationsBank Common
Stock between the Determination Date and the Effective Time, as well as on the
date certificates representing shares of NationsBank Common Stock are delivered
in exchange for shares of Charter Capital Stock following consummation of the
Merger, will fluctuate and possibly decline, the value of the NationsBank Common
Stock actually received by holders of Charter Capital Stock may be more or less
than (i) the Average Closing Price on the Determination Date, or (ii) the value
of the NationsBank Common Stock at the Effective Time resulting from the
Exchange Ratio.
The Index Group consists of 20 bank holding companies selected by
NationsBank and Charter as being directly relevant for purposes of
distinguishing changes in NationsBank's stock price that are unique from those
reflective of general changes in comparable companies. The 20 bank holding
companies are Boatman's Bancshares, Inc., Citicorp, BankAmerica Corporation,
Chase Manhattan Corporation, J.P. Morgan & Co. Incorporated, Banc One
Corporation, Norwest Corporation, First Union Corporation, Bank of New York
Company, KeyCorp, SunTrust Banks, Inc., Wachovia Corporation, Mellon Bank
Corporation, First Bank System, Inc., PNC Bank Corp., First Chicago NBD
Corporation, Barnett Banks, Inc., Bankers Trust New York Corp., Fleet Financial
Group and Corestates Financial Corp. If NationsBank or any company belonging to
the Index Group declares or effects a stock dividend, reclassification,
recapitalization, split-up, combination, exchange of shares or similar
transaction between January 17, 1996 and the Determination Date, the prices of
NationsBank Common Stock or such other common stocks shall be appropriately
adjusted for all purposes, including determining whether there is a Termination
Event (and, in the case of any such transaction by NationsBank, the Exchange
Ratio also shall be appropriately adjusted). In the event there shall have been,
between January 17, 1996 and the Determination Date, any public announcement of
a proposal for such company to be acquired or for such company to acquire
another company or companies in transactions with a value exceeding 25% of the
acquiror's market capitalization, such company will be removed from the Index
Group and the weights will be redistributed proportionately for purposes of
computing the Index Group Ratio (which, as described above, is used in
determining whether there has been a Termination Event).
It is not possible to know whether a Termination Event will occur until
after the Determination Date. Although the Charter Board has made no decision as
to whether to exercise its termination right in such situation, the Charter
Board would, consistent with its fiduciary duties, take into account all
relevant facts and circumstances that exist at such time and would consult with
its financial advisors and legal counsel. Approval of the Agreement by the
shareholders of Charter at the Special Meeting will confer on the Charter Board
the power, consistent with its fiduciary duties, to elect to consummate the
Merger in the event of a Termination Event and without any further action by, or
resolicitation of, the shareholders of Charter. If the Charter Board elects to
exercise its termination right, Charter must give NationsBank prompt notice of
that decision during a ten-day period beginning two days after the Determination
Date.
The foregoing discussion is qualified in its entirety by reference to the
applicable provisions in the Agreement (a copy of which is set forth as Appendix
A to this Proxy Statement-Prospectus) relating to possible Termination Events.
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The Agreement provides that each of the parties shall pay its own expenses
relating to the Agreement and to consummation of the Merger except that
NationsBank has agreed to pay the printing expenses and filing fees incurred in
connection with the Agreement, the Registration Statement and this Proxy
Statement-Prospectus and, if Charter were to terminate the Agreement due to
receipt of an Alternative Acquisition Proposal, Charter would be required to pay
the Termination Fee described above.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Blanchfield Cordle & Moore, P.A., tax counsel to NationsBank has delivered
to NationsBank and Charter its opinion that, based upon certain customary
assumptions and representations, under Federal law as currently in effect, (a)
the proposed Merger will constitute a reorganization within the meaning of
Section 368 of the Code; (b) no gain or loss will be recognized by the
shareholders of Charter on the exchange of their shares of Charter Capital Stock
for shares of NationsBank Common Stock pursuant to the terms of the Merger to
the extent of such exchange; (c) the Federal income tax basis of the NationsBank
Common Stock for which shares of Charter Capital Stock are exchanged pursuant to
the Merger will be the same as the basis of such shares of Charter Capital Stock
exchanged therefor (less any proportionate part of such basis allocable to any
fractional interest in any share of NationsBank Common Stock); (d) the holding
period of NationsBank Common Stock for which shares of Charter Capital Stock are
exchanged will include the period that such shares of Charter Capital Stock were
held by the holder, provided such shares were capital assets of the holder; and
(e) the receipt of cash in lieu of fractional shares will be treated as if the
fractional shares were distributed as part of the exchange and then redeemed by
NationsBank, and gain or loss will be recognized in an amount equal to the
difference between the cash received and the basis of the Charter Capital Stock
surrendered, which gain or loss will be capital gain or loss if the Charter
Capital Stock was a capital asset in the hands of the shareholder.
THE FOREGOING IS A SUMMARY OF THE ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED MERGER UNDER THE CODE AND IS FOR GENERAL
INFORMATION ONLY. IT DOES NOT INCLUDE CONSEQUENCES OF STATE, LOCAL OR OTHER TAX
LAWS OR SPECIAL CONSEQUENCES TO PARTICULAR SHAREHOLDERS HAVING SPECIAL
SITUATIONS. SHAREHOLDERS OF CHARTER SHOULD CONSULT THEIR OWN TAX ADVISORS
REGARDING SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE AND LOCAL TAX LAWS AND TAX CONSEQUENCES
OF SUBSEQUENT SALES OF NATIONSBANK COMMON STOCK.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL. Certain members of Charter management and of the Charter Board
have interests in the Merger that are in addition to any interests they may have
as shareholders of Charter generally. These interests include, among others,
provisions in the Agreement relating to indemnification of Charter directors and
officers, directors' and officers' liability insurance, and certain severance
and other employee benefits, as described below.
EMPLOYMENT AND NONCOMPETITION AGREEMENT WITH JERRY E. FINGER. In order to
assure continuity following the consummation of the Merger, including the
preservation of key customer relationships, NationsBank Texas and Jerry E.
Finger, Chairman and Chief Executive Officer of Charter, have entered into an
Employment and Noncompetition Agreement dated January 25, 1996 (the "Finger
Agreement"). The Finger Agreement is effective only if the Merger is
consummated. Under the Finger Agreement, Mr. Finger would become an employee of
NationsBank Texas for a seven-year period commencing at the Effective Time,
unless terminated earlier by NationsBank Texas for cause (as defined in the
Finger Agreement) (the "Employment Period"). During the Employment Period, Mr.
Finger would receive a salary of $455,000 per year, plus certain benefits. Upon
expiration or termination of the Employment Period (other than upon termination
by NationsBank Texas for cause), Mr. Finger would receive a retirement
supplement of $300,000 per year for the remainder of his life, provided that
such amount will be offset by any benefits payable to Mr. Finger under
NationsBank retirement plans and Mr. Finger may elect to have such supplemental
retirement benefit paid in any actuarially equivalent optional form available
under the NationsBank pension plan. The Finger Agreement provides that for so
long as Mr. Finger receives any payments under the Finger Agreement (including
the supplemental retirement benefit), Mr. Finger generally may not, with certain
limited exceptions, own any interest in or perform any services for any entity
that competes with NationsBank in the State of Texas.
In addition to the Finger Agreement, the Merger Subsidiary and Mr. Finger
have entered into a letter agreement dated January 25, 1996, pursuant to which
Mr. Finger shall: (i) have the option to purchase certain furniture and office
equipment currently owned by Charter, (ii) have the option to purchase from the
Merger Subsidiary certain life insurance policies currently maintained by
Charter on Mr. Finger and (iii) be entitled to certain office space and
secretarial services while
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employed by NationsBank. The letter agreement also provides that the Merger
Subsidiary shall use its best efforts to negotiate with Mr. Finger with respect
to certain deferred compensation matters and shall assist Mr. Finger in
obtaining certain life insurance policies at Mr. Finger's expense.
SEVERANCE AND STOCK OPTION LETTER AGREEMENT. In conjunction with the
Agreement, Charter and NationsBank entered into a letter agreement (the "Letter
Agreement") regarding severance payments and stock options to be made and
granted to certain Charter employees. The Letter Agreement was entered into in
order to provide for a smooth transition in the Merger and to take into account
the options on Charter Common Stock (the "Planned Options") which would have
been granted under a stock option plan (the "Proposed Plan") which had
previously been proposed by the Compensation Committee of the Charter Board for
submission to a vote of Charter shareholders.
In general, under the Letter Agreement employees of Charter at the
Effective Time (other than certain executive employees of Charter), who do not
voluntarily terminate their employment, but who are terminated, for reasons
other than for "cause" within one year after the earlier of (i) the date 30 days
after completion of the merger of the Charter Banks into NationsBank Texas, or
(ii) the date 180 days after the Effective Time (the earlier of such dates, the
"Transition Period End"), will receive certain prescribed severance payments.
Under the Letter Agreement, the severance pay to such eligible employees will
generally be two weeks of base pay for each year of service completed as of the
Transition Period End (except that employees with seniority in excess of 10
years will receive additional severance ranging from an additional 12% to an
additional 25% of the base severance as calculated above, depending on extent of
service beyond 10 years). Regardless of years of service, certain employees of
Charter who are terminated are entitled to the minimum severance pay of either
60 days or 90 days of base pay, depending on the position held by the eligible
employee.
The Letter Agreement also provides that eight senior executive officers of
Charter are eligible to receive severance payments equal to (i) one times their
respective base salaries if the executive officer receives a "comparable job
offer" from NationsBank Texas and elects not to accept such offer or (ii) two
times their respective base salaries if the executive officer does not receive a
"comparable job offer" from NationsBank Texas. As a condition to receiving any
such severance payments, NationsBank or Charter may require the executive
officer to remain employed through the Transition Period End. Any such executive
officer who accepts employment with NationsBank Texas will be deemed to have
waived such severance benefits; however, if the officer is involuntarily
terminated within two years of accepting employment with NationsBank Texas,
other than for "cause," such officer will be entitled to base pay and benefits
for the remainder of such two year period.
In addition, pursuant to the Letter Agreement, those employees of Charter
who are entitled to severance pay, and who were listed as among those to whom
Planned Options were to be granted, will be entitled to additional severance pay
equal to $1.20 multiplied by the number of Planned Options proposed to have been
awarded to such individual. The Letter Agreement provides that those employees
of Charter who were listed as among those to whom Planned Options were to be
granted, who accept continued employment with NationsBank, are entitled to
receive, in lieu of the Planned Options, options for NationsBank Common Stock
under existing NationsBank stock option plans at least equivalent to the number
of Planned Options proposed to have been awarded to such employee, multiplied by
the Exchange Ratio of .385.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. NationsBank has agreed
that it will, following the Effective Time, indemnify, defend and hold harmless
the current and former directors, officers, employees and agents of Charter and
its subsidiaries against all losses, expenses, claims, damages or liabilities
arising out of actions or omissions occurring at or prior to the Effective Time
to the full extent then permitted under Texas law and by the Charter Articles
and the Charter Bylaws as currently in effect, including provisions relating to
advances of expenses. NationsBank has also agreed to use its reasonable efforts
to maintain in effect Charter's existing directors' and officers' insurance
policy for six years after the Effective Time, subject to certain limitations,
including the right to replace policies and to limit the premium costs of such
coverage.
DISSENTERS' RIGHTS OF CHARTER SHAREHOLDERS
If the Agreement and the transactions contemplated thereby are approved by
Charter shareholders, any Charter shareholder who follows certain statutory
procedures may demand payment of the fair value of such shareholder's Charter
Capital Stock in lieu of the NationsBank Common Stock provided pursuant to the
Agreement. A Charter shareholder who wishes to demand such payment must strictly
comply with statutory procedures set forth in Sections 5.12 and 5.13 of the
TBCA, copies of which are attached hereto as Appendix C. In accordance with the
procedures set forth in such sections, a Charter shareholder wishing to exercise
dissenters' rights must file with Charter, prior to the Special Meeting, a
written objection stating that such shareholder will exercise his or her right
to dissent if the Agreement and the transactions contemplated thereby are
approved. In addition, such shareholder may not vote in favor of the Agreement
and the transactions contemplated thereby.
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After the Effective Time and after notice from the Merger Subsidiary that
the Effective Time has occurred, the dissenting shareholder must, within 10 days
after delivery of such notice, make written demand on the Merger Subsidiary for
payment of the fair value of his or her shares. According to the TBCA, the fair
value of the shares of Charter Capital Stock is the value of such shares as of
the day immediately preceding the Special Meeting, excluding any increase or
decrease in value in anticipation of the Merger. If the dissenting shareholder
and the Merger Subsidiary cannot agree on the fair value of the shares held by
such shareholder, either party may petition the court to appoint a qualified
appraiser.
Holders of Charter Capital Stock who vote against the Agreement and the
transactions contemplated thereby will receive NationsBank Common Stock and cash
in lieu of fractional shares in the event the Agreement and the transactions
contemplated thereby are approved if such holders do not properly exercise their
dissenters' rights.
ACCOUNTING TREATMENT
Upon consummation of the Merger, the transaction will be accounted for as a
purchase, and all of the assets and liabilities of Charter will be recorded in
NationsBank's consolidated financial statements at their fair value at the
Effective Time. The amount, if any, by which the purchase price paid by
NationsBank exceeds the fair value of the net assets acquired by NationsBank
through the Merger will be recorded as goodwill. NationsBank's consolidated
financial statements will include the operations of Charter after the Effective
Time. The unaudited pro forma financial information included in this Proxy
Statement-Prospectus reflects the Merger using the purchase method of
accounting. See "SUMMARY -- Comparative Unaudited Per Share Data" and
"SUMMARY -- Selected Financial Data."
BANK REGULATORY MATTERS
FEDERAL RESERVE BOARD. The Merger is subject to prior approval by the
Federal Reserve under the BHCA. The BHCA requires the Federal Reserve, when
approving a transaction such as the Merger, to take into consideration the
financial and managerial resources (including the competence, experience and
integrity of the officers, directors and principal shareholders) and future
prospects of the existing and proposed institutions and the convenience and
needs of the communities to be served. In considering financial resources and
future prospects, the Federal Reserve will, among other things, evaluate the
adequacy of the capital levels of the parties to a proposed transaction.
The BHCA prohibits the Federal Reserve from approving a merger if it would
result in a monopoly or be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any part of
the United States, or if its effect in any section of the country would be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner result in a restraint of trade, unless the Federal
Reserve finds that the anti-competitive effects of a merger are outweighed by
the benefits to the public such as greater convenience, increased competition
and gains in efficiency. In addition, under the Community Reinvestment Act of
1977, as amended (the "CRA"), the Federal Reserve must take into account the
record of performance of the existing institutions in meeting the credit needs
of the entire community, including low- and moderate-income neighborhoods,
served by such institutions.
Applicable Federal law provides for the publication of notice and public
comment on applications filed with the Federal Reserve and authorizes such
agency to permit interested parties to intervene in the proceedings. If an
interested party is permitted to intervene, such intervention could delay the
regulatory approvals required for consummation of the Merger.
The Merger generally may not be consummated until between 15 and 30 days
following the date of Federal Reserve approval, during which time the United
States Department of Justice may challenge the Merger on antitrust grounds. The
commencement of an antitrust action would stay the effectiveness of the
regulatory agency's approval unless a court specifically ordered otherwise.
NationsBank and Charter believe that the Merger does not raise substantial
antitrust or other significant regulatory concerns and that any divestitures
that may be required in order to consummate the Merger will not be material to
the financial condition or results of operations of NationsBank or Charter prior
to the Effective Time, or NationsBank after the Effective Time.
STATUS OF REGULATORY APPROVALS AND OTHER INFORMATION. NationsBank and
Charter have filed all applications and notices and have taken (or will take)
other appropriate action with respect to any requisite approvals or other action
of any governmental authority necessary for consummation of the Merger. The
Agreement provides that the obligation of each of NationsBank and Charter to
consummate the Merger is conditioned upon the receipt of all requisite
regulatory approvals, including the approval of the Federal Reserve and the
absence of any injunction against the Merger. There can be no assurance that any
governmental agency will approve or take any other required action with respect
to the Merger, and, if approvals are received or action is taken, there can be
no assurance as to the date of such approvals or action, that such approvals or
28
<PAGE>
action will not be conditioned upon matters that would cause the parties to
abandon the Merger or that no action will be brought challenging such approvals
or action, including a challenge by the United States Department of Justice or,
if such a challenge is made, the result thereof.
To facilitate the Merger as well as the merger of the Charter Banks into
NationsBank Texas, which will occur subsequent to the Effective Time,
Charter-Houston and Charter-SSB have entered into a plan of merger pursuant to
which Charter-SSB will merge with and into Charter-Houston. The requisite
regulatory applications for the merger of Charter-SSB into Charter-Houston have
been filed with the Office of the Comptroller of the Currency and the Texas
Savings and Loan Department, and the transaction is currently expected to close
prior to the Effective Time. Accordingly, NationsBank has not filed an
application with the Texas Savings and Loan Department to acquire control of a
Texas state savings bank. If the application to merge Charter SSB with
Charter-Houston were denied or delayed for any reason, NationsBank would be
required to file an application with the Texas Savings and Loan Department which
could delay the Effective Time.
NationsBank and Charter are not aware of any governmental approvals or
actions that may be required for consummation of the Merger other than as
described above. Should any other approval or action be required, NationsBank
and Charter currently contemplate that such approval or action would be sought.
There can be no assurance, however, that any such action or approval, if needed,
could be obtained and would not be conditioned in a manner that would cause the
parties to abandon the Merger.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCES THAT SUCH REGULATORY APPROVALS WILL BE
OBTAINED OR AS TO THE DATES OF ANY SUCH APPROVALS. THERE CAN ALSO BE NO
ASSURANCE THAT SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR RESTRICTION WHICH
CAUSES SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS SET FORTH IN THE
AGREEMENT. SEE " -- CONDITIONS TO THE MERGER." THERE CAN LIKEWISE BE NO
ASSURANCE THAT THE UNITED STATES DEPARTMENT OF JUSTICE WILL NOT CHALLENGE THE
MERGER, OR, IF SUCH A CHALLENGE IS MADE, AS TO THE RESULT THEREOF.
See " -- Effective Time of the Merger," " -- Conditions to the Merger" and
" -- Modification, Waiver and Termination; Expenses."
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of NationsBank Common Stock to be issued to shareholders of
Charter in the Merger have been registered under the Securities Act. Such shares
may be traded freely and without restriction by those shareholders not deemed to
be "affiliates" of Charter, as that term is defined under the Securities Act.
Any subsequent transfer of such shares, however, by any person who is an
affiliate of Charter at the time the Merger is submitted for vote of the
shareholders of Charter will, under existing law, require either (a) the further
registration under the Securities Act of the shares of NationsBank Common Stock
to be transferred, (b) compliance with Rule 145 promulgated under the Securities
Act, which will permit former Charter shareholders immediately after the
Effective Time to effect sales of NationsBank Common Stock that do not exceed
certain volume limitations in "brokers' transactions" (as defined in Rule 144
promulgated under the Securities Act) or (c) the availability of another
exemption from registration. An "affiliate" of Charter, as defined by the rules
promulgated pursuant to the Securities Act, is a person who directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with Charter. The foregoing restrictions are expected to
apply to the directors, executive officers and each holder of 10% or more of the
Charter Capital Stock (and to certain relatives or the spouse of any such person
and any trusts, estates, corporations, or other entities in which any such
person has a 10% or greater beneficial or equity interest). Stop transfer
instructions will be given by NationsBank to the transfer agent with respect to
the NationsBank Common Stock to be received by persons subject to the
restrictions described above, and the certificates for such stock will be
appropriately legended. Charter has obtained from each of those individuals
identified by Charter as affiliates agreements to the effect that each such
individual will not make any further sales of shares of NationsBank Common Stock
received upon consummation of the Merger except in compliance with the
restrictions described in this paragraph.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
NationsBank has a dividend reinvestment and stock purchase plan that
provides, for those shareholders who elect to participate, that dividends on
NationsBank Common Stock will be used to purchase either original issue shares
or shares in the open market at market value of NationsBank Common Stock on a
quarterly basis. The plan also permits participants to invest in additional
shares of NationsBank Common Stock through optional cash payments, within
certain dollar limitations, at the then-current market price of such stock at
the time of purchase on any of 12 monthly investment dates each year. It is
29
<PAGE>
anticipated that NationsBank will continue its dividend reinvestment and stock
purchase plan and that shareholders of Charter who receive shares of NationsBank
Common Stock in the Merger will have the right to participate therein.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
MARKET PRICES
NationsBank Common Stock is listed on the NYSE and the PSE under the
trading symbol "NB," and certain shares of NationsBank Common Stock are listed
also on the Tokyo Stock Exchange. As of December 31, 1995, NationsBank Common
Stock was held of record by approximately 103,137 persons. The following table
sets forth the high and low sales prices of the NationsBank Common Stock as
reported on the NYSE Composite Transactions List for the periods indicated.
Charter Common Stock is quoted and traded on Nasdaq under the trading
symbol "SAIL." There is no trading market for the Charter Special Common Stock.
The most recent trades of Charter Capital Stock involved only shares of Charter
Common Stock. The following table sets forth the high and low sales prices for
Charter Common Stock as reported by Nasdaq for the indicated periods. At the
close of business on the Record Date, there were outstanding 6,061,625 shares of
Charter Common Stock held by 520 holders of record, 219,718 shares of Charter
Class B Special Common Stock held by 13 holders of record and 49,518 shares of
Charter Series C Special Common Stock held by one holder of record.
<TABLE>
<CAPTION>
CHARTER
COMMON
NATIONSBANK STOCK SALES
SALES PRICES PRICES
HIGH LOW HIGH
<S> <C> <C> <C>
Year Ended December 31, 1994:
First Quarter................................................................ 50 7/8 44 3/8 14 1/4
Second Quarter............................................................... 57 3/8 44 1/2 13 3/4
Third Quarter................................................................ 56 47 1/8 14 3/4
Fourth Quarter............................................................... 50 3/4 43 3/8 15 1/4
Year Ending December 31, 1995:
First Quarter................................................................ 51 3/4 44 5/8 15 1/2
Second Quarter............................................................... 57 3/4 49 5/8 16 3/8
Third Quarter................................................................ 68 7/8 53 3/4 19 1/2
Fourth Quarter............................................................... 74 3/4 64 20
Year Ending December 31, 1996:
First Quarter................................................................
Second Quarter (through April )............................................
<CAPTION>
LOW
<S> <C>
Year Ended December 31, 1994:
First Quarter................................................................ 13 3/4
Second Quarter............................................................... 13 1/2
Third Quarter................................................................ 13 3/4
Fourth Quarter............................................................... 13 3/4
Year Ending December 31, 1995:
First Quarter................................................................ 13 3/4
Second Quarter............................................................... 14 1/4
Third Quarter................................................................ 15 3/4
Fourth Quarter............................................................... 17 1/2
Year Ending December 31, 1996:
First Quarter................................................................
Second Quarter (through April )............................................
</TABLE>
DIVIDENDS
The following table sets forth dividends declared per share of NationsBank
Common Stock and Charter Capital Stock, respectively, for the periods indicated.
The ability of either NationsBank or Charter to pay dividends to its
shareholders is subject to certain restrictions. See "INFORMATION ABOUT
NATIONSBANK -- Supervision and Regulation" and "INFORMATION ABOUT
CHARTER -- Supervision and Regulation."
<TABLE>
<CAPTION>
CHARTER
CAPITAL
STOCK
NATIONSBANK DIVIDENDS
DIVIDENDS (1)
<S> <C> <C>
Year Ended December 31, 1994:
First Quarter................................................................................. $ .46 $.06
Second Quarter................................................................................ .46 .06
Third Quarter................................................................................. .46 .06
Fourth Quarter................................................................................ .50 .06
Year Ending December 31, 1995:
First Quarter................................................................................. $ .50 $.07
Second Quarter................................................................................ .50 .07
Third Quarter................................................................................. .50 .08
Fourth Quarter................................................................................ .58 .08
Year Ending December 31, 1996:
First Quarter................................................................................. .58 .08
</TABLE>
(1) Dividends on Charter Common Stock, Charter Class B Special Common Stock and
Charter Series C Special Common Stock are identical, except that for the
first five years after issuance, certain of the shares of Charter Class B
Special Common Stock were subject to a provision of Charter's Articles
limiting the dividends on such shares to one-half of the dividends on
Charter Common Stock.
30
<PAGE>
INFORMATION ABOUT NATIONSBANK
GENERAL
NationsBank is a bank holding company established as a North Carolina
corporation in 1968 and is registered under the BHCA, with its principal assets
being the stock of its subsidiaries. Through its banking and non-banking
subsidiaries NationsBank provides banking and banking-related services,
primarily throughout the Southeast and Mid-Atlantic states and Texas. The
principal executive offices of NationsBank are located at NationsBank Corporate
Center in Charlotte, North Carolina 28255. Its telephone number is (704)
386-5000.
OPERATIONS
NationsBank provides a diversified range of banking and certain non-banking
financial services and products through its various subsidiaries. NationsBank
manages its activities through three major business units: the General Bank,
Global Finance and Financial Services.
The General Bank provides comprehensive services in the commercial and
retail banking fields, including trust and private banking operations, the
origination and servicing of home mortgage loans, the issuance and servicing of
credit cards (through a Delaware subsidiary), indirect lending, dealer finance
and certain insurance services. The General Bank also offers full service
brokerage services and discount brokerage services and provides investment
advisory services to a proprietary mutual fund, as well as investment
management, banking and fiduciary services through subsidiaries of NationsBank.
As of December 31, 1995, the General Bank operated 1,833 banking offices through
the following bank subsidiaries: NationsBank, N.A. (serving the States of North
Carolina, South Carolina, Maryland and Virginia and the District of Columbia);
NationsBank, N.A. (South) (serving the States of Florida and Georgia);
NationsBank of Kentucky, N.A., NationsBank of Tennessee, N.A.; and NationsBank
of Texas, N.A. The General Bank also provides fully automated, 24-hour cash
dispensing and depositing services throughout the states in which it is located,
through approximately 2,292 automated teller machines.
Global Finance provides comprehensive corporate banking and investment
banking services to domestic and international customers, including treasury
management, loan syndication, asset-backed lending, leasing, factoring and
arrangement of asset-backed and project financing, as well as underwriting,
trading or distributing a wide range of securities (including bank-eligible
securities and, to a limited extent, bank-ineligible securities as authorized by
the Federal Reserve Board under Section 20 of the Glass-Steagall Act); and
trading and distributing a wide range of derivative products in certain interest
rate, foreign exchange, commodity and equity markets. Global Finance provides
its services through various offices located in major United States cities as
well as in London, Frankfurt, Singapore, Bogota, Mexico City, Grand Cayman,
Nassau, Seoul, Tokyo, Osaka, Taipei and Hong Kong.
Financial Services consists of NationsCredit Consumer Corporation (formerly
NationsCredit Corporation), primarily a consumer finance subsidiary, and
NationsCredit Commercial Corporation (formerly Greyrock Capital Group Inc.),
primarily a commercial finance subsidiary. NationsCredit Consumer Corporation,
which has approximately 371 offices located in 34 states, provides personal,
mortgage and automobile loans to consumers and retail finance programs to
dealers. NationsCredit Commercial Corporation, consists of six divisions that
specialize in one or more of the following areas: equipment loans and leasing;
loans for debt restructuring, mergers and acquisitions and working capital; real
estate, golf/recreational and health care financing; and inventory financing to
manufacturers, distributions and dealers.
As part of its operations, NationsBank regularly evaluates the potential
acquisition of, and holds discussions with, various financial institutions and
other businesses of a type eligible for bank holding company investment. In
addition, NationsBank regularly analyzes the values of, and submits bids for,
the acquisition of customer-based funds and other liabilities and assets of such
financial institutions and other businesses. As a general rule, NationsBank
publicly announces such material acquisitions when a definitive agreement has
been reached.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation, various benefit
plans (including stock option plans), voting securities and the principal
holders thereof, certain relationships and related transactions and other
related matters as to NationsBank is incorporated by reference or set forth in
the NationsBank Annual Report on Form 10-K for the year ended December 31, 1995,
incorporated herein by reference. Shareholders of Charter desiring copies of
such document may contact NationsBank at its address or telephone number
indicated under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
31
<PAGE>
SUPERVISION AND REGULATION
GENERAL. As a registered bank holding company, NationsBank is subject to
the supervision of, and to regular inspection by, the Federal Reserve. The
NationsBank Banks are organized as national banking associations, which are
subject to regulation, supervision and examination by the OCC. The NationsBank
Banks are also subject to regulation by the FDIC and other federal regulatory
agencies. In addition to banking laws, regulations and regulatory agencies,
NationsBank and its subsidiaries and affiliates are subject to various other
laws and regulations and supervision and examination by other regulatory
agencies, all of which directly or indirectly affect NationsBank's operations,
management and ability to make distributions. The following discussion
summarizes certain aspects of those laws and regulations that affect
NationsBank.
The activities of NationsBank, and those of companies which it controls or
in which it holds more than 5% of the voting stock (including Charter), are
limited to banking or managing or controlling banks or furnishing services to or
performing services for its subsidiaries, or any other activity which the
Federal Reserve determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In making such
determinations, the Federal Reserve is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries can
reasonably be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency that outweigh possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. Generally, bank
holding companies, such as NationsBank, are required to obtain prior approval of
the Federal Reserve to engage in any new activity not previously approved by the
Federal Reserve or to acquire more than 5% of any class of voting stock of any
company. NationsBank received approval of the Federal Reserve prior to its 1988
acquisition of the voting stock of Charter.
Bank holding companies are also required to obtain the prior approval of
the Federal Reserve before acquiring more than 5% of any class of voting stock
of any bank which is not already majority-owned by the bank holding company.
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking and Branching Act"), a bank holding company became
able to acquire banks in states other than its home state beginning September
29, 1995.
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, therefore creating interstate branches, beginning June 1,
1997. Under such legislation, each state has the opportunity to "opt out" of
this provision, thereby prohibiting interstate branching in such states, or to
"opt in" at an earlier time, thereby allowing interstate branching within that
state prior to June 1, 1997. Furthermore, pursuant to such act, a bank is now
able to open new branches in a state in which it does not already have banking
operations, if the laws of such state permit such DE NOVO branching. Of those
states in which the NationsBank Banks are located, Delaware, Maryland, North
Carolina, Tennessee and Virginia have enacted legislation to "opt in," thereby
permitting interstate branching prior to June 1, 1997, and Texas has adopted
legislation to "opt out" of the interstate branching provisions (which Texas law
currently expires on September 2, 1999).
As previously described, NationsBank regularly evaluates merger and
acquisition opportunities, and it anticipates that it will continue to evaluate
such opportunities in light of the new legislation.
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. In 1995, several bills were introduced in
Congress that would have the effect of broadening the securities underwriting
powers of bank holding companies and possibly permitting bank holding companies
to engage in nonfinancial activities. The likelihood and timing of any such
proposals or bills being enacted and the impact they might have on NationsBank
and its subsidiaries cannot be determined at this time.
CAPITAL AND OPERATIONAL REQUIREMENTS. The Federal Reserve, the OCC and the
FDIC have issued substantially similar risk-based and leverage capital
guidelines applicable to United States banking organizations. In addition, those
regulatory agencies may from time to time require that a banking organization
maintain capital above the minimum levels, whether because of its financial
condition or actual or anticipated growth.
The Federal Reserve risk-based guidelines define a two-tier capital
framework. Tier 1 capital consists of common and qualifying preferred
shareholders' equity, less certain intangibles and other adjustments. Tier 2
capital consists of subordinated and other qualifying debt, and the allowance
for credit losses up to 1.25% of risk-weighted assets. The sum of Tier 1 and
Tier 2 capital less investments in unconsolidated subsidiaries represents
qualifying total capital, at least 50% of which must consist of Tier 1 capital.
Risk-based capital ratios are calculated by dividing Tier 1 and total capital by
risk-weighted assets. Assets and off-balance sheet exposures are assigned to one
of four categories of risk-weights, based primarily on relative credit risk. The
minimum Tier 1 capital ratio is 4% and the minimum total capital ratio is 8%.
NationsBank's Tier 1 and total risk-based capital ratios under these guidelines
at December 31, 1995 were 7.24% and 11.58%, respectively.
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<PAGE>
The leverage ratio is determined by dividing Tier 1 capital by adjusted
total assets. Although the stated minimum ratio is 3%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3%. NationsBank's leverage ratio at December 31, 1995 was 6.27%.
Management believes that NationsBank meets its leverage ratio requirement.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, identifies five capital categories for insured
depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective Federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5% of the bank's assets at the time it became "undercapitalized"
or the amount needed to comply with the plan. Furthermore, in the event of the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, FDICIA requires the
various regulatory agencies to prescribe certain non-capital standards for
safety and soundness relating generally to operations and management, asset
quality and executive compensation and permits regulatory action against a
financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier 1 risk-based capital and leverage capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of at least 5% and not be subject to a capital
directive order. An "adequately capitalized" institution must have a Tier 1
capital ratio of at least 4%, a total capital ratio of at least 8% and a
leverage ratio of at least 4%, or 3% in some cases. Under these guidelines, each
of the NationsBank Banks is considered adequately or well capitalized.
Banking agencies have recently adopted final regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. This
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have recently adopted final
regulations requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. Concurrently, banking agencies have
proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, those banking agencies intend
to propose further regulations to establish an explicit risk-based capital
charge for interest rate risk.
DISTRIBUTIONS. NationsBank funds for cash distributions to its shareholders
are derived from a variety of sources, including cash and temporary investments.
The primary source of such funds, however, is dividends received from its
banking subsidiaries. The amount of dividends that each NationsBank Bank may
declare in a calendar year without approval of the OCC is the NationsBank Bank's
net profits for that year, as defined by statute, combined with its net retained
profits, as defined, for the preceding two years. In addition, from time to time
NationsBank applies for, and may receive, permission from the OCC for one or
more of the NationsBank Banks to declare special dividends. In 1996, the
NationsBank Banks can initiate dividend payments without prior regulatory
approval of up to an aggregate of $905 million plus an additional amount equal
to their net profits for 1996 up to the date of any such dividend declaration.
In addition to the foregoing, the ability of NationsBank and the
NationsBank Banks to pay dividends may be affected by the various minimum
capital requirements and the capital and non-capital standards established under
FDICIA, as described above. Furthermore, the OCC may prohibit the payment of a
dividend by a national bank if it determines that such payment would constitute
an unsafe or unsound practice. The right of NationsBank, its shareholders and
its creditors to participate in any distribution of the assets or earnings of
its subsidiaries is further subject to the prior claims of creditors of the
respective subsidiaries.
SOURCE OF STRENGTH. According to Federal Reserve policy, bank holding
companies are expected to act as a source of financial strength to each
subsidiary bank and to commit resources to support each such subsidiary. This
support may be required at times when a bank holding company may not be able to
provide such support. In the event of a loss suffered or anticipated by the
FDIC -- either as a result of default of a banking or thrift subsidiary of
NationsBank or related to FDIC
33
<PAGE>
assistance provided to a subsidiary in danger of default -- the other banking
subsidiaries of NationsBank may be assessed for the FDIC's loss, subject to
certain exceptions.
INFORMATION ABOUT CHARTER
GENERAL
Charter is a Texas bank holding company organized in 1978 under the BHCA.
Charter maintains its principal offices at 2600 Citadel Plaza Drive, Suite 600,
Houston, Texas 77008 (telephone: 713/692-6121). As of December 31, 1995, Charter
had total assets of $915 million and total deposits of $734 million. As of
December 31, 1995, Charter had approximately 620 employees.
Charter owns all of the outstanding capital stock of CBH, Inc. ("CBH"), a
Delaware corporation and intermediate bank holding company (unless otherwise
indicated, all references herein to Charter include CBH). CBH owns all of the
outstanding capital stock of the Charter Banks, namely, Charter-Houston,
Charter-Colonial, University National Bank-Galveston ("University
Bank-Galveston"), and Charter SSB.
As a multi-bank holding company, Charter may own or control, directly or
indirectly, more than one bank and furnish services to such banks and their
operating subsidiaries. Banking activities of Charter are conducted by the
Charter Banks, each of which is a separately chartered banking organization.
Charter-Houston, Charter-Colonial and University Bank-Galveston are national
banks organized under the laws of the United States and Charter-SSB is a state
savings bank organized under the laws of the State of Texas. The officers and
directors of each Charter Bank direct its operations. The principal role of
Charter is to provide management assistance with respect to various aspects of
the Charter Banks' operations, including areas such as asset and liability
management, capital provision and planning, business development, advertising,
loan policies and procedures, loan review, electronic data processing and
communication, accounting, auditing, financial reporting, budgetary and
long-range planning, and legal and regulatory compliance. While each of the
Charter Banks is separately chartered, the holding company system allows the
Charter Banks to participate in joint credit extensions and enables them to more
effectively meet the credit needs of their local communities.
Other than asset management and trust services which are offered solely
through Charter-Houston, each of the Charter Banks offers a wide range of
banking services to its customers, including demand and time deposits and
various types of commercial and consumer loans. The Charter Banks also offer
discount brokerage services for the purchase of securities through a consortium
of the Charter Banks, which operates as Investor Services at Charter Banks
("Charter Investor Services"). The Charter Banks draw substantially all of their
deposits and a majority of their loans from the Houston-Galveston area.
Charter-Houston and Charter-Colonial own all of the outstanding capital
stock of Charter Venture Group, Inc., a small business investment company
("Charter Venture"). On April 27, 1994, Charter-Houston acquired substantially
all of the assets and assumed certain liabilities of Capital Standard Mortgage,
Inc., through a 90%-owned subsidiary operating as Charter Mortgage Company.
OPERATIONS
The Charter Banks offer a wide range of financial services to commercial,
industrial, financial and individual customers, including short- and medium-term
loans, revolving credit arrangements, inventory and accounts receivable
financing, equipment financing, real estate lending, interim construction
lending, mortgage warehousing and purchase arrangements, Small Business
Administration lending, Export-Import Bank lending, letters of credit,
installment and other consumer loans, savings accounts and various savings
programs including individual retirement accounts, and interest and non-interest
bearing checking accounts. The Charter Banks also offer services including
federal tax depository, safe deposit, night depository and cash management
services. In addition, the Charter Banks make other installment loans, home
improvement loans and mortgage loans to their customers. Charter Investor
Services offers a broad array of non-deposit investment products including
annuities, mutual funds and discount brokerage. Charter-Houston offers trust and
asset management services. Charter Mortgage originates and services one-to-four
single family residential mortgage loans.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to executive compensation, various benefit
plans, voting securities and the principal holders thereof, certain
relationships and related transactions and other related matters to Charter is
incorporated by reference or set
34
<PAGE>
forth in Charter's Annual Report on Form 10-K for the year ended December 31,
1995, which is incorporated herein by reference and a copy of which is enclosed.
SUPERVISION AND REGULATION
Charter, like NationsBank, is a registered bank holding company subject to
the supervision of, and regular inspection by, the Federal Reserve. Various
requirements of federal and Texas law affect the operation of the Charter Banks,
including the requirement to maintain reserves against deposits, restrictions on
the nature and amount of loans which may be made and the interest that may be
charged thereon, and restrictions relating to investments and other activities.
Charter-Houston, Charter-Colonial and University Bank-Galveston are national
banks and are subject to regulation, supervision and periodic examination by the
OCC. Charter-SSB is a state savings bank subject to regulation, supervision and
periodic examination by the FDIC and the Texas Savings and Loan Department. In
addition, both national and state savings banks are subject to further
regulation by the Federal Reserve and the FDIC. In addition to banking laws,
regulations and regulatory agencies, Charter and its subsidiaries and affiliates
are subject to various other laws and regulations and supervision and
examination by other regulatory agencies, all of which may directly or
indirectly affect Charter's operations, management and ability to make
distributions. The following discussion summarizes certain aspects of those laws
and regulations that affect Charter. This summary is qualified in its entirety
by reference to the particular statutory and regulatory provisions referred to
below and is not intended to be an exhaustive description of the statutes or
regulations applicable to Charter's business. Supervision, regulation and
examination of Charter and the Charter Banks by the bank regulatory agencies are
intended primarily for the protection of depositors rather than holders of stock
of Charter.
Like NationsBank, the activities of Charter and those companies which it
controls or in which it holds more than 5% of the voting stock are limited to
banking or managing or controlling banks and furnishing services to or
performing services for its subsidiaries, or any other activity which the
Federal Reserve determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In making such
determinations, the Federal Reserve is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries can
reasonably be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency that outweigh possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. Generally, bank
holding companies such as Charter and NationsBank are required to obtain prior
approval of the Federal Reserve to engage in any new activity not previously
approved by the Federal Reserve or to acquire more than 5% of any class of
voting stock of any company.
Bank holding companies are also required to obtain the prior approval of
the Federal Reserve for acquiring more than 5% of any class of voting stock of
any bank which is not already majority-owned by such bank holding company.
Pursuant to the Interstate Bank and Branching Act, a bank holding company became
able to acquire banks in states other than its home state beginning September
29, 1995.
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, thereby creating interstate branches, beginning June 1,
1997. Under such legislation, each state has the opportunity to "opt out" of
this provision, thereby prohibiting interstate branching in such states, or to
"opt in" at an earlier time, thereby allowing interstate branching within that
state prior to June 1, 1997. Furthermore, pursuant to such Act, a bank is not
able to open new branches in a state in which it does not already have banking
operations, if the laws of such state permit such DE NOVO branching.
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before
various banks regulatory agencies. In 1995, several bills were introduced in
Congress that would have the effect of broadening the securities underwriting
powers of bank holding companies and possibly permitting bank holding companies
to engage in certain nonfinancial activities. The likelihood and timing of such
proposals being enacted and the impact that they might have on Charter cannot be
determined at this time.
As previously described, the Federal Reserve has issued substantially
similar risk-based and leverage capital guidelines applicable to bank holding
companies and state member banks. Thus, the capital guidelines applicable to
Charter and the Charter Banks are substantially similar to those applicable to
NationsBank and its subsidiary banks. See "INFORMATION ABOUT
NATIONSBANK -- Supervision and Regulation."
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<PAGE>
As of December 31, 1995, the capital ratios applicable to Charter were as
follows:
<TABLE>
<CAPTION>
REGULATORY
MINIMUM CHARTER
<S> <C> <C>
Tier 1 capital ratio................................................ 4.0% 10.75%
Total capital ratio................................................. 8.0% 13.99
Leverage ratio...................................................... 3.0-5.0% 6.24
</TABLE>
The Tier 1 capital ratios, Total capital ratios and Leverage ratios of each
of the Charter Banks exceed the regulatory minimums shown in the table above.
There are also various legal restrictions on the extent to which Charter
and its nonbank subsidiaries can borrow or otherwise obtain credit from its
subsidiary banks. In general, these restrictions require that any such
extensions of credit must be secured by designated amounts of specified
collateral and are limited, as to any one of such non-bank companies, to 10%
(and 20% for all such extensions of credit in the aggregate) of such lending
bank's capital stock and surplus.
Charter and the Charter Banks are subject to various general regulatory
policies and requirements relating to the payment of dividends, including
requirements to maintain adequate capital above regulatory minimums. The
appropriate federal authority is authorized to determine under certain
circumstances relating to the financial condition of a state bank or bank
holding company that the payment of dividends would be an unsafe or unsound
practice and to prohibit payment thereof. The Federal Reserve has indicated that
paying dividends that deplete a state member bank's capital base to an
inadequate level would be an unsound and unsafe banking practice and has
indicated that banking organizations should generally pay dividends only out of
current operating earnings.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit a capital restoration plan for approval.
For a capital restoration plan to be acceptable, the depository institution's
parent holding company must guarantee that the institution comply with such
capital restoration plan. The aggregate liability of the parent holding company
is limited to the lesser of 5% of the depository institution's total assets at
the time it became undercapitalized and the amount necessary to bring the
institution into compliance with applicable capital standards. If a depository
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized. If the controlling bank holding company fails to
fulfill its obligations under FDICIA and files (or has filed against it) a
petition under the federal bankruptcy laws, the claim would be entitled to
priority in such bankruptcy proceeding over their party creditors of the bank
holding company. Because Charter exceeds applicable capital requirements,
management of Charter does not believe that these provisions of FDICIA will have
any material impact on Charter or its operations.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondence banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
Under Federal Reserve policy, Charter is expected to act as a source of
financial strength to the Charter Banks and to commit resources to support such
subsidiary. This support may be required at times when Charter may not find
itself able to provide it. In the event of a loss suffered or anticipated by the
FDIC -- other FDIC insured institutions under common control with such
institutions may be assessed for the FDIC's loss, subject to certain exceptions.
Any capital loans by Charter to the Charter Banks, are subordinate in right
of payment to deposits and to certain other indebtedness of the Charter Banks.
In the event of Charter's bankruptcy, any commitment by it to a federal bank
regulatory agency to maintain the capital of its banking subsidiary will be
assumed by the bankruptcy trustee and entitled to priority of payment.
COMPARISON OF NATIONSBANK COMMON STOCK AND CHARTER CAPITAL STOCK
NATIONSBANK COMMON STOCK
GENERAL. NationsBank is authorized to issue 800,000,000 shares of
NationsBank Common Stock, of which 274,268,773 shares were outstanding as of
December 31, 1995. NationsBank Common Stock is traded on the NYSE and the PSE
under the trading symbol "NB"; certain shares of NationsBank Common Stock are
also listed and traded on the Tokyo Stock Exchange. As of December 31, 1995,
12.7 million shares of NationsBank Common Stock were reserved for issuance under
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<PAGE>
various employee benefit plans of NationsBank and upon conversion of the
NationsBank ESOP Preferred Stock; 2.8 million shares were reserved for issuance
under the NationsBank Dividend Reinvestment and Stock Purchase Plan and 30
million shares were reserved for issuance in connection with the acquisition of
Bank South Corporation (which was consummated on January 9, 1996 resulting in
the issuance of approximately 26 million shares of NationsBank Common Stock).
After taking into account the shares reserved as described above, in the number
of authorized shares of NationsBank Common Stock available for other corporate
purposes as of December 31, 1995 was approximately 755 million. Since that date,
1,500,000 shares have been reserved for issuance in connection with the Merger.
VOTING AND OTHER RIGHTS. The holders of NationsBank Common Stock are
entitled to one vote per share, and, in general, a majority of votes cast with
respect to a matter is sufficient to authorize action upon routine matters.
Directors are elected by a plurality of the votes cast, and each shareholder
entitled to vote in such election is entitled to vote each share of stock for as
many persons as there are directors to be elected. In elections for directors,
such shareholders do not have the right to cumulate their votes, so long as
NationsBank has a class of shares registered under Section 12 of the Exchange
Act (unless action is taken to provide otherwise by charter amendment, which
action management does not currently intend to propose). In general, (i)
amendments to the NationsBank Articles must be approved by each voting group
entitled to vote separately thereon by a majority of the votes cast by that
voting group, unless the amendment creates dissenters' rights for a particular
voting group, in which case such amendment must be approved by a majority of the
votes entitled to be cast by such voting group; (ii) a merger or share exchange
required to be approved by the shareholders must be approved by each voting
group entitled to vote separately thereon by a majority of the votes entitled to
be cast by that voting group; and (iii) the dissolution of NationsBank, or the
sale of all or substantially all of the property of NationsBank other than in
the usual and regular course of business, must be approved by a majority of all
votes entitled to be cast thereon.
In the event of liquidation, holders of NationsBank Common Stock would be
entitled to receive pro rata any assets legally available for distribution to
shareholders with respect to shares held by them, subject to any prior rights of
any Preferred Stock (as described below) then outstanding.
NationsBank Common Stock does not have any preemptive rights, redemption
privileges, sinking fund privileges or conversion rights. All the outstanding
shares of NationsBank Common Stock are, and upon issuance the shares of
NationsBank Common Stock to be issued to shareholders of Charter will be,
validly issued, fully paid and nonassessable.
Chemical Mellon Shareholder Services, L.L.C. acts as transfer agent and
registrar for NationsBank Common Stock.
DISTRIBUTIONS. The holders of NationsBank Common Stock are entitled to
receive such dividends or distributions as the NationsBank Board may declare out
of funds legally available for such payments. The payment of distributions by
NationsBank is subject to the restrictions of North Carolina law applicable to
the declaration of distributions by a business corporation. A corporation
generally may not authorize and make distributions if, after giving effect
thereto, it would be unable to meet its debts as they become due in the usual
course of business or if the corporation's total assets would be less than the
sum of its total liabilities plus the amount that would be needed, if it were to
be dissolved at the time of distribution, to satisfy claims upon dissolution of
shareholders who have preferential rights superior to the rights of the holders
of its common stock. In addition, the payment of distributions to shareholders
is subject to any prior rights of outstanding Preferred Stock. Share dividends,
if any are declared, may be paid from authorized but unissued shares.
The ability of NationsBank to pay distributions is affected by the ability
of the Banks to pay dividends. The ability of the Banks, as well as of
NationsBank, to pay dividends in the future currently is, and could be further,
influenced by bank regulatory requirements and capital guidelines. See
"INFORMATION ABOUT NATIONSBANK -- Supervision and Regulation."
PREFERRED STOCK. NationsBank has authorized 45,000,000 shares of preferred
stock and may issue such preferred stock in one or more series, each with such
preferences, limitations, designations, conversion rights, voting rights,
distribution rights, voluntary and involuntary liquidation rights and other
rights as it may determine (the "Preferred Stock"). NationsBank has designated
3,000,000 shares of ESOP Convertible Preferred Stock, Series C (the "ESOP
Preferred Stock"), of which 2,473,081 shares were issued and outstanding as of
December 31, 1995.
THE FOLLOWING SUMMARY OF THE ESOP PREFERRED STOCK IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE DESCRIPTION THEREOF CONTAINED IN THE NATIONSBANK
ARTICLES ATTACHED AS EXHIBIT 3(I) TO THE NATIONSBANK QUARTERLY REPORT ON FORM
10-Q FOR THE QUARTER ENDED JUNE 30, 1994, INCORPORATED HEREIN BY REFERENCE.
The ESOP Preferred Stock was first issued in the transaction by which
NationsBank was formed from the merger of NCNB Corporation and C&S/Sovran
Corporation in 1991 upon the conversion of shares of ESOP Convertible Preferred
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<PAGE>
Stock, Series C of C&S/Sovran Corporation. All shares are held by the trustee
under the NationsBank Corporation Retirement Savings Plan (the "ESOP").
Shares of ESOP Preferred Stock have no preemptive or preferential rights to
purchase or subscribe for shares of NationsBank capital stock of any class and
are not subject to any sinking fund or other obligation of NationsBank to
repurchase or retire the series, except as discussed below.
Each share of ESOP Preferred Stock is entitled to an annual dividend,
subject to certain adjustments, of $3.30 per share, payable semiannually. Unpaid
dividends accumulate as of the date on which they first became payable, without
interest. So long as any shares of ESOP Preferred Stock are outstanding, no
dividend may be declared, paid or set apart for payment on any other series of
stock ranking on a parity with ESOP Preferred Stock as to dividends, unless like
dividends have been declared and paid, or set apart for payment, on the ESOP
Preferred Stock for all dividend payment periods ending on or before the
dividend payment date for such parity stock, ratably in proportion to their
respective amounts of accumulated and unpaid dividends. NationsBank generally
may not declare, pay or set apart for payment any dividends (except for, among
other things, dividends payable solely in shares of stock ranking junior to the
ESOP Preferred Stock as to dividends or upon liquidation) on, make any other
distribution on, or make payment on account of the purchase, redemption or other
retirement of, any other class or series of NationsBank capital stock ranking
junior to the ESOP Preferred Stock as to dividends or upon liquidation, until
full cumulative dividends on the ESOP Preferred Stock have been declared and
paid or set apart for payment when due.
The holder of the ESOP Preferred Stock is entitled to vote on all matters
submitted to a vote of the holders of NationsBank Common Stock and votes
together with the holders of NationsBank Common Stock as one class. Except as
otherwise required by applicable law, the holder of the ESOP Preferred Stock has
no special voting rights. To the extent that the holder of such shares is
entitled to vote, each share is entitled to the number of votes equal to the
number of shares of NationsBank Common Stock into which such share of ESOP
Preferred Stock could be converted on the record date for determining the
shareholders entitled to vote, rounded to the nearest whole vote.
Shares of the ESOP Preferred Stock initially are convertible into
NationsBank Common Stock at a conversion rate equal to 0.84 shares of
NationsBank Common Stock per share of ESOP Preferred Stock, and a conversion
price of $42.50 per 0.84 shares of NationsBank Common Stock, subject to certain
customary anti-dilution adjustments.
In the event of any voluntary or involuntary dissolution, liquidation or
winding-up of NationsBank, the holder of the ESOP Preferred Stock will be
entitled to receive out of the assets of NationsBank available for distribution
to shareholders, subject to the rights of the holders of any Preferred Stock
ranking senior to or on a parity with the ESOP Preferred Stock as to
distributions upon liquidation, dissolution or winding-up but before any amount
will be paid or distributed among the holders of NationsBank Common Stock or any
other shares ranking junior to the ESOP Preferred Stock as to such
distributions, liquidating distributions of $42.50 per share plus all accrued
and unpaid dividends thereon to the date fixed for distribution. If, upon any
voluntary or involuntary dissolution, liquidation or winding-up of NationsBank,
the amounts payable with respect to the ESOP Preferred Stock and any other stock
ranking on a parity therewith as to any such distribution are not paid in full,
the holder of the ESOP Preferred Stock and such other stock will share ratably
in any distribution of assets in proportion to the full respective preferential
amounts to which they are entitled. After payment of the full amount of the
liquidating distribution to which it is entitled, the holder of the ESOP
Preferred Stock will not be entitled to any further distribution of assets by
NationsBank. Neither a merger or consolidation of NationsBank with or into any
other corporation, nor a merger or consolidation of any other corporation with
or into NationsBank nor a sale, transfer or lease of all or any portion of
NationsBank's assets, will be deemed to be a dissolution, liquidation or
winding-up of NationsBank.
The ESOP Preferred Stock is redeemable, in whole or in part, at the option
of NationsBank, at any time. The redemption price for the shares of the ESOP
Preferred Stock will depend upon the time of redemption. Specifically, the
redemption price for the 12-month period beginning July 1, 1995, is $43.82 per
share; on each succeeding July 1, the redemption price will be reduced by $.33
per share, except that on and after July 1, 1999, the redemption price will be
$42.50 per share, and the redemption price may be paid in cash or shares of
NationsBank Common Stock. In each case, the redemption price also must include
all accrued and unpaid dividends to the date of redemption. To the extent that
the ESOP Preferred Stock is treated as Tier 1 capital for bank regulatory
purposes, the approval of the Federal Reserve Board may be required for
redemption of the ESOP Preferred Stock.
NationsBank is required to redeem shares of the ESOP Preferred Stock at the
option of the holder of such shares to the extent necessary either to provide
for distributions required to be made under the ESOP or to make payments of
principal, interest or premium due and payable on any indebtedness incurred by
the holder of the shares for the benefit of the ESOP.
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<PAGE>
The redemption price in such case will be the greater of $42.50 per share plus
accrued and unpaid dividends to the date of redemption or the fair market value
of the aggregate number of shares of NationsBank Common Stock into which a share
of ESOP Preferred Stock then is convertible.
CHARTER CAPITAL STOCK
GENERAL. Charter is authorized to issue 12,000,000 shares of Charter Common
Stock, of which 6,061,625 shares were issued and outstanding as of the Record
Date. Charter also is authorized to issue 3,000,000 shares of Charter Special
Common Stock. Pursuant to the Charter Articles, the Charter Board has created
two series of Charter Special Common Stock: 250,000 shares have been designated
Class B Special Common Stock (of which 219,718 shares were issued and
outstanding as of the Record Date) and 50,000 shares have been designated Series
C Special Common Stock (of which 49,518 shares were issued and outstanding as of
the Record Date). Charter Common Stock is quoted and traded on Nasdaq under the
trading symbol "SAIL." There is no trading market for the Charter Special Common
Stock.
VOTING AND OTHER RIGHTS. Each share of Charter Common Stock is entitled to
one vote per share, and each share of Charter Special Common Stock is entitled
to 14 votes per share. Holders of Class B Special Common Stock are entitled to
receive dividends at a rate equal to one-half the rate of dividends, if any,
paid on Charter Common Stock during the five-year period beginning on the date
of original issuance and at a rate equal to the rate of dividends, if any, paid
on Charter Common Stock thereafter. The Series C Special Common Stock is
identical in all respect to the Class B Common Stock, except that it is
convertible on a share-for-share basis into Charter Common Stock and holders of
the Series C Special Common Stock are entitled to receive dividends at a rate
equal to the rate of dividends, if any, paid on Charter Common Stock. Except for
the foregoing, the preferences, limitations and relative rights of all shares of
Class B Special Common Stock and Series C Special Common Stock are identical to
Charter Common Stock.
COMPARISON OF VOTING AND OTHER RIGHTS
NationsBank is a North Carolina corporation subject to the provisions of
the NCBCA. Charter is a Texas corporation subject to the provisions of the TBCA.
Shareholders of Charter, whose rights are governed by the Charter Articles and
the Charter Bylaws and by the TBCA, will upon consummation of the Merger, become
shareholders of NationsBank. As shareholders of NationsBank, their rights will
then be governed by the NationsBank Articles and the NationsBank Bylaws and by
the NCBCA. Except as set forth below, there are no material differences between
the rights of Charter shareholders under the Charter Articles and the Charter
Bylaws and under the TBCA, on the one hand, and the rights of NationsBank
shareholders under the NationsBank Articles and the NationsBank Bylaws and the
NCBCA, on the other hand. This summary does not purport to be a complete
discussion of, and is qualified in its entirety by reference to, the governing
law and governing corporate documents of each corporation.
MEETINGS OF SHAREHOLDERS. A special meeting of NationsBank shareholders may
be called for any purpose by the NationsBank Board, by the Chairman of the
NationsBank Board or by the NationsBank Chief Executive Officer or President. A
quorum for a meeting of NationsBank shareholders is a majority of the
outstanding shares of NationsBank Common Stock entitled to vote. A majority of
the votes cast is generally required for an action by the NationsBank
shareholders. North Carolina law provides that these quorum and voting
requirements may only be increased with approval of NationsBank shareholders.
A special meeting of Charter shareholders may be called by the President or
any Vice-President of Charter, by the Charter Board or by a holder of not less
than one-tenth of all the shares entitled to vote at the meeting. A quorum for a
meeting of Charter shareholders is a majority of the total shares issued and
outstanding and entitled to vote at such meeting. The vote of the holders of the
majority of the votes represented at a meeting at which a quorum is present
shall be the act of the shareholders meeting, unless the vote of a greater
number is required by law, the Charter Articles or the Charter Bylaws.
DISTRIBUTIONS. The payment of distributions to holders of NationsBank
Common Stock is subject to the provisions of the NCBCA, the preferential rights
of the holders of NationsBank Preferred Stock and the ability of the Banks to
pay dividends to NationsBank, as restricted by various bank regulatory agencies.
See "INFORMATION ABOUT NATIONSBANK -- Supervision and Regulation" and
"COMPARISON OF NATIONSBANK COMMON STOCK AND CHARTER CAPITAL STOCK -- NationsBank
Common Stock." The payment of distributions to holders of Charter stock is
subject to the provisions of Texas law applicable to the declaration of
distributions by a business corporation, and the ability of Charter's banking
subsidiaries to pay dividends to Charter as restricted by various bank
regulatory agencies. See "INFORMATION ABOUT CHARTER -- Supervision and
Regulation" and "COMPARISON OF NATIONSBANK COMMON STOCK AND CHARTER CAPITAL
STOCK -- Charter Capital Stock."
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SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS. The size of the
NationsBank Board may be established by the shareholders or by the NationsBank
Board, provided that the NationsBank Board may not set the number of directors
at less than five nor more than 30. Any change to this permissible range for the
size of the NationsBank Board must be approved by the NationsBank shareholders.
The NationsBank Board is not divided into classes, and all directors are elected
annually. The Charter Bylaws provide that the Charter Board shall consist of not
less than one nor more than 20 directors. The Charter Board is not divided into
classes. All Charter directors are elected annually by the shareholders, except
that vacancies on the Charter Board may be filled by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum.
REMOVAL OF DIRECTORS. Generally, directors of NationsBank may be removed by
the shareholders with or without cause by the affirmative vote of a majority of
the votes cast, unless the NationsBank Restated Articles of Incorporation are
amended to provide otherwise. In addition, the NCBCA provides that an
appropriate court can remove a director upon petition of the holders of at least
10% of the outstanding shares of any class of stock of NationsBank upon certain
findings by such court. The shareholders of Charter may, at any duly called
meeting, remove, with or without cause, any director by the affirmative vote of
a majority of the votes cast.
SHAREHOLDER INSPECTION RIGHTS; SHAREHOLDER LISTS. Under North Carolina law,
qualified shareholders have the right to inspect and copy (a) certain of the
NationsBank official corporate documents and (b) the NationsBank books and
records in good faith and for a proper purpose. Such right of inspection
requires that the shareholder give NationsBank written notice of the demand,
describing with reasonable particularity his purpose and the requested records.
The right of inspection extends not only to shareholders of record but also
beneficial owners whose beneficial ownership is certified to NationsBank by the
shareholder of record. However, NationsBank is under no duty to provide any
accounting records or any records with respect to any matter that it determines
in good faith may, if disclosed, adversely effect NationsBank in the conduct of
its business or may constitute material nonpublic information, and the right of
inspection is limited to NationsBank shareholders who either have been
NationsBank shareholders at least six months or who hold at least 5% of the
outstanding shares of any class of NationsBank stock. In addition, NationsBank
is required to prepare a shareholder list with respect to any shareholders'
meeting and to make such list available to NationsBank shareholders beginning
two business days after notice of such meeting is given and continuing through
such meeting and any adjournments thereof.
Under Texas law, any person who has been a shareholder for at least six
months or who holds at least 5% of all of the outstanding shares of a
corporation has the right to examine, in person or by agent, for any proper
purpose, the books and records of account, minutes and share transfer records.
This right extends to holders of beneficial interests as well as to
shareholders. In addition, Charter is required to maintain a list of all
shareholders entitled to vote and to make such list available to any shareholder
during usual business hours for a period of ten days prior to any meeting.
ANTI-TAKEOVER STATUTES. North Carolina has two anti-takeover statutes in
force, the North Carolina Shareholder Protection Act and the North Carolina
Control Share Acquisition Act which restrict business combinations with, and the
accumulation of shares of voting stock of, North Carolina corporations.
NationsBank has taken action to irrevocably "opt out" of the restrictions
imposed by these statutes. Texas has no comparable statutes.
DISSENTERS' RIGHTS. The NCBCA generally provides dissenters' rights for
mergers and share exchanges that require shareholder approval, sales of
substantially all the assets (other than sales that are in the usual and regular
course of business and certain liquidations and court-ordered sales), and
certain amendments to the articles of incorporation of a North Carolina
corporation. The TBCA generally provides dissenters' rights to shareholders for
mergers that require shareholder approval (except for certain mergers of widely
held public companies where shareholders will receive, as their sole
consideration, shares of another widely held public company and cash in lieu of
fractional shares); sales, leases or other dispositions of all or substantially
all of the assets for which the special authorization of shareholders is
required; and certain share exchanges involving the class of shares held by such
shareholders. For a more complete description of the dissenters' rights
available to Charter shareholders under Texas law, see "THE
MERGER -- Dissenters' Rights of Charter Shareholders."
MISCELLANEOUS. Chemical Mellon Shareholder Services, L.L.C. acts as
transfer agent and registrar for the NationsBank Common Stock. Society National
Bank acts as the transfer agent and registrar of Charter Capital Stock (except
for the Charter Series C Special Common Stock, for which Charter acts as its own
transfer agent and registrar). NationsBank Common Stock is listed and traded on
the NYSE and the PSE. Certain shares of NationsBank Common Stock are also listed
and traded on the Tokyo Stock Exchange. Charter Common Stock is quoted and
traded on Nasdaq. There is no market for the Charter Special Common Stock.
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LEGAL OPINIONS
The legality of the NationsBank Common Stock to be issued in connection
with the Merger and certain other legal matters in connection with the Merger
will be passed upon by Smith Helms Mulliss & Moore, L.L.P., Charlotte, North
Carolina. As of the date of this Proxy Statement-Prospectus, certain members of
Smith Helms Mulliss & Moore, L.L.P., beneficially owned approximately 50,000
shares of NationsBank Common Stock. Certain tax consequences of the Merger will
be passed upon by Blanchfield Cordle & Moore, P.A., Charlotte, North Carolina.
EXPERTS
The consolidated financial statements of NationsBank incorporated in this
Proxy Statement-Prospectus by reference to the NationsBank Annual Report on Form
10-K for the year ended December 31, 1995, have been so incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Charter incorporated in this Proxy
Statement-Prospectus by reference to Charter's Annual Report on Form 10-K for
the year ended December 31, 1995 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and has been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
CHARTER ANNUAL MEETING
It is not anticipated that Charter will hold a 1996 Annual Meeting of
Shareholders unless the Merger is not consummated. If the Agreement is
terminated for any reason, a date will be set for a 1996 Annual Meeting of
Shareholders and notice of such meeting will be sent to Charter shareholders.
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Appendix A
Exhibit A
AGREEMENT AND PLAN OF MERGER
between
NATIONSBANK CORPORATION
AND
CHARTER BANCSHARES, INC.
January 25, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I
CERTAIN DEFINITIONS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1.01 Certain Definitions..................................................................................1
ARTICLE II
THE MERGER AND RELATED TRANSACTIONS
2.01 Merger...............................................................................................7
2.02 Time and Place of Closing............................................................................7
2.03 Effective Time.......................................................................................7
2.04 Reservation of Right to Revise Transaction...........................................................8
ARTICLE III
MANNER OF CONVERTING SHARES
3.01 Conversion...........................................................................................8
3.02 Anti-Dilution Provisions.............................................................................9
ARTICLE IV
EXCHANGE OF SHARES
4.01 Exchange Procedures.................................................................................10
4.02 Voting and Dividends................................................................................10
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CHARTER
5.01 Organization, Standing, and Authority...............................................................11
5.02 Charter Capital Stock...............................................................................11
5.03 Subsidiaries........................................................................................12
5.04 Authorization of Merger and Related Transactions....................................................13
5.05 Securities Reporting Documents and Financial Statements............................................14
5.06 Absence of Undisclosed Liabilities..................................................................14
5.07 Tax Matters.........................................................................................14
5.08 Allowance for Credit Losses.........................................................................15
5.09 Other Tax and Regulatory Matters....................................................................15
5.10 Properties..........................................................................................16
5.11 Compliance with Laws................................................................................16
5.12 Employee Benefit Plans..............................................................................17
5.13 Commitments and Contracts...........................................................................18
5.14 Material Contract Defaults..........................................................................19
5.15 Legal Proceedings...................................................................................19
5.16 Absence of Certain Changes or Events................................................................19
5.17 Reports.............................................................................................19
5.18 Statements True and Correct.........................................................................20
5.19 Insurance...........................................................................................20
5.20 Labor...............................................................................................20
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Page
5.21 Material Interests of Certain Persons...............................................................21
5.22 Registration Obligations............................................................................21
5.23 Brokers and Finders.................................................................................21
5.24 State Takeover Laws.................................................................................21
5.25 Environmental Matters...............................................................................21
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NATIONSBANK
6.01 Organization, Standing and Authority................................................................22
6.02 NationsBank Capital Stock...........................................................................22
6.03 Authorization of Merger and Related Transactions....................................................23
6.04 Financial Statements................................................................................23
6.05 NationsBank SEC Reports.............................................................................24
6.06 Statements True and Correct.........................................................................24
6.07 Common Stock........................................................................................24
6.08 Tax and Regulatory Matters..........................................................................24
6.09 Litigation..........................................................................................24
6.10 Brokers and Finders.................................................................................24
ARTICLE VII
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
7.01 Conduct of Business Prior to the Effective Time.....................................................25
7.02 Forbearances........................................................................................25
7.03 Plan Termination....................................................................................27
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.01 Access and Information..............................................................................27
8.02 Registration Statement; Regulatory Matters..........................................................28
8.03 Stockholders' Approval..............................................................................29
8.04 Press Releases......................................................................................29
8.05 Notice of Defaults..................................................................................29
8.06 Miscellaneous Agreements and Consents; Affiliates Agreements........................................29
8.07 Indemnification.....................................................................................30
8.08 SAR Plan; Restricted Stock..........................................................................31
8.09 Certain Change of Control Matters...................................................................31
8.10 Stock Exchange Listing..............................................................................32
8.11 Declaration of Dividends............................................................................32
8.12 Employee Benefits...................................................................................32
8.13 Certain Actions.....................................................................................32
8.14 Acquisition Proposals...............................................................................33
8.15 Termination Fee.....................................................................................33
8.16 Accruals............................................................................................34
8.17 Post-Closing Actions................................................................................34
8.18 Prepayment of Indebtedness..........................................................................34
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Page
8.19 Waiver of Restrictions in Investment Agreements.....................................................34
ARTICLE IX
CONDITIONS
9.01 Conditions to Each Party's Obligation to Effect the Merger..........................................34
9.02 Conditions to Obligations of Charter to Effect the Merger..........................................35
9.03 Conditions to Obligations of NationsBank to Effect the Merger.......................................35
ARTICLE X
TERMINATION
10.01 Termination.........................................................................................36
10.02 Effect of Termination...............................................................................39
10.03 Non-Survival of Representations, Warranties and Covenants
Following the Effective Time........................................................................39
Page
ARTICLE XI
GENERAL PROVISIONS
11.01 Expenses............................................................................................39
11.02 Entire Agreement....................................................................................39
11.03 Amendments..........................................................................................40
11.04 Waivers.............................................................................................40
11.05 No Assignment.......................................................................................40
11.06 Notices.............................................................................................40
11.07 Specific Performance................................................................................41
11.08 Governing Law.......................................................................................41
11.09 Counterparts........................................................................................41
11.10 Captions............................................................................................41
11.11 Severability........................................................................................41
</TABLE>
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of
January 25, 1996, between NATIONSBANK CORPORATION ("NationsBank"), a North
Carolina corporation and a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and CHARTER BANCSHARES,
INC., a Texas corporation and a registered bank holding company under the BHCA
("Charter"). Capitalized terms not otherwise defined herein shall have the
meanings ascribed in Article I.
W I T N E S S E T H:
WHEREAS, pursuant to the terms and subject to the conditions of this
Agreement, NationsBank will acquire Charter through the merger of Charter with
and into NB Holdings Corporation, a Delaware corporation and a wholly owned
subsidiary of NationsBank ("Holdings") or a newly formed direct wholly owned
subsidiary of NationsBank (Holdings or such new subsidiary being referred to
herein as the "Merger Subsidiary"), or by such other means as provided for
herein (the "Merger"); and
WHEREAS, the Merger is intended to qualify as a tax-free reorganization
pursuant to Section 368 of the Code; and
WHEREAS, the respective Boards of Directors of NationsBank and Charter
have resolved that the transactions described herein are in the best interests
of the parties and their respective stockholders and have approved the
transactions described herein; and
WHEREAS, NationsBank and Charter desire to provide for certain
undertakings, conditions, representations, warranties and covenants in
connection with the transactions contemplated by this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 Certain Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Acquisition Proposal" shall have the meaning set
forth in Section 8.14.
(b) "Acquisition Transaction" shall have the meaning set
forth in Section 8.14.
<PAGE>
(c) "Affiliate" shall mean, with respect to any Person,
any Person that, directly or indirectly, controls or is controlled by
or is under common control with such Person.
(d) "Agreement" shall have the meaning set forth in the
introduction to this Agreement.
(e) "Allowance" shall have the meaning set forth in
Section 5.08.
(f) "Approvals" shall mean any and all permits, consents,
authorizations and approvals of any governmental or regulatory
authority or of any other third person necessary to give effect to the
arrangement contemplated by this Agreement or necessary to consummate
the Merger.
(g) "Authorizations" shall have the meaning set forth in
Section 5.01.
(h) "BHCA" shall have the meaning set forth in the
introduction to this Agreement.
(i) "Charter" shall have the meaning set forth in the
introduction to this Agreement.
(j) "Charter Benefit Plans" shall have the meaning set
forth in Section 5.12(a).
(k) "Charter Board" shall mean the Board of Directors of
Charter.
(l) "Charter Capital Stock" shall mean collectively the
Charter Common Stock, Charter Special Common Stock and Charter
Preferred Stock.
(m) "Charter Common Stock" shall mean the common stock,
par value $1.00 per share, of Charter.
(n) "Charter Disclosure Schedule" shall mean that
document containing the written detailed information prepared by
Charter and delivered by Charter to NationsBank.
(o) "Charter ERISA Plan" shall have the meaning set forth
in Section 5.12(a).
(p) "Charter Financial Statements" shall have the meaning
set forth in Section 5.05.
(q) "Charter Preferred Stock" shall mean the Preferred
Stock, $50.00 par value, of Charter.
(r) "Charter Special Common Stock" shall mean the Class B
Special Common Stock, par value $1.00 per share, and the Class C
Special Common Stock, par value $1.00 per share, of Charter.
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<PAGE>
(s) "Charter Stock Plan" shall have the meaning set forth
in Section 5.12.
(t) "Closing" shall have the meaning set forth in Section
2.02.
(u) "Code" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations thereunder.
(v) "Commissioner" shall mean the Commissioner of the
Texas Savings and Loan Department and, if its approval of the
transactions described herein is required by law, the Texas Banking
Commissioner.
(w) "Condition" shall have the meaning set forth in
Section 5.01.
(x) "DGCL" shall mean the Delaware General Corporation
Law.
(y) "Department" shall mean the Texas Savings and Loan
Department and, if its approval of the transactions described herein is
required by law, the Texas Department of Banking.
(z) "Dissenting Shares" shall have the meaning set forth
in Section 3.01.
(aa) "Effective Time" shall have the meaning set forth in
Section 2.03.
(ab) "Employee" shall mean any current or former employee,
officer or director, independent contractor or retiree of Charter or
its Subsidiaries and any dependent or spouse thereof.
(ac) "Environmental Law" shall have the meaning set forth
in Section 5.25.
(ad) "ERISA" shall have the meaning set forth in Section
5.12.
(ae) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(af) "Exchange Agent" shall have the meaning set forth in
Section 3.01(e).
(ag) "Exchange Ratio" shall mean 0.385 shares of
NationsBank Common Stock for each share of Charter Common Stock or
Charter Special
Common Stock.
(ah) "Expenses" shall have the meaning set forth in
Section 8.15.
(ai) "FDIC" shall mean the Federal Deposit Insurance
Corporation.
(aj) "Federal Reserve Board" shall mean the Board of
Governors of the Federal Reserve System and any Federal Reserve Bank.
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<PAGE>
(ak) "GAAP" shall mean generally accepted accounting
principles in the United States.
(al) "Holdings" shall have the meaning set forth in the
recitals to this Agreement.
(am) "Indemnified Party" shall have the meaning set forth
in Section 8.07.
(an) "Liens" shall have the meaning set forth in Section
5.03.
(ao) "Material Adverse Effect" shall have the meaning set
forth in Section 5.01.
(ap) "Maximum Amount" shall have the meaning set forth in
Section 8.07.
(aq) "Merger" shall have the meaning set forth in the
recitals to this Agreement.
(ar) "Merger Consideration" shall mean the combination of
(i) NationsBank Common Stock and (ii) cash in lieu of fractional shares
to be issued by NationsBank in the Merger.
(as) "Merger Subsidiary" shall have the meaning set forth
in the recitals of this Agreement.
(at) "NASD" shall mean the National Association of
Securities Dealers, Inc.
(au) "NationsBank" shall have the meaning set forth in the
introduction to this Agreement.
(av) "NationsBank Common Stock" shall mean the common
stock of NationsBank.
(aw) "NationsBank Financial Statements" shall have the
meaning set forth in Section 6.04.
(ax) "NationsBank SEC Documents" shall have the meaning
set forth in Section 6.04.
(ay) "NYSE" shall mean the New York Stock Exchange, Inc.
(az) "OCC" shall mean the Office of the Comptroller of the
Currency.
(ba) "OTS" shall mean the Office of Thrift Supervision.
(bb) "Permitted Liens" are (i) Liens for current taxes not
yet due and payable and incurred in the ordinary course of business,
(ii) with respect to a lease, the interest of the lessor thereunder,
including any Liens on the interest of such lessor, and (iii) such
4
<PAGE>
imperfections of title, Liens, restrictions and easements that do not
materially impair the use or value of the properties or assets or
otherwise materially impair the current operations relating to the
business of Charter or its
Subsidiaries.
(bc) "Person" or "person" shall mean any individual,
corporation, association, partnership, group (as defined in Section
13(d)(3) of the Exchange Act), joint venture, trust or unincorporated
organization, or a government or any agency or political subdivision
thereof.
(bd) "Proxy Statement" shall have the meaning set forth in
Section 5.18.
(be) "Redemption" shall have the meaning set forth in Section
3.01.
(bf) "Registration Statement" shall have the meaning set forth
in Section 5.18.
(bg) "Regulatory Agreement" shall have the meaning set forth
in Section 5.11(b).
(bh) "Regulatory Authorities" shall have the meaning set forth
in Section 5.11(b).
(bi) "Remedies Exception" shall mean any bankruptcy,
reorganization, insolvency, fraudulent conveyance or transfer,
moratorium or similar laws affecting creditors' rights generally and
general principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity).
(bj) "Reports" shall have the meaning set forth in Section
5.17.
(bk) "Restricted Stock" shall have the meaning set forth in
Section 8.08.
(bl) "SAR Plan" shall mean the 1991 Charter Bancshares, Inc.
Stock Appreciation Rights Plan.
(bm) "SEC" shall mean the Securities and Exchange Commission.
(bn) "Securities Act" shall mean the Securities Act of 1933,
as amended.
(bo) "Securities Laws" shall have the meaning set forth in
Section 5.04(c).
(bp) "Securities Reporting Documents" shall have the meaning
set forth in Section 5.05.
(bq) "State Regulatory Commissioners" shall have the meaning
set forth in Section 5.04(c).
(br) "Stockholders' Meeting" shall have the meaning set forth
in Section 5.18.
5
<PAGE>
(bs) "Subsidiary" shall mean, in the case of either
NationsBank or Charter, any corporation, association or other entity in
which it owns or controls, directly or indirectly, 25% or more of the
outstanding voting securities or 25% or more of the total equity
interest; provided, however, that (i) the term shall not include any
such entity in which such voting securities or equity interest is owned
or controlled in a fiduciary capacity, without sole voting power, or
was acquired in securing or collecting a debt previously contracted in
good faith and (ii) in the case of NationsBank, the term shall not
include Charter.
(bt) "Subsidiary Bank Merger(s)" shall have the meaning set
forth in Section 2.04.
(bu) "Surviving Corporation" shall have the meaning set forth
in Section 2.01.
(bv) "Tax" or "Taxes" shall mean all federal, state, local and
foreign taxes, charges, fees, levies, imposts, duties or other
assessments, including, without limitation, income, gross receipts,
excise, employment, sales, use, transfer, license, payroll, franchise,
severance, stamp, occupation, windfall profits, environmental, federal
highway use, commercial rent, customs duties, capital stock, paid up
capital, profits, withholding, Social Security, single business and
unemployment, disability, real property, personal property,
registration, ad valorem, value added, alternative or add-on minimum,
estimated, or other tax or governmental fee of any kind whatsoever,
imposed or required to be withheld by the United States or any state,
local, foreign government or subdivision or agency thereof, including,
without limitation, any interest, penalties or additions thereto.
(bw) "Taxable Period" shall mean any period prescribed by any
governmental authority, including, but not limited to, the United
States or any state, local, foreign government or subdivision or agency
thereof for which a Tax Return is required to be filed or Tax is
required to be paid.
(bx) "Tax Return" shall mean any report, return, information
return or other information required to be supplied to a taxing
authority in connection with Taxes, including, without limitation, any
return of an affiliated or combined or unitary group that includes
Charter or any of its Subsidiaries.
(by) "TBCA" shall mean the Texas Business Corporation Act, as
amended.
(bz) "Termination Fee" shall have the meaning set forth in
Section 8.15.
(ca) "Voting Power" shall mean the right to vote generally in
the election of Directors of Charter through the beneficial ownership
of Charter Capital Stock or other securities entitled to vote generally
in the election of directors of Charter.
6
<PAGE>
ARTICLE II
THE MERGER AND RELATED TRANSACTIONS
2.01 Merger.
(a) Upon the terms and subject to the conditions set
forth in this Agreement and in accordance with the DGCL and the TBCA,
at the Effective Time, Charter shall be merged with and into Merger
Subsidiary. As a result of the Merger, the separate existence of
Charter shall thereupon cease, and Merger Subsidiary shall continue as
the surviving corporation of the Merger (the "Surviving Corporation").
NationsBank shall cause the Board of Directors of Merger Subsidiary (i)
to approve this Agreement and the transactions contemplated hereunder
and (ii) to authorize and direct an officer of Merger Subsidiary to
execute and deliver a counterpart of this Agreement.
(b) The certificate of incorporation of Merger Subsidiary
as in effect on the Effective Time (a copy of which at the date of this
Agreement is set forth as Exhibit A hereto) shall be the certificate of
incorporation of the Surviving Corporation.
(c) The bylaws of Merger Subsidiary as in effect on the
Effective Time shall be the bylaws of the Surviving Corporation.
(d) The directors of Merger Subsidiary immediately prior
to the Effective Time shall be the directors of the Surviving
Corporation and the officers of Merger Subsidiary immediately prior to
the Effective Time shall be the officers of the Surviving Corporation,
in each case until their respective successors are duly elected and
qualified.
(e) The Merger shall have the effects set forth in
Sections 259 and 261 of the DGCL and Section 5.06 of the TBCA.
2.02 Time and Place of Closing. The closing of the transactions
contemplated hereby (the "Closing") will take place at the offices of counsel to
Charter in Houston, Texas at 10:00 A.M. on the date that the Effective Time
occurs, or at such other time, and at such place, as may be mutually agreed upon
by NationsBank and Charter.
2.03 Effective Time. On the business day selected by NationsBank
occurring within 10 business days following the date on which the expiration of
all applicable waiting periods in connection with approvals of governmental
authorities necessary to effectuate the Merger occurs and all conditions to the
consummation of this Agreement are satisfied or waived, unless an earlier or
later date has been agreed by the parties, appropriate articles of merger or
certificates of merger shall be executed in accordance with all appropriate
legal requirements and shall be filed as required by law, and the Merger
provided for herein shall become effective upon such filing or at such time as
may be specified in such articles or certificates of merger. The time of such
filing or such later effective time is herein called the "Effective Time."
2.04 Reservation of Right to Revise Transaction; Further Actions. (a)
NationsBank may at any time change the method of effecting the acquisition of
Charter by NationsBank (including,
7
<PAGE>
without limitation, the provisions as set forth in Article III) if and to the
extent that it deems such a change to be desirable; provided, however, that no
such change shall (A) alter or change the amount or the kind of the
consideration to be received by the holders of Charter Common Stock or Charter
Special Common Stock as provided for in this Agreement; (B) adversely affect the
tax treatment to Charter stockholders as a result of receiving the Merger
Consideration (in the opinion of Charter's tax counsel); (C) take the form of an
asset purchase agreement; or (D) adversely affect the timing of the transaction
described herein.
(b) To facilitate the Merger and the acquisition, each of the parties
will execute such additional agreements and documents and take such other
actions as NationsBank determines necessary or appropriate, including, without
limitation, if NationsBank so elects, entering into agreements to facilitate the
merger(s) of Charter's banking Subsidiaries with and into each other or
NationsBank of Texas, National Association, simultaneously with, or promptly
following, the consummation of the Merger (the "Subsidiary Bank Merger(s)").
ARTICLE III
MANNER OF CONVERTING SHARES
3.01 Conversion.
(a) Subject to the provisions of this Article III, at the
Effective Time, by virtue of the Merger and without any action on the
part of the holders thereof, the shares of the constituent corporations
shall be converted as follows:
(i) Each of the shares of common stock of Merger
Subsidiary issued and outstanding immediately prior to the
Effective Time shall remain outstanding as one share of common
stock of the Surviving Corporation; and
(ii) Except as provided in Section 3.01(c), each
share of Charter Common Stock and Charter Special Common Stock
issued and outstanding immediately prior to the Effective Time
shall be converted into and become the right to receive a
fractional number of shares of NationsBank Common Stock equal
to the Exchange Ratio.
(b) Each share of Charter Preferred Stock issued and
outstanding at the date of this Agreement shall be redeemed prior to
the Effective Time at the $50.00 plus accrued unpaid dividend per share
price and in the manner provided in the Charter Restated Articles of
Incorporation, as amended (the "Redemption").
(c) Each of the shares of Charter Capital Stock held by
NationsBank or any of its wholly owned Subsidiaries or by Charter or
its wholly owned Subsidiaries, other than shares held by NationsBank or
any of its wholly owned Subsidiaries or Charter or its wholly
owned Subsidiaries in a fiduciary capacity or as a result of debts
previously contracted, shall be canceled and retired at the Effective
Time and no consideration shall be issued in exchange therefor.
8
<PAGE>
(d) Notwithstanding any other provision of this
Agreement, each holder of shares of Charter Common Stock or Charter
Special Common Stock exchanged pursuant to the Merger, who would
otherwise have been entitled to receive or purchase a fraction of a
share of NationsBank Common Stock (after taking into account all
certificates delivered by such holder) shall receive, in lieu thereof,
cash (without interest) in an amount equal to such fractional part of a
share of NationsBank Common Stock multiplied by the closing price for
such share reported by The Wall Street Journal on the last business day
prior to the Closing Date. No such holder will be entitled to
dividends, voting rights or any other rights as a stockholder in
respect of any fractional share.
(e) At the Effective Time, the stock transfer books of
Charter shall be closed as to holders of Charter Common Stock and
Charter Special Common Stock immediately prior to the Effective Time
and no transfer of Charter Common Stock and Charter Special Common
Stock by any such holder shall thereafter be made or recognized. If,
after the Effective Time, certificates are properly presented in
accordance with Article IV of this Agreement to the exchange agent,
which shall be selected by NationsBank (the "Exchange Agent"), such
certificates shall be canceled and exchanged for certificates
representing the number of whole shares of NationsBank Common Stock and
a check representing the amount of cash in lieu of fractional shares,
if any, into which the Charter Common Stock or Charter Special Common
Stock represented thereby was converted in the Merger. Any other
provision of this Agreement notwithstanding, neither NationsBank, the
Surviving Corporation nor the Exchange Agent shall be liable to a
holder of Charter Capital Stock for any amount paid or property
delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat, or similar law.
(f) Shares held by each holder of Charter Common Stock or
Charter Special Common Stock who has not voted such shares in favor of
the Merger and with respect to which payment for such shares shall have
been duly demanded in accordance with Section 5.12 of the TBCA
("Dissenting Shares") shall not be converted into and represent the
right to receive Merger Consideration; provided, however, that if any
such stockholder shall withdraw his or her demand for payment or shall
fail to perfect his or her dissenter's rights in accordance with the
TBCA, then such holder's Dissenting Shares shall cease to be Dissenting
Shares and shall, subject to the terms of this Agreement, be converted
into and represent the right to receive the Merger Consideration.
3.02 Anti-Dilution Provisions. The Exchange Ratio shall be adjusted
appropriately to reflect any stock dividends, splits, recapitalizations or other
similar transactions with respect to the NationsBank Common Stock where the
record date occurs prior to the Effective Time.
ARTICLE IV
EXCHANGE OF SHARES
4.01 Exchange Procedures. Before or promptly after the Effective Time,
NationsBank and Charter shall cause the Exchange Agent to mail appropriate
transmittal materials (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing shares of
Charter Common Stock or Charter Special Common Stock shall pass, only
9
<PAGE>
upon proper delivery of such certificates to the Exchange Agent) to the former
stockholders of Charter. After the Effective Time, each holder of shares of
Charter Common Stock or Charter Special Common Stock issued and outstanding at
the Effective Time (other than shares to be canceled pursuant to Section
3.01(b)) shall surrender the certificate or certificates theretofore
representing such shares, together with such transmittal materials properly
executed, to the Exchange Agent and promptly upon surrender shall receive in
exchange therefor the consideration provided in Section 3.01 of this Agreement,
together with all declared but unpaid dividends in respect of such shares. The
certificate or certificates for Charter Common Stock or Charter Special Common
Stock so surrendered shall be duly endorsed as the Exchange Agent may require.
To the extent provided by Section 3.01(c), each holder of shares of Charter
Common Stock or Charter Special Common Stock issued and outstanding at the
Effective Time also shall receive, upon surrender of the certificate or
certificates representing such shares, cash in lieu of any fractional shares of
NationsBank Common Stock to which such holder would otherwise be entitled.
NationsBank shall not be obligated to deliver the consideration to which any
former holder of Charter Common Stock or Charter Special Common Stock is
entitled as a result of the Merger until such holder surrenders his certificate
or certificates representing shares of Charter Common Stock or Charter Special
Common Stock for exchange as provided in this Article IV. In addition,
certificates surrendered for exchange by any person constituting an "affiliate"
of Charter for purposes of Rule 145(c) under the Securities Act shall not be
exchanged for certificates representing whole shares of NationsBank Common Stock
until NationsBank has received a written agreement from such person as provided
in Section 8.06. If any certificate for shares of NationsBank Common Stock, or
any check representing cash or declared but unpaid dividends, is to be issued in
a name other than that in which a certificate surrendered for exchange is
issued, the certificate so surrendered shall be properly endorsed and otherwise
in proper form for transfer and the person requesting such exchange shall affix
any requisite stock transfer tax stamps to the certificate surrendered or
provide funds for their purchase or establish to the satisfaction of the
Exchange Agent that such taxes are not payable.
4.02 Voting and Dividends. Former stockholders of record of Charter
shall be entitled to vote after the Effective Time at any meeting of NationsBank
stockholders the number of whole shares of NationsBank Common Stock into which
their respective shares of Charter Capital Stock are converted, regardless of
whether such holders have exchanged their certificates representing Charter
Capital Stock for certificates representing NationsBank Common Stock in
accordance with the provisions of this Agreement. Until surrendered for exchange
in accordance with the provisions of Section 4.01, each certificate theretofore
representing shares of Charter Capital Stock (other than shares to be canceled
pursuant to Section 3.01) shall from and after the Effective Time represent for
all purposes only the right to receive shares of NationsBank Common Stock and
cash, as set forth in this Agreement. No dividend or other distribution payable
to the holders of record of NationsBank Common Stock, at or as of any time after
the Effective Time, shall be paid to the holder of any certificate representing
shares of Charter Capital Stock issued and outstanding at the Effective Time
until such holder physically surrenders such certificate for exchange as
provided in Section 4.01, promptly after which time all such dividends or
distributions shall be paid (without interest).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CHARTER
10
<PAGE>
Charter represents and warrants to NationsBank, subject to such
exceptions and limitations as are set forth below or in the Charter Disclosure
Schedule, as follows:
5.01 Organization, Standing, and Authority. Charter is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas. Charter is duly qualified to do business and in good standing in
all jurisdictions (whether federal, state, local or foreign) where its ownership
or leasing of property or the conduct of its business requires it to be so
qualified and in which the failure to be duly qualified would have a material
adverse effect on the financial condition, results of operations or business
(the "Condition") of Charter and its Subsidiaries on a consolidated basis or on
the ability of Charter or its Subsidiaries to consummate the transactions
contemplated hereby (a "Material Adverse Effect"). Charter has all requisite
corporate power and authority to carry on its business as now conducted and to
own, lease and operate its assets, properties and business, except where the
failure to have such power and authority would not have a Material Adverse
Effect, and to execute and deliver this Agreement and perform the terms of this
Agreement. Charter is duly registered as a bank holding company under the BHCA.
Charter has in effect all federal, state, local and foreign governmental,
regulatory and other authorizations, permits and licenses (collectively,
"Authorizations") necessary for it to own or lease its properties and assets and
to carry on its business as now conducted, the absence of which, either
individually or in the aggregate, would have a Material Adverse Effect.
5.02 Charter Capital Stock.
(a) At December 31, 1995, the authorized and the issued and
outstanding Charter Capital Stock consisted of the following:
Issued and
Authorized Outstanding
Charter Common Stock: 12,000,000 6,061,627
Charter Special Common Stock:
Class B 250,000 219,718
Series C 50,000 49,518
Additional (undesignated) 2,700,000 0
Charter Preferred Stock 400,000 14,201
Since December 31, 1995, Charter has issued no additional Charter
Capital Stock and has no commitments, options or agreements to issue
any additional shares. At the same date, Charter had outstanding shares
with a par value of $7,220,000, capital surplus of $41,107,000 and
undivided profits of approximately $13,480,000. All of the issued and
outstanding shares of Charter Capital Stock are duly and validly issued
and outstanding and are fully paid and nonassessable. None of the
outstanding shares of the Charter Capital Stock has been issued in the
violation of any preemptive rights or any provision of Charter's
Restated Articles of Incorporation, as amended. As of the date of this
Agreement, no shares of Charter Capital Stock have been reserved for
any purpose.
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(b) Except as set forth above or in Section 5.02 of the
Charter Disclosure Schedule, there are no shares of Charter Capital
Stock, or other equity securities of Charter outstanding and no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital
stock of Charter or contracts, commitments, understandings or
arrangements by which Charter is or may be bound to issue additional
shares of its capital stock or options, warrants or rights to purchase
or acquire any additional shares of its capital stock. There are no
contracts, commitments, understandings or arrangements by which Charter
or any of its Subsidiaries is or may be bound to transfer any shares of
the capital stock of any Subsidiary of Charter, except for a transfer
to Charter or any of its wholly owned Subsidiaries and except as set
forth in the Charter Disclosure Schedule, and there are no agreements,
understandings or commitments relating to the right of Charter to vote
or to dispose of such shares, other than such as are held in a
fiduciary capacity.
(c) The Charter Board has duly authorized and approved the
Redemption.
(d) Except as set forth in Section 5.02(d) of the Charter
Disclosure Schedule, there are no securities required to be issued by
Charter under any Charter Stock Plan, dividend reinvestment or similar
plan.
5.03 Subsidiaries. Section 5.03 of the Charter Disclosure Schedule
contains a complete list of Charter's Subsidiaries. Except as provided in the
Charter Disclosure Schedule, all of the outstanding shares of each Subsidiary
are owned by Charter and no equity securities are or may become required to be
issued by reason of any options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any Subsidiary, and there are no
contracts, commitments, understandings or arrangements by which any Subsidiary
is bound to issue additional shares of its capital stock or options, warrants or
rights to purchase or acquire any additional shares of its capital stock. All of
the shares of capital stock of each Subsidiary are fully paid and nonassessable
and are owned free and clear of any claim, lien, pledge or encumbrance of
whatsoever kind ("Liens"). Each Subsidiary (i) is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, (ii) is duly qualified to do business and in good
standing in all jurisdictions (whether federal, state, local or foreign) where
its ownership or leasing of property or the conduct of its business requires it
to be so qualified and in which the failure to be so qualified would have a
Material Adverse Effect, (iii) has all requisite corporate power and authority
to own or lease its properties and assets and to carry on its business as now
conducted and (iv) has in effect all Authorizations necessary for it to own or
lease its properties and assets and to carry on its business as now conducted,
the absence of which Authorizations, individually or in the aggregate, would
have a Material Adverse Effect.
5.04 Authorization of Merger and Related Transactions.
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby (including,
without limitation, the consummation of the Merger, if any) have been
duly and validly authorized by all necessary corporate
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action in respect thereof on the part of Charter, including (i) waiver
by the Charter Board of all restrictions upon ownership by NationsBank
of Charter Capital Stock contained in any agreement between the parties
hereto and (ii) approval of the Merger by the Charter Board, subject to
the approval of the Merger by the stockholders of Charter to the extent
required by the applicable law. The only stockholder approval required
for the approval of the Merger is the approval of two-thirds of the
outstanding shares of Charter Capital Stock voting together as if a
single class (and in which voting, each share of Charter Special Common
Stock shall be entitled to 14 votes). This Agreement, subject to any
requisite stockholder approval hereof with respect to the Merger,
represents a valid and legally binding obligation of Charter,
enforceable against Charter in accordance with its terms, except as
such enforcement may be limited by the Remedies Exception.
(b) Except as set forth in Section 5.04 of the Charter
Disclosure Schedule, neither the execution and delivery of this
Agreement by Charter, nor the consummation by Charter of the
transactions contemplated hereby or thereby nor compliance by Charter
with any of the provisions hereof or thereof will (i) conflict with or
result in a breach of any provision of Charter's Restated Articles of
Incorporation, as amended, or amended and restated bylaws or (ii)
constitute or result in a breach of any term, condition or provision
of, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give rise to any right
of termination, cancellation or acceleration with respect to, or result
in the creation of any Lien upon, any property or assets of any of
Charter or its Subsidiaries pursuant to any note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation
to which any of them is a party or by which any of them or any of their
properties or assets may be subject and that would have in any such
event, a Material Adverse Effect, or (iii) subject to receipt of the
requisite approvals referred to in Sections 9.01(a) and 9.01(b) of this
Agreement, violate any order, writ, injunction, decree, statute, rule
or regulation applicable to Charter or its Subsidiaries or any of their
properties or assets.
(c) Other than (i) in connection or compliance with the
provisions of applicable state corporate and securities laws, the
Securities Act, the Exchange Act, and the rules and regulations of the
SEC promulgated thereunder (the "Securities Laws"), and (ii) consents,
authorizations, approvals or exemptions required from the Commissioner
and necessary state insurance commissioners (collectively, the "State
Regulatory Commissioners"), the OCC, the OTS, or the Federal Reserve
Board, no notice to, filing with, authorization of, exemption by, or
consent or approval of any public body or authority is necessary for
the consummation by Charter of the Merger and the other transactions
contemplated in this Agreement.
5.05 Securities Reporting Documents and Financial Statements. Charter
(i) has delivered to NationsBank copies of the consolidated balance sheets and
the related consolidated statements of earnings, changes in shareholders' equity
and cash flows (including related notes and schedules) of Charter and its
consolidated Subsidiaries as of and for the periods ended September 30, 1995 and
December 31, 1994 included in a quarterly report on Form 10-Q or an annual
report on Form 10-K, as the case may be, filed by Charter pursuant to the
Securities Laws, and (ii) has furnished NationsBank with a true and complete
copy of each material report, schedule, registration statement and definitive
proxy statement filed by Charter with the SEC
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from and after January 1, 1993 (each a "Securities Reporting Document"), which
are all the material documents (other than preliminary material) that Charter
was required to file with the SEC since such date and all of which complied when
filed in all material respects with all applicable laws and regulations (clauses
(i) and (ii), and the financial statements and related notes and schedules
included in the Securities Reporting Documents, collectively, the "Charter
Financial Statements"). The Charter Financial Statements (as of the dates
thereof and for the periods covered thereby) (A) are or will be in accordance
with the books and records of Charter and its Subsidiaries, which are or will be
complete and accurate in all material respects and which have been or will have
been maintained in accordance with good business practices, and (B) present or
will present fairly the consolidated financial position and the consolidated
results of operations, changes in stockholders' equity and cash flows of Charter
and its Subsidiaries as of the dates and for the periods indicated, in
accordance with GAAP consistently applied except as disclosed, subject in the
case of interim financial statements to normal recurring year-end adjustments
and except for the absence of certain footnote information in the unaudited
statements. Charter has delivered to NationsBank (i) copies of all management
letters prepared by Deloitte & Touche LLP (and any predecessor thereto)
delivered to Charter since January 1, 1993 and (ii) copies of audited balance
sheets and related statements of income, changes in stockholders' equity and
cash flows for any Subsidiary of Charter since January 1, 1993 for which a
separate audit has been performed.
5.06 Absence of Undisclosed Liabilities. Except as set forth in the
Charter Disclosure Schedule, neither Charter nor any of its Subsidiaries has any
obligations or liabilities (contingent or otherwise) in the amount of $500,000
in the aggregate, except obligations and liabilities (i) which are fully accrued
or reserved against in the consolidated balance sheet of Charter and its
Subsidiaries as of September 30, 1995 included in the Charter Financial
Statements or reflected in the notes thereto, or (ii) which were incurred after
September 30, 1995 in the ordinary course of business consistent with past
practice. Except as set forth in the Charter Disclosure Schedule, since
September 30, 1995, neither Charter nor any of its Subsidiaries has incurred or
paid any obligation or liability which would have a Material Adverse Effect.
5.07 Tax Matters. Except as set forth in Section 5.07 of the
Charter Disclosure Schedule:
(a) All Tax Returns required to be filed by or on behalf of
Charter or any of its Subsidiaries have been timely filed, or requests
for extensions have been timely filed, granted and have not expired,
for periods ending on or before December 31, 1995, and all such returns
filed are complete and accurate in all material respects.
(b) There is no audit examination, deficiency or refund
litigation or matter in controversy with respect to any Taxes that
might reasonably be expected to result in a determination the effect of
which would have a Material Adverse Effect. All Taxes due with respect
to completed and settled examinations or concluded litigation have been
paid or adequately reserved for.
(c) Neither Charter nor any of its Subsidiaries has executed
an extension or waiver of any statute of limitations on the assessment
or collection of any Tax due that is currently in effect.
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(d) Adequate provision for any Taxes due or to become due for
Charter and any of its Subsidiaries for any period or periods through
and including September 30, 1995, has been made and is reflected on the
September 30, 1995 financial statements included in the Charter
Financial Statements. Deferred Taxes of Charter and its Subsidiaries
have been provided for in the Charter Financial Statements in
accordance with GAAP, applied on a consistent basis.
(e) Charter and its Subsidiaries have collected and withheld
all Taxes which they have been required to collect or withhold and have
timely submitted all such collected and withheld amounts to the
appropriate authorities. Charter and its Subsidiaries are in compliance
with the back-up withholding and information reporting requirements
under (1) the Code, and (2) any state, local or foreign laws, and the
rules and regulations, thereunder.
(f) Neither Charter nor any of its Subsidiaries has made any
payments, is obligated to make any payments, or is a party to any
contract, agreement or other arrangement that could obligate it to make
any payments that would not be deductible under Section 280G of the
Code.
5.08 Allowance for Credit Losses. The allowance for credit losses (the
"Allowance") shown on the consolidated statement of condition of Charter and its
Subsidiaries as of September 30, 1995 included in the Charter Financial
Statements and the Allowance shown on the consolidated statement of condition of
Charter and its Subsidiaries, as of such date comply in all material respects
with OCC Banking Circular 201 (and comparable regulations applicable to Charter
Bank, S.S.B.).
5.09 Other Tax and Regulatory Matters. Neither Charter nor any of its
Subsidiaries has taken or agreed to take any action or has any knowledge of any
fact or circumstance that would (i) prevent the transactions contemplated
hereby, including the Merger, from qualifying as a reorganization within the
meaning of Section 368 of the Code, or (ii) materially impede or delay receipt
of any approval referred to in Section 9.01(b).
5.10 Properties. Except as disclosed in any Securities Reporting
Document filed since December 31, 1994 and prior to the date hereof and except
for Permitted Liens and Liens arising in the ordinary course of business after
the date hereof, Charter and its Subsidiaries have good and marketable title,
free and clear of all Liens that are material to the Condition of Charter and
its Subsidiaries on a consolidated basis, to all their material properties and
assets whether tangible or intangible, real, personal or mixed, reflected in the
Charter Financial Statements as being owned by Charter and its Subsidiaries as
of the date hereof. All buildings, and all fixtures, equipment and other
property and assets which are material to its business on a consolidated basis,
held under leases or subleases by any of Charter or its Subsidiaries are held
under valid instruments enforceable in accordance with their respective terms,
subject to the Remedies Exception. Except where a failure to maintain would not
have a Material Adverse Effect, substantially all of Charter's and Charter's
Subsidiaries' equipment in regular use has been well maintained and is in good
serviceable condition, reasonable wear and tear excepted.
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5.11 Compliance with Laws.
(a) Except as set forth in Section 5.11 of the Charter
Disclosure Schedule, to the best knowledge of Charter, each of Charter
and its Subsidiaries is in compliance with all laws, rules,
regulations, policies, guidelines, reporting and licensing requirements
and orders applicable to its business or to its employees conducting
its business, and with its internal policies and procedures except for
failures to comply which will not result in a Material Adverse Effect.
(b) Except as set forth in Section 5.11 of the Charter
Disclosure Schedule, neither Charter nor any of its Subsidiaries has
received any notification or communication from any agency or
department of any federal, state or local government, including the
Federal Reserve Board, or the OCC, the OTS, the FDIC, the State
Regulatory Commissioners, the SEC and the NASD and the staffs thereof
(collectively, the "Regulatory Authorities") (i) asserting that since
January 1, 1993, any of Charter or its Subsidiaries is not in
substantial compliance with any of the statutes, regulations, or
ordinances which such agency, department or Regulatory Authority
enforces, or the internal policies and procedures of such company, (ii)
threatening to revoke any license, franchise, permit or governmental
authorization which is material to the Condition of Charter and its
Subsidiaries on a consolidated basis, (iii) requiring or threatening to
require Charter or any of its Subsidiaries, or indicating that Charter
or any of its Subsidiaries may be required to enter into a cease and
desist order, agreement or memorandum of understanding or any other
agreement restricting or limiting or purporting to restrict or limit in
any manner the operations of Charter or any of its Subsidiaries,
including, without limitation, any restriction on the payment of
dividends, or (iv) directing, restricting or limiting, or purporting to
direct, restrict or limit in any manner the operations of Charter or
any of its Subsidiaries, including, without limitation, any restriction
on the payment of dividends (any such notice, communication,
memorandum, agreement or order described in this sentence herein
referred to as a "Regulatory Agreement").
(c) Except as set forth in Section 5.11 of the Charter
Disclosure Schedule, since January 1, 1993, neither Charter nor any of
its Subsidiaries has been a party to any effective Regulatory Agreement
or memorandum of understanding.
(d) Neither Charter nor any of its Subsidiaries is required by
Section 32 of 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.
5.12 Employee Benefit Plans.
(a) Charter has delivered or made available to NationsBank
prior to the execution of this Agreement true and complete copies (or,
in the case of bonus or other incentive plans, summaries thereof and
financial data with respect thereto) of all material pension,
retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus or other
material incentive plans, all other
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material employee programs, arrangements or agreements, whether arrived
at through collective bargaining or otherwise, all material medical,
vision, dental or other health plans, all life insurance plans and all
other material employee benefit plans or fringe benefit plans,
including, without limitation, all "employee benefit plans" as that
term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), currently adopted by,
maintained by, sponsored in whole or in part by, or contributed to by
Charter or any of its Subsidiaries or any affiliate thereof for the
benefit of any Employee or under which any Employee is eligible to
participate and under which Charter or any of its Subsidiaries could
have any liability contingent or otherwise (collectively, the "Charter
Benefit Plans"). Any of the Charter Benefit Plans which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of
ERISA, is referred to herein as a "Charter ERISA Plan." Any of the
Charter Benefit Plans pursuant to which Charter is or may become
obligated to, or obligated to cause any of its Subsidiaries or any
other Person to, issue, deliver or sell shares of capital stock of
Charter or any of its Subsidiaries, or grant, extend or enter into any
option, warrant, call, right, commitment or agreement to issue, deliver
or sell shares, or any other interest in respect of capital stock of
Charter or any of its Subsidiaries, is referred to herein as a "Charter
Stock Plan." No Charter Benefit Plan is or has been a multiemployer
plan within the meaning of Section 3(37) of ERISA. Charter has set
forth in Section 5.12 of the Charter Disclosure Schedule (i) a list of
all of the Charter Benefit Plans, (ii) a list of Charter Benefit Plans
that are Charter ERISA Plans, (iii) a list of Charter Benefit Plans
that are Charter Stock Plans and (iv) a list of the number of shares
covered by, exercise prices for, and holders of, all stock options
granted and available for grant under the Charter Stock Plans.
(b) To the best knowledge of Charter, all Charter Benefit
Plans are in substantial compliance with the applicable terms of ERISA
and the Code and any other applicable laws, rules and regulations the
breach or violation of which could reasonably be expected to result in
a Material Adverse Effect.
(c) All liabilities under any Charter Benefit Plan are fully
accrued or reserved against in the Charter Financial Statements in
accordance with GAAP. No Charter ERISA Plan is a defined benefit
pension plan subject to Title IV of ERISA.
(d) Neither Charter nor any of its Subsidiaries has any
obligations for retiree health and life benefits under any Charter
Benefit Plan or otherwise, except as set forth in the Charter
Disclosure Schedule. There are no restrictions on the rights of Charter
or its Subsidiaries to amend or terminate any such Charter Benefit Plan
without incurring any material liability thereunder, except for such
restrictions as would not have a Material Adverse Effect.
(e) Except as set forth in Section 5.12 of the Charter
Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
or thereby will (i) result in any payment (including, without
limitation, severance, golden parachute or otherwise) becoming due to
any Employees under any Charter Benefit Plan or otherwise, (ii)
increase any benefits
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otherwise payable under any Charter Benefit Plan or (iii) result in any
acceleration of the time of payment or vesting of any such benefits.
5.13 Commitments and Contracts. Except as set forth in Section 5.13 of
the Charter Disclosure Schedule, neither Charter nor any of its Subsidiaries is
a party or subject to, or has amended or waived any rights under, any of the
following (whether written or oral, express or implied):
(a) any employment contract or understanding (including any
understandings or obligations with respect to severance or termination
pay liabilities or fringe benefits) with any Employees, including in
any such person's capacity as a consultant (other than those which
either (i) are terminable at will by Charter or such Subsidiary or (ii)
do not involve payments with a present value of more than $50,000 by
Charter or such Subsidiary during the remaining term thereof without
giving effect to extensions or renewals made after the date hereof;
(b) any labor contract or agreement with any labor union;
(c) any contract not made in the usual, regular and ordinary
course of business containing non-competition covenants which limit the
ability of Charter or any of its Subsidiaries to compete in any line of
business or which involve any restriction of the geographical area in
which Charter or its Subsidiaries may carry on its business (other than
as may be required by law or applicable Regulatory Authorities);
(d) any other contract or agreement which would be required to
be disclosed as an exhibit to Charter's annual report on Form 10-K and
which has not been so disclosed;
(e) any real property lease with annual rental payments
aggregating $25,000 or more;
(f) any employment or other contract requiring the payment of
additional amounts as "change of control" payments as a result of
transactions contemplated by this Agreement;
(g) any agreement with respect to (i) the acquisition of the
bank branches or other assets or stock of another financial institution
or (ii) the sale of one or more bank branches which would require
additional payments by Charter after the date of this Agreement; or
(h) any outstanding interest rate exchange or other derivative
contracts.
5.14 Material Contract Defaults. Except as set forth in Section 5.14 of
the Charter Disclosure Schedule, neither Charter nor any of its Subsidiaries is,
or has received any notice or has any knowledge that any party is, in default in
any respect under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which Charter or any of its Subsidiaries
is a party or by which Charter or any of its Subsidiaries or the assets,
business
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or operations thereof may be bound or affected or under which it or its
respective assets, business or operations receives benefits, except for those
defaults which would not have, 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 of both would constitute such a default.
5.15 Legal Proceedings. Except as set forth in Section 5.15 of the
Charter Disclosure Schedule, there are no claims or charges filed with, or
proceedings or investigations by, Regulatory Authorities or actions or suits
instituted or pending or, to the best knowledge of Charter's management,
threatened against Charter or any of its Subsidiaries, or against any property,
asset, interest or right of any of them, that might reasonably be expected to
result in a judgment in excess of $100,000 or that might reasonably be expected
to threaten or impede the consummation of the transactions contemplated by this
Agreement. Neither Charter nor any of its Subsidiaries is a party to any
agreement or instrument or is subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree, rule, regulation,
code or ordinance that, individually or in the aggregate, might reasonably be
expected to have a Material Adverse Effect or, might reasonably be expected to
threaten or impede the consummation of the transactions contemplated by this
Agreement.
5.16 Absence of Certain Changes or Events. Since December 31, 1994,
except (i) as disclosed in any Securities Reporting Document filed since
December 31, 1994 and prior to the date hereof or (ii) as set forth in Section
5.16 of the Charter Disclosure Schedule, neither Charter nor any of its
Subsidiaries has (A) incurred any liability which has had a Material Adverse
Effect, (B) suffered any change in its Condition which would have a Material
Adverse Effect, other than changes after the date hereof which affect the
banking industry as a whole, (C) failed to operate its business consistent in
all material respects with past practice or (D) changed any accounting
practices.
5.17 Reports. Since January 1, 1992, Charter and each of its
Subsidiaries have filed on a timely basis all reports and statements, together
with all amendments required to be made with respect thereto (collectively
"Reports"), that they were required to file with (i) the SEC, including,
without limitation, all Forms 10-K, 10-Q and 8-K, (ii) the Federal Reserve
Board, (iii) the Commissioner, (iv) any other applicable federal, state,
municipal, local or foreign government, securities, banking, savings and loan or
other governmental or regulatory authority and (v) the NASD. No Securities
Reporting Document with respect to periods beginning on or after January 1,
1992, contained any information that was false or misleading with respect to any
material fact or omitted to state any material fact necessary in order to make
the statements therein not misleading.
5.18 Statements True and Correct. None of the information supplied or
to be supplied by Charter for inclusion in the registration statement on Form
S-4, or other appropriate form, to be filed with the SEC by NationsBank under
the Securities Act in connection with the transactions contemplated by this
Agreement (the "Registration Statement"), or the proxy statement to be used by
Charter to solicit any required approval of its stockholders as contemplated by
this Agreement (the "Proxy Statement") will, in the case of the Proxy Statement,
when it is first mailed to the stockholders of Charter, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which such statements are made, not misleading, or, in the
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case of the Registration Statement, when it becomes effective, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading, or, in the
case of the Proxy Statement or any amendment thereof or supplement thereto, at
the time of the meeting of the stockholders of Charter to be held pursuant to
Section 8.03 of this Agreement, including any adjournments thereof (the
"Stockholders' Meeting"), be false or misleading with respect to any material
fact or omit to state any material fact necessary to correct any statement or
remedy any omission in any earlier communication with respect to the
solicitation of any proxy for the Stockholders' Meeting. All documents that
Charter is responsible for filing with any Regulatory Authority in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable law, including applicable provisions
of the Securities Laws. The information which is deemed to be set forth in the
Charter Disclosure Schedule by Charter for the purposes of this Agreement is
true and accurate in
all material respects.
5.19 Insurance. Charter and each of its Subsidiaries are presently
insured, and during each of the past five calendar years have been insured, for
reasonable amounts against such risks as companies engaged in a similar business
would, in accordance with good business practice, customarily be insured. The
policies of fire, theft, liability (including directors and officers liability
insurance) and other insurance maintained with respect to the assets or
businesses of Charter and its Subsidiaries provide adequate coverage against all
pending or threatened claims, and the fidelity bonds in effect as to which any
of Charter or any of its Subsidiaries is a named insured are sufficient for
their purpose, except where the failure to have such coverage would not have a
Material Adverse Effect.
5.20 Labor. No material work stoppage involving Charter or its
Subsidiaries is pending or, to the best knowledge of Charter's management,
threatened. Neither Charter nor any of its Subsidiaries is involved in, or, to
the best knowledge of Charter's management, threatened with or affected by, any
labor or other employment-related dispute, arbitration, lawsuit or
administrative proceeding which might reasonably be expected to have a Material
Adverse Effect. Employees of Charter and its Subsidiaries are not represented by
any labor union, and, to the best knowledge of Charter's management, no labor
union is attempting to organize employees of Charter or any of its
Subsidiaries.
5.21 Material Interests of Certain Persons. Except as disclosed in
Charter's Proxy Statement for its 1995 Annual Meeting of Stockholders or as set
forth in Section 5.21 of the Charter Disclosure Schedule, no executive officer
or director of Charter, or any "associate" (as such term is defined in Rule
14a-1 under the Exchange Act) of any such executive 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 Charter or any
of its Subsidiaries.
5.22 Registration Obligations. Neither Charter nor any of its
Subsidiaries is under any obligation, contingent or otherwise, presently in
effect or which will survive the Merger by reason of any agreement to register
any of its securities under the Securities Act.
5.23 Brokers and Finders. Except as set forth in Section 5.23 of the
Charter Disclosure Schedule, neither Charter nor any of its Subsidiaries nor any
of their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any financial
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advisory fees, brokerage fees, commissions or finder's fees, and no broker or
finder has acted directly or indirectly for Charter or any of its Subsidiaries
in connection with this Agreement or the transactions contemplated hereby.
5.24 State Takeover Laws. To the best of Charter's knowledge, the
transactions contemplated by this Agreement are exempt from any applicable state
takeover law and from any applicable charter or contractual provision containing
change of control or anti-takeover provisions.
5.25 Environmental Matters. To Charter's best knowledge, neither
Charter, any of its Subsidiaries, nor any properties owned or operated by
Charter or any of its Subsidiaries or held as collateral by any of its
Subsidiaries has been or is in violation of or liable under any Environmental
Law (as hereinafter defined), except for such violations or liabilities that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect. There are no actions, suits or proceedings, or demands, claims,
notices or investigations (including without limitation notices, demand letters
or requests for information from any environmental agency) instituted or
pending, or to the best knowledge of Charter's management, threatened relating
to the liability of any properties owned or operated by Charter or any of its
Subsidiaries under any Environmental Law, except for liabilities or violations
that would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect.
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
Regulatory Authority relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic radioactive or
dangerous, or otherwise regulated, whether by type or by quantity,
includingany material containing any such substance as a component.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NATIONSBANK
NationsBank represents and warrants to Charter as follows:
6.01 Organization, Standing and Authority.
(a) NationsBank is a corporation duly organized, validly
existing and in good standing under the laws of the State of North
Carolina. NationsBank is duly qualified to do business and in good
standing in all jurisdictions (whether federal, state, local or
foreign) where its ownership or leasing of property or the conduct of
its business requires it to be so qualified and in which the failure to
be duly qualified would have a Material Adverse Effect on the Condition
of NationsBank and its Subsidiaries taken as a whole.
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NationsBank has all requisite corporate power and authority to carry on
its business as now conducted and to own, lease and operate its assets,
properties and business, and to execute and deliver this Agreement and
perform the terms of this Agreement. NationsBank is duly registered as
a bank holding company under the BHCA. NationsBank has in effect all
Authorizations necessary for it to own or lease its properties and
assets and to carry on its business as now conducted, the absence of
which, either individually or in the aggregate, would have a material
adverse effect on the Condition of NationsBank and its Subsidiaries on
a consolidated basis. At the Effective Time, NationsBank will directly
own all of the issued and outstanding shares of Merger Subsidiary's
capital stock.
(b) Holdings is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to carry on its business as
now conducted and to perform the terms of this Agreement.
6.02 NationsBank Capital Stock. The authorized capital stock of
NationsBank consists of 800,000,000 shares of NationsBank Common Stock and
45,000,000 shares of Preferred Stock. At December 31, 1995, there were
outstanding approximately 274,269,000 shares of NationsBank Common Stock and
approximately 2,473,000 shares of NationsBank Preferred Stock and no other
shares of capital stock of any class. All of the issued and outstanding shares
of NationsBank Common Stock are duly and validly issued and outstanding and are
fully paid and nonassessable.
6.03 Authorization of Merger and Related Transactions.
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action in respect thereof
on the part of NationsBank, to the extent required by applicable law.
This Agreement represents a valid and legally binding obligation of
NationsBank, enforceable against NationsBank in accordance with its
terms except as such enforcement may be limited by the Remedies
Exception.
(b) Neither the execution and delivery of this Agreement by
NationsBank, nor the consummation by NationsBank of the transactions
contemplated hereby or thereby nor compliance by NationsBank with any
of the provisions hereof or thereof will (i) conflict with or result in
a breach of any provision of NationsBank's Articles of Incorporation or
bylaws or (ii) constitute or result in a breach of any term, condition
or provision of, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give rise to
any right of termination, cancellation or acceleration with respect to,
or result in the creation of any Lien upon any property or assets of
any of NationsBank or its Subsidiaries pursuant to any note, bond,
mortgage, indenture, license, agreement, lease or other instrument or
obligation to which any of them is a party or by which any of them or
any of their properties or assets may be subject, and that would, in
any such event, have a Material Adverse Effect on the Condition of
NationsBank and its Subsidiaries on a consolidated basis or the
transactions contemplated hereby or thereby or (iii) subject to receipt
of the requisite approvals referred to in Section 9.01 of this
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Agreement, violate any order, writ, injunction, decree, statute, rule
or regulation applicable to NationsBank or any of its Subsidiaries or
any of their properties or assets.
6.04 Financial Statements. NationsBank (i) has delivered to Charter
copies of the consolidated balance sheets and the related consolidated
statements of income, consolidated statements of changes in shareholders' equity
and consolidated statements of cash flows (including related notes and
schedules) of NationsBank and its consolidated Subsidiaries as of and for the
periods ended September 30, 1995 and December 31, 1994 included in a quarterly
report filed on Form 10-Q or an annual report filed on Form 10-K, as the case
may be, filed by NationsBank pursuant to the Securities Laws (a "NationsBank SEC
Document"), and (ii) until the Closing will deliver to Charter promptly upon the
filing thereof with the SEC copies of the consolidated balance sheets and
related consolidated statements of income, consolidated statements of changes in
shareholders' equity and consolidated statements of cash flows (including
related notes and schedules) included in any NationsBank SEC Documents filed
subsequent to the execution of this Agreement (clauses (i) and (ii)
collectively, the "NationsBank Financial Statements"). The NationsBank Financial
Statements (as of the dates thereof and for the periods covered thereby) (A) are
or will be in accordance with the books and records of NationsBank and its
Consolidated Subsidiaries, which are or will be complete and accurate in all
material respects and which have been or will have been maintained in accordance
with good business practices, and (B) present or will present fairly the
consolidated financial position and the consolidated results of operations,
changes in shareholders' equity and cash flows of NationsBank and its
Subsidiaries as of the dates and for the periods indicated, in accordance with
GAAP, subject in the case of interim financial statements to normal recurring
year-end adjustments and except for the absence of certain footnote
information in the unaudited statements.
6.05 NationsBank SEC Reports. Since January 1, 1993, NationsBank has
filed on a timely basis all reports and statements, together with all amendments
required to be made with respect thereto that as an issuer it is required to
file with the SEC. No NationsBank SEC Document with respect to periods beginning
on or after January 1, 1993 and until the Closing contained or will contain any
information that was false or misleading with respect to any material fact or
omitted or will omit to state any material fact necessary in order to make the
statements therein not misleading.
6.06 Statements True and Correct. None of the information supplied or
to be supplied by NationsBank for inclusion in the Registration Statement or the
Proxy Statement will, in the case of the Proxy Statement, when it is first
mailed to the stockholders of Charter, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which such
statements are made, not misleading or, in the case of the Registration
Statement, when it becomes effective, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not misleading, or, in the case of the Proxy Statement or any
amendment thereof or supplement thereto, at the time of the Stockholders'
Meeting, be false or misleading with respect to any material fact or omit to
state any material fact necessary to correct any statement or remedy any
omission in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meeting. All documents that NationsBank is
responsible for filing with any Regulatory Authority in connection with the
transactions
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contemplated hereby will comply as to form in all material respects with the
provisions of applicable law, including applicable provisions of the Securities
Laws.
6.07 Common Stock. At the Effective Time, the NationsBank Common Stock
issued pursuant to the Merger will be duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights.
6.08 Tax and Regulatory Matters. Neither NationsBank nor any of its
Subsidiaries has taken or agreed to take any action or has any knowledge of any
fact or circumstance that would (i) prevent the transactions contemplated
hereby, including the Merger, from qualifying as a reorganization within the
meaning of Section 368 of the Code, or (ii) materially impede or delay receipt
of any approval referred to in Section 9.01(b).
6.09 Litigation. There are no judicial proceedings of any kind or
nature pending or, to the knowledge of NationsBank, threatened against
NationsBank before any court or arbitral tribunal or before or by any
governmental department, agency or instrumentality involving the validity of the
NationsBank Common Stock or the transactions contemplated by this Agreement.
6.10 Brokers and Finders. Except as previously disclosed to Charter,
neither NationsBank nor any of its Subsidiaries nor any of their respective
officers, directors or employees has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
NationsBank or any of its Subsidiaries in connection with this Agreement or the
transactions contemplated hereby.
ARTICLE VII
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
7.01 Conduct of Business Prior to the Effective Time. During the period
from the date of this Agreement to the Effective Time, Charter shall, and shall
cause each of its Subsidiaries to, (i) conduct its business in the usual,
regular and ordinary course consistent with past practice (other than
transactions made pursuant to contracts in existence on the date hereof and
described in Sections 7.01 or 7.02 of the Charter Disclosure Schedule), (ii) use
its best efforts to maintain and preserve intact its business organization,
employees and advantageous business relationships and retain the services of its
officers and key Employees and (iii) in accordance with the terms of the
applicable transaction agreements, diligently proceed to take all appropriate
action to complete those pending transactions listed on Section 5.13 of the
Charter Disclosure Schedule and (iv) diligently proceed to obtain approvals for
and to complete the Redemption.
7.02 Forbearances. Except as described in Section 7.02 of the Charter
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time, Charter shall not, and shall not permit any of its Subsidiaries
to, without the prior written consent of NationsBank, which consent (in the case
of subparagraphs (c), (d), (e), (h) and (p)) shall not be unreasonably withheld
(and Charter shall provide NationsBank with prompt notice of any events referred
to in this Section 7.02 occurring after the date hereof):
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(a) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money (other
than short-term indebtedness incurred to refinance short-term
indebtedness and indebtedness of Charter or any of its Subsidiaries to
Charter or any of its Subsidiaries; it being understood and agreed that
incurrence of indebtedness in the ordinary course of business shall
include, without limitation, the creation of deposit liabilities,
purchases of federal funds, sales of certificates of deposit and
entering into Federal Home Loan Bank loans with a term of six months or
less or repurchase agreements), assume, guarantee, endorse or otherwise
as an accommodation become responsible for the obligations of any other
individual, corporation or other entity, or make any loan or advance
other than in the ordinary course of business consistent with past
practice;
(b) adjust, split, combine or reclassify any capital stock;
make, declare or pay any dividend (other than regular quarterly cash
dividends at a rate not in excess of $0.08 per share through June 30,
1996 and $0.10 per share thereafter) or make any other distribution on,
or (other than the Redemption) directly or indirectly redeem, purchase
or otherwise acquire, any shares of its capital stock or any securities
or obligations convertible into or exchangeable for any shares of its
capital stock, or grant any stock appreciation rights or grant any
individual, corporation or other entity any right to acquire any shares
of its capital stock; or issue any additional shares of capital stock,
or any securities or obligations convertible into or exchangeable for
any shares of its capital stock;
(c) sell, transfer, mortgage, encumber or otherwise dispose of
any of its properties or assets to any individual, corporation or other
entity, or cancel, release or assign any indebtedness to any such
person or any claims held by any such person, except in the ordinary
course of business consistent with past practice or pursuant to
contracts or agreements in force at the date of this Agreement;
(d) make any material investment (other than trades in
investment securities in the ordinary course) either by purchase of
stock or securities, contributions to capital, property transfers, or
purchase of any property or assets of any other individual, corporation
or other entity;
(e) enter into, terminate or fail to exercise any material
right under, any contract or agreement involving annual payments in
excess of $50,000 and which cannot be terminated without penalty upon
30 days notice, or make any change in, or extension of (other than
automatic extensions), any of its leases or contracts involving annual
payments in excess of $50,000 and which cannot be terminated without
penalty upon 30 days notice;
(f) modify the terms of any Charter Benefit Plan (including
any severance pay plan) or increase or modify in any manner the
compensation or fringe benefits of any of its Employees or pay any
pension or retirement allowance not required by any existing plan or
agreement to any such Employees, or become a party to, amend or commit
itself to any pension, retirement, profit-sharing or welfare benefit
plan or agreement or employment agreement with or for the benefit of
any Employee other than routine
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adjustments in compensation and fringe benefits in the ordinary course
of business consistent with past practice or accelerate the vesting of
any stock options or other stock-based compensation;
(g) take any action that would prevent or impede the Merger
from qualifying as a reorganization within the meaning of Section 368
of the Code;
(h) settle any claim, action or proceeding involving the
payment of money damages in excess of $50,000, except in the ordinary
course of business consistent with past practice;
(i) amend its Restated Articles of Incorporation, as amended,
or its amended and restated bylaws;
(j) fail to maintain its Regulatory Agreements, material
licenses and permits or to file in a timely fashion all federal, state,
local and foreign tax returns;
(k) make any capital expenditures of more than $50,000
individually or $300,000 in the aggregate;
(l) fail to maintain each Charter Benefit Plan or timely make
all contributions or accruals required thereunder in accordance with
GAAP applied on a consistent basis;
(m) issue any additional shares of Charter Capital Stock;
(n) agree to, or make any commitment to, take any of the
actions prohibited by this Section 7.02;
(o) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material
respect at any time prior to the Effective Time, or in any of the
conditions to the Merger set forth in Article IX not being satisfied or
in a violation of any provision of this Agreement, except, in every
case, as may be required by applicable law; or
(p) change any methods of accounting from those used in the
Charter Financial Statements.
7.03 Plan Termination. Prior to the Effective Time, Charter shall have
taken all steps necessary to terminate the SAR Plan and all Charter executive
deferred compensation plans.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
8.01 Access and Information.
(a) During the period from the date of this Agreement through
the Effective Time:
(i) Charter shall, and shall cause its Subsidiaries
to, afford NationsBank, and its accountants, counsel and other
representatives, full access during normal business hours to
the properties, books, contracts, tax returns, commitments and
records of Charter and its Subsidiaries at any time, and from
time to time, for the purpose of conducting any review or
investigation reasonably related to the Merger, and Charter
and its Subsidiaries will cooperate fully with all such
reviews and investigations.
(ii) NationsBank shall upon reasonable notice make
personnel and copies of its SEC reports available to Charter
and its advisors for purposes of any review or report to its
Board of Directors in evaluating the Merger.
(b) During the period from the date of this Agreement through
the Effective Time, Charter shall furnish to NationsBank (i) all
Reports referred to in Section 5.17 promptly upon the filing thereof,
(ii) a copy of each Tax Return filed by it and (iii) monthly and other
interim financial statements in the form prepared by Charter for its
internal use.
During this period, Charter also shall notify NationsBank promptly of
any material change in the Condition of Charter or any of its
Subsidiaries.
(c) Notwithstanding the foregoing provisions of this Section
8.01, no investigation by the parties hereto made heretofore or
hereafter shall affect the representations and warranties of the
parties (as modified by information (i) furnished to NationsBank
pursuant to the terms of any investment agreement, (ii) disclosed in
writing to NationsBank in its due diligence process or (iii) included
in the Charter Disclosure Schedule) which are contained herein and each
such representation and warranty shall survive such investigation.
(d) NationsBank agrees that it will keep confidential any
information furnished to it in connection with the transactions
contemplated by this Agreement which is reasonably designated as
confidential at the time of delivery, except to the extent that such
information (i) was already known to NationsBank and was received from
a source other than Charter or any of its Subsidiaries, directors,
officers, employees or agents, (ii) thereafter was lawfully obtained
from another source, or (iii) is required to be disclosed to the SEC,
the NASD, the OCC, the OTS, the Federal Reserve Board, FDIC or any
other governmental agency or authority, or is otherwise required to be
disclosed by law. NationsBank agrees not to use such information, and
to implement safeguards and procedures that are reasonably designed to
prevent such information from being used, for any purpose other than in
connection with the transactions contemplated by this
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Agreement. Upon any termination of this Agreement, NationsBank will
return to Charter all documents furnished NationsBank for its review
and all copies of such documents made by NationsBank.
(e) Charter shall cooperate, and shall cause its Subsidiaries,
accountants, counsel and other representatives to cooperate, with
NationsBank and its accountants, counsel and other representatives, in
connection with the preparation by NationsBank of any applications and
documents required to obtain the Approvals which cooperation shall
include providing all information, documents and appropriate
representations as may be necessary in connection therewith and, when
requested by NationsBank, preparing and filing of regulatory
applications.
(f) From and after the date of this Agreement, each of
NationsBank and Charter shall use its reasonable best efforts to
satisfy or cause to be satisfied all conditions to their respective
obligations under this Agreement. While this Agreement is in effect,
neither NationsBank nor Charter shall take any actions, or omit to take
any actions, which would cause this Agreement to become unenforceable
in accordance with its terms.
8.02 Registration Statement; Regulatory Matters.
(a) NationsBank shall (i) prepare and file the Registration
Statement and the Proxy Statement with the SEC as soon as is reasonably
practicable, (ii) use its best efforts to cause the Registration
Statement to become effective and (iii) take any action required to be
taken under any applicable state blue sky or securities laws in
connection therewith. Charter and its Subsidiaries shall furnish
NationsBank with all information concerning Charter, its Subsidiaries
and the holders of Charter Capital Stock as NationsBank may reasonably
request in connection with the foregoing.
(b) NationsBank and Charter shall cooperate and use their
respective best efforts (i) to prepare all documentation, to effect all
filings and to obtain all permits, consents, approvals and
authorizations of all third parties, Regulatory Authorities and other
governmental authorities necessary to consummate the transactions
contemplated by this Agreement, including, without limitation, any such
approvals or authorizations required by the Federal Reserve, the OCC,
the OTS and the Commissioner and (ii) to cause the Merger to be
consummated as expeditiously as reasonably practicable.
8.03 Stockholders' Approval. Charter shall call a meeting of its
stockholders to be held as soon as practicable for the purpose of voting upon
the Merger and related matters. The Board of Directors of Charter shall, submit
for approval of its stockholders the matters to be voted upon at the
Stockholders' Meeting, and shall recommend approval of such matters and use its
best efforts (including, without limitation, soliciting proxies for such
approvals) to obtain such stockholder approvals. The covenants under this
Section 8.03 are subject to the exercise by the Charter Board of its fiduciary
obligations.
8.04 Press Releases. Prior to the public dissemination of any press
release or other public disclosure of information about this Agreement, the
Merger or any other transaction
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contemplated hereby, the parties to this Agreement shall mutually agree as to
the form and substance of such release or disclosure.
8.05 Notice of Defaults. Charter shall promptly notify NationsBank of
(i) any material change in its business, operations or prospects, (ii) any
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) of any Regulatory Authority, (iii) the institution or
the threat of material litigation involving such party, or (iv) any event or
condition that might be reasonably expected to cause any of its representations,
warranties or covenants set forth herein not to be true and correct in all
material respects as of the Effective Time. For purpose of this paragraph, the
term material litigation shall mean any claim involving $50,000 or more. Upon
any such notice, if any event or condition stated in such notice shall entitle
NationsBank to terminate this Agreement pursuant to Section 10.01(c),
NationsBank shall not be entitled to terminate this Agreement by reason thereof
unless NationsBank exercises such right on or before the later of (i) the date
ten business days after such notification or (ii) the expiration of the cure
period described in such Section 10.01(c).
8.06 Miscellaneous Agreements and Consents; Affiliates Agreements.
Subject to the terms and conditions of this Agreement, each of the parties
hereto agrees to use its respective best efforts to take, or cause to be taken,
all action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement as expeditiously as reasonably
practicable, including, without limitation, using their respective best efforts
to lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated hereby. NationsBank and Charter shall, and shall cause each of
their respective Subsidiaries to, use their best efforts to obtain consents of
all third parties and Regulatory Authorities necessary or, in the reasonable
opinion of NationsBank or Charter, desirable for the consummation of the
transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of NationsBank
shall be deemed to have been granted authority in the name of Charter to take
all such necessary or desirable action.
Without limiting the foregoing, Charter will take such actions as may
be reasonably necessary to identify each of its "affiliates" for purposes of
Rule 145 under the Securities Act and to cause each person so identified to
deliver to NationsBank within 10 days after the execution of this Agreement a
written agreement in form and substance satisfactory to NationsBank providing
that such person shall not sell, pledge, transfer or otherwise dispose of any
capital stock to be received by such person as part of the Merger Consideration
except in compliance with the applicable provisions of the Securities Act. For a
period of three years after the date hereof, NationsBank will continue to file
in a timely manner all securities reports required to be filed by it pursuant to
Section 13 and Section 15(d) of the Exchange Act.
8.07 Indemnification.
(a) NationsBank shall indemnify, defend, and hold harmless the
present and former directors, officers, employees, and agents of
Charter or its Subsidiaries (each, an "Indemnified Party") against all
losses, expenses (including reasonable attorneys' fees),
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claims, damages or liabilities and amounts paid in settlement arising
out of actions or omissions or alleged acts or omissions occurring at
or prior to the Effective Time (including the transactions contemplated
by this Agreement) to the full extent permitted under the TBCA and by
Charter's Restated Articles of Incorporation, as amended, and amended
and restated bylaws as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of
any proceeding to the full extent permitted by the TCBA upon receipt of
any undertaking required by the TCBA, except the right to
indemnification shall not arise in those instances in which the party
seeking indemnification has participated in the breach of any covenant
or agreement contained herein or knowingly caused any representation or
warranty of Charter contained herein to be false or inaccurate in any
respect and the claim arises principally from such breach or the
falsity or inaccuracy of such representation or warranty. Without
limiting the foregoing, in any case in which a determination by
NationsBank is required to effectuate any indemnification, NationsBank
shall direct, at the election of the Indemnified Party, that the
determination shall be made by independent counsel mutually agreed upon
between NationsBank and the Indemnified Party.
(b) NationsBank shall use its reasonable efforts (and Charter
shall cooperate prior to the Effective Time in these efforts) to
maintain in effect for a period of six years after the Effective Time
Charter's existing directors' and officers' liability insurance policy
(provided that NationsBank may substitute therefor (i) policies of at
least the same coverage and amounts containing terms and conditions
which are substantially no less advantageous or (ii) with the consent
of Charter given prior to the Effective Time, any other policy) with 31
respect to claims arising from facts or events which occurred prior to
the Effective Time and covering persons who are currently covered by
such insurance; provided, that NationsBank shall not be obligated to
make premium payments for such six-year period in respect of such
policy (or coverage replacing such policy) which exceed, for the
portion related to Charter's directors and officers, 200% of the annual
premium payments on Charter's current policy in effect as of the date
of this Agreement (the "Maximum Amount"). If the amount of the premiums
necessary to maintain or procure such insurance coverage exceeds the
Maximum Amount, NationsBank shall use its reasonable efforts to
maintain the most advantageous policies of directors' and officers'
liability insurance obtainable for a premium equal to the Maximum
Amount.
(c) If NationsBank or any of its successors or assigns shall
consolidate with or merge into any other person and shall not be the
continuing or surviving person of such consolidation or merger or shall
transfer all or substantially all of its assets to any person, then and
in each case, proper provision shall be made so that the successors and
assigns of NationsBank shall assume the obligations set forth in this
Section 8.07.
(d) The provisions of this Section 8.07 are intended to be for
the benefit of and shall be enforceable by, each Indemnified Party, his
or her heirs and representatives.
(e) NationsBank shall pay all expenses, including reasonable
attorneys' fees, that may be incurred by any Indemnified Party in
successfully enforcing the indemnity and other obligations provided for
in this Section 8.07 if NationsBank has been finally determined to have
acted in bad faith in refusing such indemnity. The Indemnified Party
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shall pay all expenses, including reasonable attorneys' fees, incurred
by NationsBank if the indemnification or other obligations provided in
this Section 8.07 are denied by a court of competent jurisdiction by
final and nonappealable order and such court determines that the
assertion of such claims for indemnification was made in bad faith.
8.08 SAR Plan; Restricted Stock.
(a) All restrictions or limitations on transfer with respect
to Charter Common Stock awarded under a Charter Stock Plan or any other
plan, program or arrangement ("Restricted Stock"), to the extent that
such restrictions or limitations shall not have already lapsed, shall
remain in full force and effect with respect to the NationsBank Common
Stock into which such Restricted Stock is converted pursuant to Section
3.01.
(b) Except as provided herein or as otherwise agreed in
writing by the parties, the provisions of the SAR Plan and any other
plan, program or arrangement pursuant to which Charter may, or may be
required to, make payments based upon the value of the Charter Capital
Stock or issue stock or stock-based compensation, shall be terminated
by the Effective Time in accordance with the terms of the SAR Plan.
8.09 Certain Change of Control Matters. From and after the date hereof,
Charter shall take all action necessary so that the execution and delivery of
this Agreement will not increase any benefits otherwise payable under any
Charter Benefit Plan except as set forth in Sections 5.12 and 5.13 of the
Charter Disclosure Schedule or increases made with the prior written consent of
NationsBank.
8.10 Stock Exchange Listing. NationsBank shall use its best efforts to
list, prior to the Effective Time, on the NYSE and the Pacific Stock Exchange,
upon official notice of issuance, the shares of NationsBank Common Stock to be
issued to holders of Charter Common Stock in the Merger.
8.11 Declaration of Dividends. After the date of this Agreement,
Charter shall coordinate with NationsBank the declaration of any dividends in
respect of NationsBank Common Stock and Charter Common Stock and Charter Special
Common Stock and the record dates and payment dates relating thereto, it being
the intention of the parties hereto that holders of Charter Common Stock and
Charter Special Common Stock shall not receive two dividends, or fail to receive
one dividend, for any single calendar quarter with respect to their shares of
Charter Common Stock or Charter Special Common Stock.
8.12 Employee Benefits. As soon as practicable following the Effective
Time, NationsBank shall provide generally to officers and employees of Charter
and its Subsidiaries employee benefits, including without limitation pension
benefits, health and welfare benefits, life insurance and vacation arrangements,
on terms and conditions which when taken as a whole are substantially similar to
those provided from time to time by NationsBank and its Subsidiaries to their
similarly situated officers and employees. In that regard, such officers and
employees of Charter shall be credited under the employee benefit plans of
NationsBank for their years of "eligibility service" and "vesting service"
earned under the Charter Benefit Plans as if such service had been earned with
NationsBank, while such officers and employees of Charter shall
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be credited with "benefit service" under the employee benefit plans of
NationsBank only with respect to their period of employment with NationsBank and
its Subsidiaries after the Effective Time in accordance with the terms and
conditions of such employee benefit plans. As of the Effective Time, the
employees and their dependents, if any, previously covered as of the Effective
Time under Charter's health insurance plan shall be covered under NationsBank's
health insurance plan and, to the extent possible under the terms of
NationsBank's then current health insurance plan, will not be subject to any
pre-existing condition limitations or exclusions, except those excluded under
NationsBank's health insurance plan. Charter's employees shall not be required
to satisfy the deductible and employee payments required by NationsBank's
comprehensive medical and/or dental plans for the calendar year of the Effective
Time to the extent of amounts previously credited during such calendar year
under comparable plans maintained by Charter.
8.13 Certain Actions. No party shall take any action which would
adversely affect or delay the ability of either NationsBank or Charter to obtain
any necessary approvals of any Regulatory Authority or other governmental
authority required for the transactions contemplated hereby or to perform its
covenants and agreements under this Agreement. No party shall take any action
that would prevent or impede the Merger from qualifying as a reorganization
within the meaning of Section 368 of the Code.
8.14 Acquisition Proposals. Charter shall not, and shall use its best
efforts to cause its officers, directors and employees and any investment
banker, attorney, accountant, or other agent retained by it or its Subsidiaries
not to (i) initiate, encourage or solicit, directly or indirectly, the making of
any proposal or offer (an "Acquisition Proposal") to acquire all or any
significant part of the business and properties or capital stock of Charter or
its Subsidiaries, whether by merger, purchase of securities or assets, tender
offer or otherwise (an "Acquisition Transaction"), or initiate, directly or
indirectly, any contact with any person in an effort to or with a view towards
soliciting any Acquisition Proposal or (ii) participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, an Acquisition Proposal. Notwithstanding the foregoing, Charter may
(i) furnish or cause to be furnished information subject to an appropriate
confidentiality agreement, (ii) in response to an Acquisition Proposal, issue a
communication to its security holders of the type contemplated by Rule 14d-9(e)
under the Exchange Act, and (iii) participate in discussions and negotiations
directly and through its representatives with persons who have sought the same
if the Charter Board determines, based as to legal matters on the written advice
of outside legal counsel, that the failure to furnish such information or to
negotiate with such entity or group or to take and disclose such position would
be inconsistent with the proper exercise of the fiduciary duties of the Charter
Board. In the event Charter receives an Acquisition Proposal or such discussions
are sought to be initiated or continued with Charter, it shall promptly inform
NationsBank as to the material terms thereof.
8.15 Termination Fee. To compensate NationsBank for entering into this
Agreement, taking action to consummate the transactions hereunder and incurring
the costs and expenses related thereto and other losses and expenses, including
the foregoing by NationsBank of other opportunities, Charter and NationsBank
agree as follows:
(a) Provided that NationsBank shall not be in material breach
of its obligations under this Agreement (which breach has not been
cured promptly following receipt of
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written notice thereof by Charter specifying in reasonable detail the
basis of such alleged breach), Charter shall pay to NationsBank the sum
of $2,000,000 (the "Termination Fee") plus reasonable out-of-pocket
expenses, not in excess of $500,000 (including, without limitation,
amounts paid or payable to banks and investment bankers, fees and
expenses of counsel and printing expenses) (such expenses are
hereinafter referred to as the "Expenses") incurred by NationsBank or
any of its affiliates in connection with or arising out of transactions
contemplated by this Agreement, regardless of when those expenses are
incurred, if this Agreement is terminated by Charter under the
provisions of Section 10.01(f). NationsBank shall provide Charter with
an itemization of Expenses.
(b) Any payment required by paragraph (a) of this Section
shall become payable within two business days after termination of the
Agreement.
(c) Charter acknowledges that the agreements contained in this
Section 8.15 are an integral part of the transactions contemplated in
this Agreement, and that, without these agreements, NationsBank would
not enter into this Agreement; accordingly, if Charter fails to
promptly pay the Termination Fee or Expenses when due, Charter shall in
addition thereto pay to NationsBank all costs and expenses (including
fees and disbursements of counsel) incurred in collecting such
Termination Fee or Expenses, as the case may be, together with interest
on the amount of the Termination Fee or Expenses (or any unpaid portion
thereof) from the date such payment was required to be made until the
date such payment is received by NationsBank at the prime rate of
NationsBank Texas, National Association as in effect from time to time
during such period.
8.16 Accruals. Prior to the Effective Time and after consultation with
NationsBank, Charter shall, consistent with GAAP, make such changes and
modifications to its loan, accrual and reserve policies and practices (including
loan classification and allowance for credit losses levels) to bring such
policies and practices into line with those presently followed by NationsBank,
including appropriate increases in its allowance for credit losses; provided,
that all such changes or modifications shall be disregarded in determining the
truth or correctness of the representations and warranties contained herein.
8.17 Post-Closing Actions. None of the parties shall take, or permit
any of their Subsidiaries or Affiliates to take, any action after the Closing
that would disqualify the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
8.18 Prepayment of Indebtedness. Prior to the Effective Time, Charter
shall have prepaid, or caused its Subsidiaries to prepay, all indebtedness owed
by Charter and its Subsidiaries to (i) American National Insurance Company and
(ii) First City Texas-Houston, N.A.
8.19 Waiver of Restrictions in Investment Agreements. Charter hereby
waives any restrictions or limitations on the investment in or ownership of
Charter or the Charter Capital Stock contained in any agreement between the
parties including (i) the Investment Agreement by and between Charter
Bancshares, Inc. and NCNB Corporation dated as of December 17, 1986 and (ii) the
Investment Agreement by and between Charter Bancshares, Inc. and NCNB
Corporation dated as of November 6, 1987.
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ARTICLE IX
CONDITIONS
9.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each of NationsBank and Charter to effect the Merger
and the other transactions contemplated hereby shall be subject to the
fulfillment or waiver at or prior to the Effective Time of the following
conditions:
(a) Stockholders of Charter shall have approved all matters
relating to the Merger required under applicable law at the
Stockholders' Meeting.
(b) This Agreement, the Merger and the other transactions
contemplated hereby shall have been approved by the Federal Reserve
Board, the OCC, the OTS and any other Regulatory Authorities whose
approval is required for consummation of the transactions contemplated
hereby and all applicable waiting periods shall have expired. No such
approval or consent shall be conditioned or restricted in any manner
(including requirements relating to the disposition of assets) which in
the good faith judgment of NationsBank would so adversely impact the
economic or business benefits of the transactions contemplated by this
Agreement that, had such condition or restriction been known, it would
not have entered into this Agreement.
(c) The Registration Statement shall have been declared
effective and shall not be subject to a stop order or any threatened
stop order.
(d) Neither NationsBank nor Charter shall be subject to any
active litigation which seeks any order, decree or injunction of a
court or agency of competent jurisdiction to enjoin or prohibit the
consummation of the Merger.
(e) The shares of NationsBank Common Stock issuable pursuant
to the Merger shall have been authorized for listing on the NYSE upon
official notice of issuance.
(f) Each of NationsBank and Charter shall have received an
opinion of Blanchfield, Cordle and Moore, P.A., tax counsel to
NationsBank, or other counsel to NationsBank reasonably acceptable to
Charter, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code and no gain or loss will
be recognized by the stockholders of Charter to the extent that they
receive NationsBank Common Stock solely in exchange for their Charter
Common Stock and Charter Special Common Stock in the Merger, which
opinion shall be confirmed as of the date of Closing.
9.02 Conditions to Obligations of Charter to Effect the Merger. The
obligations of Charter to effect the Merger shall be subject to the fulfillment
or waiver at or prior to the Effective Time of the following additional
conditions:
(a) Representations and Warranties. The representations and
warranties of NationsBank set forth in Article VI hereof shall be true
and correct in all material
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respects as of the date of this Agreement and as of the Effective Time
(as though made on and as of the Effective Time except to the extent
such representations and warranties are by their express provisions
made as of a specified date) and Charter shall have received a
certificate signed by the chairman and chief executive officer,
executive vice president or other duly authorized officer of
NationsBank to that effect.
(b) Performance of Obligations. NationsBank shall have
performed in all material respects all obligations required to be
performed by it under this Agreement prior to the Effective Time, and
Charter shall have received a certificate signed by the chairman and
chief executive officer, executive vice president or other duly
authorized officer of NationsBank to that effect and as to the absence
of litigation as described in Section 9.01(d).
9.03 Conditions to Obligations of NationsBank to Effect the Merger. The
obligations of NationsBank to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Representations and Warranties. The representations and
warranties of Charter set forth in Article V hereof shall be true and
correct in all material respects as of the date of this Agreement and
as of the Effective Time (as though made on and as of the Effective
Time except to the extent such representations and warranties are by
their express provisions made as of a specified date) and NationsBank
shall have received a certificate signed by the chairman or the chief
executive officer or other duly authorized officer of Charter to that
effect.
(b) Performance of Obligations. Charter shall have performed
in all material respects all obligations required to be performed by it
under this Agreement prior to the Effective Time, and NationsBank shall
have received a certificate signed by the chairman or the chief
executive officer or other duly authorized officer of Charter to that
effect and as to the absence of litigation as described in Section
9.01(d).
(c) Completion of Redemption. Charter shall have completed the
Redemption.
(d) Prepayment of Indebtedness. Charter shall have prepaid the
indebtedness described in Section 8.18.
(e) Opinion of Counsel. NationsBank shall have received an
opinion of counsel for Charter addressed to NationsBank and in form
reasonably satisfactory to it as to the validity of (i) the approvals
of the Merger by the directors and stockholders of Charter and (ii) the
Redemption.
ARTICLE X
TERMINATION
10.01 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement, the Merger and
the other transactions
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contemplated hereby by the stockholders of NationsBank and Charter or both, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual consent of the Board of Directors of NationsBank
and the Board of Directors of Charter; or
(b) by the Board of Directors of NationsBank or the Board of
Directors of Charter if (i) the Federal Reserve or the OCC has denied
approval of the Merger and such denial has become final and
nonappealable or has approved the Merger subject to conditions that in
the judgment of NationsBank would restrict it or its Subsidiaries or
affiliates in their respective spheres of operations and business
activities after the Effective Time or (ii) the Effective Time does not
occur by December 31, 1996; or
(c) by NationsBank (if it is not in breach of any of its
obligations hereunder) pursuant to notice in the event of a breach or
failure by Charter that would cause a failure of the conditions in
Section 9.03, which breach or failure has not been, or cannot be, cured
within 30 days after written notice of such breach is given to Charter;
or
(d) by Charter (if it is not in breach of any of its
obligations hereunder) pursuant to notice in the event of a breach or
failure by NationsBank that would cause a failure of the conditions in
Section 9.02, which breach or failure has not been, or cannot be, cured
within 30 days after written notice of such breach is given to
NationsBank; or
(e) by NationsBank if the stockholders of Charter fail to
approve the Merger at the Stockholder's Meeting; or
(f) by Charter if (i) there shall not have been a material
breach of any covenant or agreement on the part of Charter under this
Agreement and (ii) prior to the Effective Time, a corporation,
partnership, person or other entity or group shall have made a bona
fide Acquisition Proposal that the Charter Board determines in its good
faith judgment and in the exercise of its fiduciary duties, based as to
legal matters on the written opinion of legal counsel and as to
financial matters on the written opinion of an investment banking firm
of national reputation, is more favorable to the Charter stockholders
than the Exchange Ratio and the Merger and that the failure to
terminate this Agreement and accept such alternative Acquisition
Proposal would be inconsistent with the proper exercise of such
fiduciary duties; provided, however, that termination under this clause
(ii) shall not be deemed effective until payment of the Termination Fee
required by Section 8.15; or
(g) By Charter, if its Board of Directors determines by a vote
of a majority of the members of its entire Board, at any time during
the ten-day period commencing two days after the Determination Date, if
either:
(x) both of the following conditions are satisfied:
(1) the Average Closing Price on the
Determination Date of shares of NationsBank Common
Stock shall be less than $56.419; and
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(2) (i) the quotient obtained by dividing
the Average Closing Price on the Determination Date
by $66.375 (such number being referred to herein as
the "NationsBank Ratio") shall be less than (ii) the
quotient obtained by dividing the Index Price on the
Determination Date by the Index Price on the Starting
Date and subtracting 0.15 from the quotient in this
clause (x)(2)(ii) (such number being referred to
herein as the "Index Ratio"); or
(y) the Average Closing Price on the Determination Date of
shares of NationsBank Common Stock shall be less than $53.100;
For purposes of this Section 10.01(g), the following terms shall have the
meanings indicated:
"Average Closing Price" shall mean the average of the daily
closing sales prices of NationsBank Common Stock as reported on the
NYSE-Composite Transactions List (as reported by The Wall Street
Journal or, if not reported thereby, another authoritative source as
chosen by NationsBank) for the ten consecutive full trading days in
which such shares are traded on the NYSE ending at the close of trading
on the Determination Date.
"Determination Date" shall mean the date on which the Federal
Reserve Board (or its delegate) shall have issued its order approving
the Merger.
"Index Group" shall mean the 20 bank holding companies listed
below, the common stocks of all of which shall be publicly traded and
as to which there shall not have been, since the Starting Date and
before the Determination Date, any public announcement of a proposal
for such company to be acquired or for such company to acquire another
company or companies in transactions with a value exceeding 25% of the
acquiror's market capitalization. In the event that any such company or
companies are removed from the Index Group, the weights (which have
been determined based upon the number of outstanding shares of common
stock) will be redistributed proportionately for purposes of
determining the Index Price. The 20 bank holding companies and the
weights attributed to them are as follows:
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Bank Holding Companies Weighting
Boatman's Bancshares, Inc......................... 2.72%
Citicorp.......................................... 9.01
BankAmerica Corporation........................... 7.84
Chase Manhattan Corporation....................... 9.29
J.P. Morgan & Co. Incorporated.................... 3.98
BancOne Corporation............................... 8.29
Norwest Corporation............................... 7.16
First Union Corporation........................... 5.89
Bank of New York Company.......................... 4.09
KeyCorp........................................... 5.03
SunTrust Banks, Inc............................... 2.40
Wachovia Corporation.............................. 3.61
Mellon Bank Corporation........................... 2.99
First Bank System, Inc............................ 2.70
PNC Bank Corp..................................... 7.12
First Chicago NBD Corporation..................... 6.75
Barnett Banks, Inc................................ 2.01
Bankers Trust New York Corp....................... 1.67
Fleet Financial Group............................. 3.00
Corestates Financial Corp......................... 4.44
------
Total............................................. 100.00%
=======
"Index Price" on a given date shall mean the weighted average
(weighted in accordance with the factors listed above) of the closing
prices of the companies composing the Index Group.
"Index Price on the Starting Date" shall mean $48.67.
"Starting Date" shall mean January 17, 1996.
If any company belonging to the Index Group or NationsBank declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares, or similar transaction between the Starting
Date and the Determination Date, the prices for the common stock of such company
or NationsBank shall be appropriately adjusted for the purposes of applying this
Section 10.01(g).
10.02 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.01, this Agreement shall
become void and have no effect, except that (i) the provisions of Section
8.01(d), 8.15 and Section 11.01 shall survive any such termination and
abandonment; (ii) no party shall be relieved or released from any liability
arising out of an intentional breach of any provision of this Agreement; (iii)
in the event Charter shall have completed the Redemption, at the request of
Charter, NationsBank will purchase up to $700,000 of Charter's 8% subordinated
notes with the shortest maturity and bearing such other terms as shall be
necessary for such indebtedness to qualify for Tier 2 treatment under Federal
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Reserve Board risk-based guidelines and (iv) if Charter has prepaid the American
National Insurance Company loan as required by Section 8.18, NationsBank will
reimburse Charter any prepayment premium and, at Charter's request, will make or
cause a Subsidiary to make a loan to Charter in the amount and on substantially
the terms as the prepaid loan.
10.03 Non-Survival of Representations, Warranties and Covenants
Following the Effective Time. Except for Articles III and IV and Sections 8.07,
8.08 and 8.17, none of the respective representations, warranties, obligations,
covenants and agreements of the parties shall survive the Effective Time.
ARTICLE XI
GENERAL PROVISIONS
11.01 Expenses. Except as provided in Section 8.15, Unless otherwise
agreed by the parties in writing, each party hereto shall bear its own expenses
incident to preparing, entering into and carrying out this Agreement and to
consummating the Merger and NationsBank shall pay all printing expenses and
filing fees incurred in connection with this Agreement, the Registration
Statement and the Proxy Statement.
11.02 Entire Agreement. Except as otherwise expressly provided herein,
this Agreement contains the entire agreement between the parties hereto with
respect to the transactions contemplated hereunder and thereunder, and such
agreements supersede all prior arrangements or understandings with respect
thereto, written or oral. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors. Other than Section 8.07, nothing in this Agreement, expressed or
implied, is intended to confer upon any individual, corporation or other entity,
other than NationsBank, Charter and the Bank or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
11.03 Amendments. To the extent permitted by law, this Agreement may be
amended by a subsequent writing signed by each of NationsBank and Charter;
provided, however, that the provisions hereof relating to the manner or basis in
which shares of Charter Common Stock or Charter Special Common Stock will be
exchanged for the Merger Consideration shall not be amended after the
Stockholders' Meeting without any requisite approval of the holders of the
issued and outstanding shares of Charter capital stock entitled to vote thereon.
11.04 Waivers. Prior to or at the Effective Time, each of NationsBank
and Charter shall have the right to waive any default in the performance of any
term of this Agreement by the other, to waive or extend the time for the
compliance or fulfillment by the other of any and all of the other's obligations
under this Agreement and to waive any or all of the conditions precedent to its
obligations under this Agreement, except any condition which, if not satisfied,
would result in the violation of any law or applicable governmental regulation.
11.05 No Assignment. None of the parties hereto may assign any of its
rights or delegate any of its obligations under this Agreement to any other
person or entity. Any such purported
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assignment or delegation that is made without the prior written consent of the
other parties to this Agreement shall be void and of no effect.
11.06 Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered by hand,
by facsimile transmission, or by registered or certified mail, postage prepaid
to the persons at the addresses set forth below (or at such other address as may
be provided hereunder), and shall be deemed to have been delivered as of the
date so delivered:
Charter: Charter Bancshares, Inc.
2600 Citadel Plaza Drive
Houston, Texas 77008
Attention: Jerry E. Finger, Chairman
Telecopy: (713) 691-7578
Copy to Counsel: L. Proctor Thomas III
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002
Telecopy: (713) 229-1522
Michael A. Roy
General Counsel
Charter Bancshares, Inc.
2600 Citadel Plaza Drive, Suite 600
Houston, Texas 77008
Telecopy: (713) 691-7578
NationsBank: NationsBank Corporation
NationsBank Corporate Center
Charlotte, North Carolina 28255
Attention: Frank L. Gentry
Executive Vice President
Telecopy: (704) 386-6416
Copy to Counsel: NationsBank Corporation
NationsBank Corporate Center
Charlotte, North Carolina 28255
Attention: Paul J. Polking
General Counsel
Telecopy: (704) 386-6453
11.07 Specific Performance. The parties hereby acknowledge and agree
that the failure of either party to fulfill any of its covenants and agreements
hereunder, including the failure to
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take all such actions as are necessary on its part to cause the consummation of
the Merger, will cause irreparable injury for which damages, even if available,
will not be an adequate remedy. Accordingly, each party hereby consents to the
issuance of injunctive relief by any court of competent jurisdiction to compel
performance of the other party's obligations or any arbitration award hereunder
and to the granting by any such court of the remedy of the specific performance
hereunder.
11.08 Governing Law. This Agreement shall in all respects be governed
by and construed in accordance with the laws of the State of Delaware.
11.09 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same instrument.
11.10 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.11 Severability. In the event that any one or more of the provisions
contained in this Agreement, or in any other instrument referred to herein,
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
IN WITNESS WHEREOF, NationsBank and Charter have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
NATIONSBANK CORPORATION
By: /s/ Frank L. Gentry
Executive Vice President
CHARTER BANCSHARES, INC.
By: /s/ Jerry E. Finger
Chairman and Chief Executive Officer
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APPENDIX B
FOX-PITT, KELTON INC.
380 MADISON AVENUE
NEW YORK, NEW YORK 10017-2513
CORPORATE FINANCE DEPARTMENT TELEPHONE: 212-687-1105
FAX: 212-682-0779
TELEX: 645217
January 25, 1996
Board of Directors
Charter Bancshares, Inc.
2600 Citadel Plaza Drive, Suite 600
Houston, Texas 77008
Gentlemen:
Fox-Pitt, Kelton Inc. ("Fox-Pitt, Kelton") understands that Charter
Bancshares, Inc. ("Charter" or the "Company") and NationsBank Corporation
("NationsBank"), propose to enter into an Agreement and Plan of Merger (the
"Merger Agreement"), which provides, among other things, for the merger (the
"Merger") of Charter with and into NB Holdings Corporation, a wholly owned
subsidiary of NationsBank or a newly formed wholly owned NationsBank subsidiary
(the "Merger Subsidiary") or by such other means as provided for in the Merger
Agreement. Pursuant to the Merger Agreement, at the effective time of the
Merger, each issued and outstanding share of Common Stock of Charter par value
$1.00 per share, and Special Common Stock of Charter, par value $1.00 per share
(collectively, the "Charter Common Stock"), other than shares held by
NationsBank or any of their affiliates shall be exchanged into 0.385 of a share
(the "Exchange Ratio") of common stock, par value $2.50, of NationsBank (the
"NationsBank Common Stock"). In addition, each share of Charter Preferred Stock,
par value $50.00, will be redeemed at par value plus accrued dividends prior to
the effective time of the Merger. The terms and conditions of the Merger are
more fully set forth in the Merger Agreement.
You have asked for Fox-Pitt, Kelton's opinion as to whether the
consideration to be received by the holders of Charter Common Stock (other than
NationsBank and its affiliates) is fair to such holders, from a financial point
of view.
In arriving at the opinion set forth below, Fox-Pitt, Kelton has, among
other things:
(a) reviewed and analyzed certain publicly available financial
statements for Charter and NationsBank, respectively;
(b) analyzed certain internal financial statements, including
financial projections, and other financial and operating data
prepared by the managements of Charter and NationsBank;
(c) discussed the past, present and future operations, financial
condition and prospects of Charter and NationsBank with the senior
managements of the respective companies;
(d) reviewed the stock prices and trading activity of Charter Common
Stock and NationsBank Common Stock;
(e) compared the financial performance and condition of Charter and
NationsBank and their stock prices and trading levels with that of
certain other comparable publicly traded banking companies;
(f) reviewed and discussed with the senior managements of Charter and
NationsBank the strategic objectives of the Merger and the
synergies and certain other benefits of the Merger;
(g) reviewed the financial terms, to the extent publicly available, of
certain merger and acquisition transactions comparable to the
Transaction;
(h) reviewed the Merger Agreement to be signed on January 25, 1996
between Charter and NationsBank;
B-1
<PAGE>
Board of Directors
Charter Bancshares, Inc.
January 25, 1996
Page 2
(i) reviewed the Investment Agreement between Charter and NationsBank
dated November 6, 1987;
(j) performed such other analyses as we have deemed appropriate.
In rendering our opinion, we have relied upon, without independent
verification, the accuracy and completeness of all of the financial and other
information reviewed by us for the purposes of this opinion. We have not made an
independent valuation of the assets and liabilities of Charter or NationsBank
nor have we reviewed loan files for either Charter or NationsBank. With respect
to the financial projections, we have assumed that they have been prepared by
the management of Charter on bases reflecting the best currently available
estimates and judgments of the future financial performance of Charter and
NationsBank. Our opinion is based upon market and other conditions as of January
23, 1996.
In the normal course of our investment banking business, Fox-Pitt, Kelton
is continually engaged in the valuation of banks and bank holding company
securities in connection with acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for various other purposes. As specialists in the securities of
banking companies, we have experience in, and knowledge of, the valuation of
banking enterprises.
In the ordinary course of Fox-Pitt, Kelton's business, we provide research
coverage on both Charter and NationsBank and have traded the equity securities
of both companies for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have acted as financial advisor to Charter in connection with this
transaction and have received a fee for our work performed to date and we will
also be receiving a fee upon the completion of the transaction.
It is understood that this letter is for the information of the Board of
Directors of Charter only and may not be used for any other purpose without our
prior written consent except for inclusion in a proxy or information statement
and tender offer statement related to the transaction which we have had an
opportunity to review. This opinion does not constitute a recommendation to any
shareholder of the Company as to how any such shareholder should vote on the
Merger.
Based upon the foregoing, Fox-Pitt, Kelton is of the opinion on the date
hereof that the consideration to be received by the holders of Charter Common
Stock in the Merger (other than NationsBank and its affiliates) is fair to such
holders, from a financial point of view.
Very truly yours,
FOX-PITT, KELTON INC.
B-2
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APPENDIX C
PROVISIONS OF THE TEXAS BUSINESS CORPORATION ACT
REGARDING DISSENTERS' RIGHTS
ART. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(l)(a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action, setting
out that the shareholder's right to dissent will be exercised if the action is
effective and giving the shareholder's address, to which notice thereof shall be
delivered or mailed in that event. If the action is effected and the shareholder
shall not have voted in favor of the action, the corporation, in the case of
action other than a merger, or the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right of
dissent, in the case of a merger, shall, within ten (10) days after the action
is effected, deliver or mail to the shareholder written notice that the action
has been effected, and the shareholder may, within ten (10) days from the
delivery or mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the case
may be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and class
of the shares owned by the shareholder and the fair value of the shares as
estimated by the shareholder. Any shareholder failing to make demand within the
ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant to
Section A of Article 9.10 of this Act, the corporation, in the case of action
other than a merger, and the surviving or new corporation (foreign or domestic)
or other entity that is liable to discharge the shareholder's right of dissent,
in the case of a merger, shall, within ten (10) days after the date the action
is effected, mail to each shareholder of record as of the effective date of the
action notice of the fact and date of the action and that the shareholder may
exercise the shareholder's right to dissent from the action. The notice shall be
accompanied by a copy of this Article and any articles or documents filed by the
corporation with the Secretary of State to effect the action. If the shareholder
shall not have consented to the taking of the action, the shareholder may,
within twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the shareholder's
shares. The fair value of the shares shall be the value thereof as of the date
the written consent authorizing the action was delivered to the corporation
pursuant to Section A of Article 9.10 of this Act, excluding any appreciation or
depreciation in anticipation of the action. The demand shall state the number
and class of shares owned by the dissenting shareholder and the fair value of
the shares as estimated by the shareholder. Any shareholder failing to make
demand within the twenty (20) day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (l ) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate action
was effected, the value of the shares is agreed upon between the shareholder and
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, payment for the shares shall be made within ninety
(90) days after the date on which the action was effected and, in the case of
shares represented by certificates, upon surrender of the certificates duly
endorsed. Upon payment of the agreed value, the shareholder shall cease to have
any interest in the shares or in the corporation.
C-1
<PAGE>
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning ninety-one days after the date on
which the applicable corporate action from which the shareholder elected to
dissent was effected to the date of such judgment, to the shareholders entitled
to payment. The judgment shall be payable to the holders of uncertificated
shares immediately but to the holders of shares represented by certificates only
upon, and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
C-2
<PAGE>
ART. 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholders' rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
C-3
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
There are no provisions in the Registrant's Restated Articles of
Incorporation and no contracts between the Registrant and its directors and
officers relating to indemnification. The Registrant's Restated Articles of
Incorporation prevent the recovery by the Registrant of monetary damages against
its directors. However, in accordance with the provisions of the NCBCA, the
Registrant's Amended and Restated Bylaws provide that, in addition to the
indemnification of directors and officers otherwise provided by the NCBCA, the
Registrant shall, under certain circumstances, indemnify its directors,
executive officers and certain other designated officers against any and all
liability and litigation expense, including reasonable attorneys' fees, arising
out of their status or activities as directors or officers, except for liability
or litigation expense incurred on account of activities that were at the time
known or reasonably should have been known by such director or officer to be
clearly in conflict with the best interests of the Registrant. Pursuant to such
bylaw and as authorized by statute, the Registrant maintains insurance on behalf
of its directors and officers against liability asserted against such persons in
such capacity whether or not such directors or officers have the right to
indemnification pursuant to the bylaw or otherwise.
In addition to the above-described provisions, Sections 55-8-50 through
55-8-58 of the NCBCA contain provisions prescribing the extent to which
directors and officers shall or may be indemnified. Section 55-8-51 of the NCBCA
permits a corporation, with certain exceptions, to indemnify a current or former
director against liability if (i) he conducted himself in good faith, (ii) he
reasonably believed (x) that his conduct in his official capacity with the
corporation was in its best interests and (y) in all other cases his conduct was
at least not opposed to the corporation's best interests, and (iii) in the case
of any criminal proceeding, he had no reasonable cause to believe his conduct
was unlawful. A corporation may not indemnify a current or former director in
connection with a proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation or in connection with a
proceeding charging improper personal benefit to him in which he was adjudged
liable on such basis. The above standard of conduct is determined by the Board
of Directors or a committee thereof or special legal counsel or the shareholders
as prescribed in Section 55-8-55.
Sections 55-8-52 and 55-8-56 of the NCBCA require a corporation to
indemnify a director or officer in the defense of any proceeding to which he was
a party because of his capacity as a director or officer against reasonable
expenses when he is wholly successful in his defense, unless the articles of
incorporation provide otherwise. Upon application, the court may order
indemnification of the director or officer if he is adjudged fairly and
reasonably so entitled under Section 55-8-54. Section 55-8-56 allows a
corporation to indemnify and advance expenses to an officer, employee or agent
who is not a director to the same extent as a director or as otherwise set forth
in the Corporation's articles of incorporation or bylaws or by resolution of the
Board of Directors.
In addition, Section 55-8-57 permits a corporation to provide for
indemnification of directors, officers, employees or agents in its articles of
incorporation or bylaws or by contract or resolution, against liability in
various proceedings and to purchase and maintain insurance policies on behalf of
these individuals.
THE FOREGOING IS ONLY A GENERAL SUMMARY OF CERTAIN ASPECTS OF NORTH
CAROLINA LAW DEALING WITH INDEMNIFICATION OF DIRECTORS AND OFFICERS AND DOES NOT
PURPORT TO BE COMPLETE. IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
RELEVANT STATUTES WHICH CONTAIN DETAILED SPECIFIC PROVISIONS REGARDING THE
CIRCUMSTANCES UNDER WHICH AND THE PERSON FOR WHOSE BENEFIT INDEMNIFICATION SHALL
OR MAY BE MADE AND ACCORDINGLY ARE INCORPORATED HEREIN BY REFERENCE AS EXHIBIT
99.4 OF THIS REGISTRATION STATEMENT.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits and financial statement schedules are filed with or
incorporated by reference in this Registration Statement:
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
<C> <S>
2.1 Agreement and Plan of Merger between NationsBank and Charter dated as of January 25, 1996 (included as Appendix A
to the Proxy Statement-Prospectus)
5.1 Opinion of Smith Helms Mulliss & Moore, L.L.P.
8.1 Opinion of Blanchfield Cordle & Moore, P.A.
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Smith Helms Mulliss & Moore, L.L.P. (included in Exhibit 5.1)
23.4 Consent of Blanchfield Cordle & Moore, P.A. (included in Exhibit 8.1)
23.5 Consent of Fox-Pitt, Kelton Inc. (included in Appendix B)
24.1 Power of Attorney and Certified Resolutions
99.1 Charter 1995 Annual Report on Form 10-K
99.2 Notice of Special Meeting of Shareholders of Charter
99.3 Form of Proxy for Special Meeting of Shareholders of Charter
99.4 Chairman's letter to Charter Shareholders
99.5 Provisions of North Carolina law regarding indemnification of directors and officers (incorporated herein by
reference to Exhibit 99.1 of the NationsBank Registration Statement on Form S-3, Registration No. 33-63097)
99.6 Opinion of Fox-Pitt, Kelton Inc. (included as Appendix B to the Proxy Statement-Prospectus)
</TABLE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change in such information in the registration statement:
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE>
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(c)(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 Securities 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, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on April 1, 1996.
NATIONSBANK CORPORATION
By: HUGH L. MCCOLL, JR.*
HUGH L. MCCOLL, JR.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE 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
<C> <S> <C>
HUGH L. MCCOLL, JR.* Chairman of the Board, Chief Executive Officer April 1, 1996
and Director (Principal Executive Officer)
HUGH L. MCCOLL, JR.
JAMES H. HANCE, JR.* Vice Chairman and Chief Financial Officer April 1, 1996
(Principal Financial Officer)
JAMES H. HANCE, JR.
MARC D. OKEN* Executive Vice President and Chief Accounting April 1, 1996
Officer (Principal Accounting Officer)
MARC D. OKEN
RONALD W. ALLEN* Director April 1, 1996
RONALD W. ALLEN
WILLIAM M. BARNHARDT* Director April 1, 1996
WILLIAM M. BARNHARDT
THOMAS E. CAPPS* Director April 1, 1996
THOMAS E. CAPPS
CHARLES W. COKER* Director April 1, 1996
CHARLES W. COKER
THOMAS G. COUSINS* Director April 1, 1996
THOMAS G. COUSINS
ALAN T. DICKSON* Director April 1, 1996
ALAN T. DICKSON
W. FRANK DOWD, JR.* Director April 1, 1996
W. FRANK DOWD, JR.
PAUL FULTON* Director April 1, 1996
PAUL FULTON
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
L. L. GELLERSTEDT, JR.* Director April 1, 1996
L. L. GELLERSTEDT, JR.
TIMOTHY L. GUZZLE* Director April 1, 1996
TIMOTHY L. GUZZLE
W. W. JOHNSON* Director April 1, 1996
W. W. JOHNSON
BUCK MICKEL* Director April 1, 1996
BUCK MICKEL
JOHN J. MURPHY* Director April 1, 1996
JOHN J. MURPHY
Director
JOHN C. SLANE
JOHN W. SNOW* Director April 1, 1996
JOHN W. SNOW
MEREDITH R. SPANGLER* Director April 1, 1996
MEREDITH R. SPANGLER
ROBERT H. SPILMAN* Director April 1, 1996
ROBERT H. SPILMAN
RONALD TOWNSEND* Director April 1, 1996
RONALD TOWNSEND
E. CRAIG WALL, JR.* Director April 1, 1996
E. CRAIG WALL, JR.
JACKIE M. WARD* Director April 1, 1996
JACKIE M. WARD
By: * /s/ CHARLES M. BERGER
CHARLES M. BERGER
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
2.1 Agreement and Plan of Merger between NationsBank and Charter dated as of
January 25, 1996 (included as Appendix A to the Proxy
Statement-Prospectus)
5.1 Opinion of Smith Helms Mulliss & Moore, L.L.P.
8.1 Opinion of Blanchfield Cordle & Moore, P.A.
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Smith Helms Mulliss & Moore, L.L.P. (included in Exhibit 5.1)
23.4 Consent of Blanchfield Cordle & Moore, P.A. (included in Exhibit 8.1)
23.5 Consent of Fox-Pitt, Kelton Inc. (included in Appendix B)
24.1 Power of Attorney and Certified Resolutions
99.1 Charter 1995 Annual Report on Form 10-K
99.2 Notice of Special Meeting of Shareholders of Charter
99.3 Form of Proxy for Special Meeting of Shareholders of Charter
99.4 Chairman's letter to Charter Shareholders
99.5 Provisions of North Carolina law regarding indemnification of directors
and officers (incorporated herein by reference to Exhibit 99.1 of the
NationsBank Registration Statement on Form S-3, Registration No.
33-63097)
99.6 Opinion of Fox-Pitt, Kelton Inc. (included as Appendix B to the Proxy
Statement-Prospectus)
</TABLE>
II-6
<PAGE>
EXHIBIT 5.1
[Smith Helms Mulliss & Moore, L.L.P. Letterhead)
April 1, 1996
NationsBank Corporation
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
RE: Registration Statement on Form S-4 Related to 1,420,000 Shares of Common
Stock
Ladies and Gentlemen:
We have acted as counsel to NationsBank Corporation, a North Carolina
corporation (the "Corporation"), in connection with the registration under the
Securities Act of 1933, as amended, pursuant to the Registration Statement on
Form S-4 (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") on April 1, 1996 related to 1,420,000 shares (the
"Shares") of the Corporation's common stock (the "Common Stock"), to be issued
by the Corporation in connection with the merger of Charter Bancshares, Inc., a
Texas corporation ("Charter"), with and into NB Holdings Corporation, a Delaware
corporation and a wholly-owned subsidiary of the Corporation (the "Merger").
This opinion letter is Exhibit 5.1 to the Registration Statement.
In rendering this opinion, we have reviewed resolutions of the Board of
Directors of the Corporation approving the Merger and issuance of the Shares.
Based on the foregoing, we are of the opinion that the Shares are legally
authorized, and when the Registration Statement shall have been declared
effective by order of the Commission and such Shares shall have been issued upon
the terms and conditions set forth in the Registration Statement, then the
Shares shall be validly issued, fully paid and nonassessable.
We hereby consent (1) to be named in the Registration Statement and in the
prospectus contained therein as attorneys who passed upon the legality of the
Shares and (2) to the filing of a copy of this opinion as Exhibit 5.1 to the
Registration Statement.
Very truly yours,
/s/ SMITH HELMS MULLISS & MOORE, L.L.P
<PAGE>
EXHIBIT 8.1
BLANCHFIELD CORDLE & MOORE, P.A.
NATIONSBANK CORPORATE CENTER
100 NORTH TRYON STREET, SUITE 2400
CHARLOTTE, NORTH CAROLINA 28202
TELEPHONE(704) 377-3788
TELECOPIER(704) 377-2033
April 1, 1996
NationsBank Corporation
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
Charter Bancshares, Inc.
2600 Citadel Plaza Drive
Houston, Texas 77008
Ladies/Gentlemen:
We have acted as counsel to NationsBank Corporation, a North Carolina
corporation ("NationsBank"), in connection with the proposed merger (the
"Merger") of Charter Bancshares, Inc. ("Charter"), a bank holding company
registered under the Bank Holding Company Act of 1956 and duly organized under
the laws of the State of Texas, with and into NB Holdings Corporation, a bank
holding company duly organized under the laws of the State of Delaware and a
wholly owned subsidiary of NationsBank, upon the terms and conditions set forth
in the Agreement and Plan of Merger (the "Agreement") dated as of January 25,
1996. At your request, in connection with the filing with the Securities and
Exchange Commission on April 1, 1996 by NationsBank of the Registration
Statement on Form S-4 in respect of the shares of NationsBank Common Stock to be
issued in the Merger and the preliminary Proxy Statement-Prospectus of
NationsBank and Charter (the "Proxy Statement-Prospectus") included as part
thereof, 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 NationsBank and the consent of Charter, 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 NationsBank and Charter,
and have assumed that such certificates will be complete and accurate as of the
Effective Date. We have also relied upon the accuracy of the Proxy
Statement-Prospectus. Any capitalized term used and not defined herein has the
meaning given to it in the Proxy Statement-Prospectus or the appendices thereto
(including the Agreement).
We have also assumed that the transactions contemplated by the Agreement
will be consummated in accordance therewith and that the Merger will qualify as
a statutory merger under the applicable state laws.
Based upon and subject to the foregoing, it is our opinion that, under
currently applicable law, the Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended
(the "Code"), and that, accordingly, the following will be the material federal
income tax consequences of the Merger:
(i) No gain or loss will be recognized by the shareholders of Charter on the
exchange of their shares of Charter Capital Stock for shares of NationsBank
Common Stock pursuant to the terms of the Merger to the extent of such
exchange.
(ii) The federal income tax basis of the shares of NationsBank Common Stock for
which shares of Charter Capital Stock are exchanged pursuant to the Merger
will be the same as the basis of such shares of Charter Capital Stock
exchanged therefor (less any proportionate part of such basis allocable to
any fractional interest in any share of NationsBank Common Stock).
<PAGE>
NationsBank Corporation
Charter Bancshares, Inc.
April 1, 1996
Page 2
(iii) The holding period for shares of NationsBank Common Stock for which shares
of Charter Capital Stock are exchanged will include the period that such
shares of Charter Capital Stock were held by the holder, provided such
shares were a capital asset of the holder.
(iv) The receipt of cash in lieu of fractional shares of NationsBank Common
Stock by a Charter shareholder will be treated as if the fractional shares
were distributed as part of the exchange and then were redeemed by
NationsBank, and gain or loss will be recognized in an amount equal to the
difference between the cash received and the basis of the Charter Capital
Stock surrendered and treated as redeemed, which gain or loss shall be
capital gain or loss if the Charter Capital Stock was a capital asset in
the hands of a shareholder.
(v) Cash received by shareholders of Charter upon the exercise of dissenters'
appraisal rights will be treated as having been received in payment for
such Charter Capital Stock surrendered, and gain or loss will be recognized
in an amount equal to the difference between the cash received and the
basis of the Charter Capital Stock surrendered, which gain or loss shall be
capital gain or loss if the Charter Capital Stock was a capital asset in
the hands of a shareholder.
This opinion may not be applicable to Charter shareholders who received
their Charter Capital Stock pursuant to the exercise of employee stock options
or otherwise as compensation or who are not citizens or residents of the United
States.
The foregoing opinion is addressed only to certain consequences of a
nontaxable reorganization for federal income tax purposes. We have not
considered the effect on this transaction, if any, of state and local taxes,
sales and use taxes, or any other taxes.
The foregoing opinion is intended for and may be relied upon solely by the
addressees and the shareholders of Charter.
We hereby consent to be named in the Registration Statement on Form S-4 of
NationsBank filed with the Securities and Exchange Commission on April 1, 1996
as the attorneys who passed on certain federal income tax matters specified
therein and to the filing of a copy of this opinion as Exhibit 8.1 to the
Registration Statement.
Very truly yours,
BLANCHFIELD CORDLE & MOORE, P.A.
<PAGE>
EXHIBIT 23.1
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the incorporation by reference in the Proxy
Statement-Prospectus constituting part of the Registration Statement on Form S-4
or NationsBank Corporation of our report dated January 12, 1996, which appears
on page 46 of the NationsBank Corporation's 1995 Annual Report to Shareholders,
which is incorporated by reference in its Annual Report on Form 10-K for the
year ended December 31, 1995. We also consent to the reference to us under the
heading "Experts" in such Proxy Statement-Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Charlotte, North Carolina
April 1, 1996
<PAGE>
EXHIBIT 23.2
(Deloitte & Touche LLP logo)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of NationsBank Corporation on Form S-4 of our report dated February 20, 1996 on
Charter Bancshares, Inc., appearing in the Proxy Statement-Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the heading "EXPERTS" in such
Proxy Statement-Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
March 29, 1996
Houston, Texas
Deloitte Touche
Tohmatsu
International
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of NationsBank Corporation,
and the several undersigned Officers and Directors thereof whose signatures
appear below, hereby makes, constitutes and appoints James W. Kiser and Charles
M. Berger, and each of them acting individually, its, his and her true and
lawful attorneys with power to act without any other and with full power of
substitution, to execute, deliver and file in its, his and her name and on its,
his and her behalf, and in each of the undersigned Officer's and Director's
capacity or capacities as shown below, (a) a Registration Statement of
NationsBank Corporation on Form S-4 (or other appropriate form) with respect to
the registration under the Securities Act of 1933, as amended, of a number of
shares of common stock of NationsBank Corporation to be issued in exchange for
the outstanding shares of common stock and special common stock of Charter
Bancshares, Inc. not owned by NationsBank Corporation upon consummation of the
proposed merger of Charter Bancshares, Inc. with and into NationsBank
Corporation, or a wholly owned subsidiary thereof, and any and all documents in
support thereof or supplemental thereto and any and all amendments, including
any and all post-effective amendments, to the foregoing (hereinafter called the
"Registration Statement"), and (b) such registration statements, petitions,
applications, consents to service of process or other instruments, any and all
documents in support thereof or supplemental thereto, and any and all amendments
or supplements to the foregoing, as may be necessary or advisable to qualify or
register the securities covered by said Registration Statement under such
securities laws, regulations or requirements as may be applicable; and each of
NationsBank Corporation and said Officers and Directors hereby grants to said
attorneys, and to each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorneys or attorney may deem
necessary or advisable to carry out fully the intent of this power of attorney
to the same extent and with the same effect as NationsBank Corporation might or
could do, and as each of said Officers and Directors might or could do
personally in his or her capacity or capacities as aforesaid, and each of
NationsBank Corporation and said Officers and Directors hereby ratifies and
confirms all acts and things which said attorneys or attorney might do or cause
to be done by virtue of this power of attorney and its, his or her signature as
the same may be signed by said attorneys or attorney, or any of them, to any or
all of the following (and/or any and all amendments and supplements to any or
all thereof): such Registration Statement under the Securities Act of 1933, as
amended, and all such registration statements, petitions, applications, consents
to service of process and other instruments, and any and all documents in
support thereof or supplemental thereto, under such securities laws, regulations
and requirements as may be applicable.
IN WITNESS WHEREOF, NationsBank Corporation has caused this power of
attorney to be signed on its behalf, and each of the undersigned Officers and
Directors in the capacity or capacities noted has hereunto set his or her hand
as of the date indicated below.
NATIONSBANK CORPORATION
(Registrant)
By: /s/ HUGH L. MCCOLL, JR.
HUGH L. MCCOLL, JR.
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
Dated: January 24, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ HUGH L. MCCOLL, JR.
(HUGH L. MCCOLL, JR.)
/s/ JAMES H. HANCE, JR. Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
(JAMES H. HANCE, JR.) Vice Chairman and Chief Financial Officer
/s/ MARC D. OKEN (Principal Financial Officer) January 24, 1996
Executive Vice President and Chief Accounting January 24, 1996
(MARC D. OKEN) Officer (Principal Accounting Officer) January 24, 1996
SIGNATURE TITLE DATE
/s/ RONALD W. ALLEN Director January 24, 1996
(RONALD W. ALLEN)
/s/ WILLIAM M. BARNHARDT Director January 24, 1996
(WILLIAM M. BARNHARDT)
/s/ THOMAS E. CAPPS Director January 24, 1996
(THOMAS E. CAPPS)
/s/ CHARLES W. COKER Director January 24, 1996
(CHARLES W. COKER)
/s/ THOMAS G. COUSINS Director January 24, 1996
(THOMAS G. COUSINS)
/s/ ALAN T. DICKSON Director January 24, 1996
(ALAN T. DICKSON)
/s/ W. FRANK DOWD, JR. Director January 24, 1996
(W. FRANK DOWD, JR.)
/s/ PAUL FULTON Director January 24, 1996
(PAUL FULTON)
/s/ L. L. GELLERSTEDT, JR. Director January 24, 1996
(L. L. GELLERSTEDT, JR.)
/s/ TIMOTHY L. GUZZLE Director January 24, 1996
(TIMOTHY L. GUZZLE)
/s/ W. W. JOHNSON Director January 24, 1996
(W. W. JOHNSON)
/s/ BUCK MICKEL Director January 24, 1996
(BUCK MICKEL)
/s/ JOHN J. MURPHY Director January 24, 1996
(JOHN J. MURPHY)
Director January , 1996
(JOHN C. SLANE)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ JOHN W. SNOW Director January 24, 1996
(JOHN W. SNOW)
/s/ MEREDITH R. SPANGLER Director January 24, 1996
(MEREDITH R. SPANGLER)
/s/ ROBERT H. SPILMAN Director January 24, 1996
(ROBERT H. SPILMAN)
/s/ RONALD TOWNSEND Director January 24, 1996
(RONALD TOWNSEND)
/s/ E. CRAIG WALL, JR. Director January 24, 1996
(E. CRAIG WALL, JR.)
/s/ JACKIE M. WARD Director January 24, 1996
(JACKIE M. WARD)
</TABLE>
3
<PAGE>
NATIONSBANK CORPORATION
BOARD OF DIRECTORS
RESOLUTIONS
ACQUISITION OF CHARTER BANCSHARES, INC.
JANUARY 24, 1996
WHEREAS, it is proposed that NationsBank Corporation (the "Corporation")
purchase all of the outstanding capital stock of Charter Bancshares, Inc. not
presently owned by the Corporation (the "Acquisition"); and
WHEREAS, the purchase price for the Acquisition will be paid in shares of
the Corporation's common stock (the "NationsBank Common Stock") in accordance
with the terms of the transaction as described to the Board of Directors and to
be reflected in the provisions of the Acquisition Agreement (as defined below);
and
WHEREAS, it is deemed to be fair, advisable and in the best interests of
the Corporation to effect the Acquisition;
NOW, THEREFORE, BE IT:
RESOLVED, that the Board of Directors of the Corporation hereby approves
the Acquisition and the other transactions contemplated in connection therewith,
to be negotiated and evidenced by an Agreement and Plan of Merger by and between
the Corporation and Charter Bancshares, Inc. (the "Acquisition Agreement"),
including the issuance of NationsBank Common Stock in exchange for the
outstanding shares of Charter Bancshares, Inc. ("CBS") Common Stock and CBS
Special Common Stock ("CBS Common Stock") upon consummation of the Acquisition
at an exchange ratio of .385 shares of NationsBank Common Stock for each
outstanding share of CBS Common Stock, subject to such adjustments as provided
for in the Acquisition Agreement; and
RESOLVED, that the Board of Directors of the Corporation hereby determines
that the CBS Common Stock as the consideration to be received by the Corporation
in exchange for shares of NationsBank Common Stock is adequate; and
RESOLVED, that the Board of Directors of the Corporation hereby authorizes
the appropriate officers of the Corporation to negotiate, execute and deliver an
Acquisition Agreement; and
RESOLVED, that the appropriate officers of the Corporation be, and each of
them hereby is, authorized, empowered and directed, subject to the terms and
conditions of the Acquisition Agreement, to do any and all things necessary to
effectuate and consummate the transactions contemplated by the Acquisition
Agreement as may be prescribed by law or as they may deem necessary or
advisable, including the negotiation, execution and delivery of a stock option
agreement and certain employment and consulting agreements; to prepare all
documentation and to effect all filings and obtain appropriate permits,
consents, approvals and authorizations of all third parties, including the Board
of Governors of the Federal Reserve System, the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, the Banking Commissioner of
the State of Texas and any other applicable federal or state regulatory
authority; and to execute personally or by attorney-in-fact such required
filings or amendments or supplements to such required filings, and otherwise to
cause such filings and any amendments thereto to become effective or otherwise
approved; and
RESOLVED, that the appropriate officers of the Corporation be, and each of
them hereby is, authorized, empowered and directed to vote any shares of any
subsidiary of the Corporation (other than those shares held by any subsidiary in
a fiduciary capacity, in which event the fiduciary shall make all decisions
related to such shares, including whether or not and how to vote any shares held
by it in such capacity) as may be necessary to effect the consummation of the
Acquisition; and
RESOLVED, that the Corporation hereby reserves, sets aside and authorizes
for issuance up to 1,500,000 shares of the authorized but unissued shares of
NationsBank Common Stock (the "Shares"), and that the appropriate officers of
the Corporation be, and each of them hereby is, authorized and empowered to
issue the Shares, or such portion thereof, as may be necessary in connection
with the conversion and exchange of the issued and outstanding shares of CBS, as
well as any preferred stock and outstanding stock options of CBS, in accordance
with the provisions of such conversion and exchange as set forth in the
Acquisition Agreement; and
RESOLVED, that the appropriate officers of the Corporation be, and each of
them hereby is, authorized, empowered and directed to convert any rights with
respect to CBS Common Stock pursuant to stock options or stock appreciation
rights which are outstanding as of the closing of the Acquisition into rights
with respect to NationsBank Common Stock, such
4
<PAGE>
conversion and the terms of any converted stock options or stock appreciation
rights to be in accordance with the terms of the Acquisition Agreement; and
RESOLVED, that, in connection with the issuance of the Shares pursuant to
the Acquisition Agreement, the appropriate officers of the Corporation be, and
each of them hereby is, authorized, empowered and directed to execute and file
with the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-4 (or such other form as such officers, upon advice of
counsel, may determine to be necessary or appropriate) under the Securities Act
of 1933, as amended (the "Securities Act"), to execute and file all such other
instruments and documents, and to do all such other acts and things in
connection with the Registration Statement, including the execution and filing
of such amendment or amendments (including any post-effective amendments)
thereto, as they may deem necessary or advisable to effect such filings and to
procure the effectiveness of the Registration Statement (and any such
post-effective amendments thereto) and to make such supplements to the
Prospectus forming a part of said Registration Statement as may be required or
otherwise as they may deem advisable; and
RESOLVED, that Paul J. Polking and Charles M. Berger be, and each of them
with full power to act without the other hereby is, authorized and empowered to
sign the aforesaid Registration Statement and any amendment or amendments
thereto (including any post-effective amendments) on behalf of and as attorneys
for the Corporation and on behalf of and as attorneys for any of the following:
the Principal Executive Officer, the Principal Financial Officer, the Principal
Accounting Officer and any other officer of the Corporation; and
RESOLVED, that Paul J. Polking be, and he hereby is, designated as Agent
for Service of the Corporation with all such powers and functions as are
provided by the General Rules and Regulations of the Commission under the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); and
RESOLVED, that the Shares, when issued and distributed in accordance with
and pursuant to the Acquisition Agreement, shall be fully paid and
non-assessable and the holders of such Shares shall be subject to no further
call or liability with respect thereto; and
RESOLVED, that the appropriate officers of the Corporation be, and each of
them hereby is, authorized, empowered and directed, in the name of and on behalf
of the Corporation, to take all such actions and to execute all such documents
as such officers may deem necessary or appropriate for compliance with the
Securities Act or the Exchange Act in connection with the transactions
contemplated by the Acquisition Agreement; and
RESOLVED, that the listing of the Shares to be issued pursuant to the
Acquisition Agreement on the New York Stock Exchange and the Pacific Stock
Exchange hereby is approved, and that the appropriate officers of the
Corporation be, and each of them hereby is, authorized, empowered and directed,
with the assistance of counsel, to prepare, execute and file listing
applications and any requests for determinations as to the application of
certain rules to the Acquisition with the New York Stock Exchange and the
Pacific Stock Exchange and to take all actions necessary or appropriate to
effect such listings and requests; and
RESOLVED, that it is desirable and in the best interests of the Corporation
that the Shares to be issued in accordance with and pursuant to the Acquisition
Agreement be qualified or registered for distribution in various states where
appropriate, that the Chairman and Chief Executive Officer, the Chief Financial
Officer, any Executive Vice President, any Senior Vice President or any
Associate General Counsel and the Secretary or any Assistant Secretary hereby
are authorized, empowered and directed to determine the states in which
appropriate action shall be taken to qualify or register for distribution the
Shares as such officers may deem advisable; that said officers be, and each of
them hereby is, authorized, empowered and directed to perform on behalf of the
Corporation any and all such acts as they may deem necessary or advisable in
order to comply with the applicable laws of any such states, and in connection
therewith to execute and file all requisite papers and documents, including,
without limitation, resolutions, applications, reports, surety bonds,
irrevocable consents and appointments of attorneys for service of process; and
the execution by such officers of any such paper or document or the doing by
them of any act in connection with the foregoing matters shall establish
conclusively their authority therefor from the Corporation and the approval and
ratification by the Corporation of the papers and documents so executed and the
actions so taken; and
RESOLVED, that the foregoing officers be, and each of them hereby is,
authorized, empowered and directed to do any and all things which in their
judgment may be necessary or appropriate in order to obtain a permit, exemption,
registration or qualification for, and a dealer's license with respect to, the
distribution of the Shares in accordance with and under the securities or
insurance laws of any one or more of the states as such officers may deem
advisable, and in connection therewith to execute, acknowledge, verify, deliver,
file and publish all applications, reports, resolutions, consents, consents to
service of process, powers of attorneys, commitments and other papers and
instruments as may be required under such laws
5
<PAGE>
and to take any and all further action which they may deem necessary or
appropriate in order to secure and to maintain such permits, exemptions,
registrations and qualifications in effect for so long as they shall deem in the
best interests of the Corporation; and
RESOLVED, that Chemical Mellon Shareholder Services, L.L.C. be, and it
hereby is, appointed Transfer Agent and Registrar for the Shares; that Chemical
Mellon Shareholder Services, L.L.C. be, and it hereby is, vested with all the
power and authority as Transfer Agent and Registrar with respect to the Shares
as it has heretofore been vested with for the shares of NationsBank Common Stock
currently issued and outstanding; and that, if determined to be necessary or
advisable by the appropriate officers of the Corporation, Chemical Mellon
Shareholder Services, L.L.C. may be appointed Exchange Agent for the
Acquisition; and
RESOLVED, that the Board of Directors of the Corporation hereby adopts, as
if expressly set forth herein, the form of any resolution required by any
authority to be filed in connection with any applications, consents to service,
issuer's covenants or other documents, applications, reports or filings relating
to the foregoing resolutions if (i) in the opinion of the officers of the
Corporation executing same, the adoption of such resolutions is necessary or
desirable and (ii) the Secretary or an Assistant Secretary of the Corporation
evidences such adoption by inserting in the minutes of this meeting copies of
such resolutions, which will thereupon be deemed to be adopted by the Board of
Directors of the Corporation with the same force and effect as if presented at
this meeting.
REPURCHASE OF SHARES
WHEREAS, it is deemed to be in the best interests of the Corporation and
its shareholders to repurchase shares of NationsBank Common Stock in open market
transactions or in negotiated unsolicited private sales up to an amount equal to
the number of shares to be issued in the Acquisition; and
WHEREAS, the Board of Directors of the Corporation has been advised by
management that the Corporation satisfies its state law requirements applicable
to repurchasing its shares, including its ability to declare and pay
distributions;
NOW, THEREFORE, BE IT:
RESOLVED, that the Corporation may repurchase, from time to time and in one
or more transactions, up to an aggregate of 1,500,000 shares of NationsBank
Common Stock in open market transactions or in negotiated unsolicited private
sales at an aggregate cost of up to $112,500,000 in order to offset the
Corporation's obligations under the Acquisition Agreement; and
RESOLVED, that Hugh L. McColl, Jr., Chairman and Chief Executive Officer,
James H. Hance, Jr., Vice Chairman and Chief Financial Officer, and John E.
Mack, Senior Vice President and Treasurer, are, and any one of them hereby is,
directed and authorized to determine whether to repurchase any shares of
NationsBank Common Stock related to the Acquisition and the timing relating to
such repurchases, and to do or cause to be done any and all such acts and
things, including the execution and delivery of all documents, agreements,
certificates, and other instruments, which they may deem necessary or advisable
in order to carry out the intent of the preceding resolutions.
FURTHER AUTHORITY AND RATIFICATION
NOW, THEREFORE, BE IT:
RESOLVED, that the appropriate officers of the Corporation hereby are
authorized, empowered and directed to do any and all things necessary,
appropriate or convenient to carry into effect the foregoing resolutions,
including the execution and delivery of all such instruments, agreements,
certificates, reports, applications, notices, letters and other documents; and
RESOLVED, that any and all actions heretofore taken by any of the
directors, officers, representatives or agents of the Corporation or any of its
affiliates in connection with the transactions contemplated by the Acquisition
Agreement or otherwise referred to in the foregoing resolutions hereby are
ratified, confirmed and approved in all respects as the acts and deeds of the
Corporation.
6
<PAGE>
CERTIFICATION OF SECRETARY
I, ALLISON L. GILLIAM, Assistant Secretary of NationsBank Corporation, a
corporation duly organized and existing under the laws of the State of North
Carolina, do hereby certify that the foregoing is a true and correct copy of
resolutions duly adopted by a majority of the entire Board of Directors of said
corporation at a meeting of said Board of Directors held January 24, 1996, at
which meeting a quorum was present and acted throughout and that said
resolutions are in full force and effect and have not been amended or rescinded
as of the date hereof.
IN WITNESS WHEREOF, I have hereupon set my hand and affixed the seal of
said corporation this 28th day of March, 1996.
(CORPORATE SEAL)
/s/ ALLISON L. GILLIAM
ASSISTANT SECRETARY
7
<PAGE>
Exhibit 99.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________
Commission File Number: 0-13496
CHARTER BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1967164
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
2600 CITADEL PLAZA DRIVE, SUITE 600
HOUSTON, TEXAS 77008
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 692-6121
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
NONE N/A
Securities registered pursuant to Section 12(g) of the Act and the
outstanding number of shares of each class of capital stock as of December 31,
1995:
CLASS OF STOCK SHARES OUTSTANDING
-------------- ------------------
Common Stock, Par Value $1.00 6,061,625
Class B Special Common Stock, Par Value $1.00 219,718
Preferred Stock, $50.00 Par Value, 8% Per Annum 14,201
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 ("Act") during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (17 CFR 229.405) is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 15, 1996, was $44,418,787 based on the high and
low sales price of $27.125 on such date.
As of March 15, 1996, registrant had outstanding 6,061,625 shares of Common
Stock, $1.00 par value, and 269,236 shares of Special Common Stock, $1.00 par
value.
<PAGE>
PART I
ITEM 1. BUSINESS
Charter Bancshares, Inc. ("Charter" or "Company") is a Texas bank holding
company organized in 1978 under the Bank Holding Company Act of 1956, as
amended (the "Holding Company Act"). Charter maintains its principal offices
at 2600 Citadel Plaza Drive, Suite 600, Houston, Texas 77008 (telephone:
713/692-6121).
Charter owns all of the outstanding capital stock of CBH, Inc. ("CBH"), a
Delaware corporation and intermediate bank holding company (unless otherwise
indicated, all references herein to Charter include CBH). CBH owns all of the
outstanding capital stock of Charter National Bank-Houston
("Charter-Houston"), Charter National Bank-Colonial ("Charter-Colonial"),
University National Bank-Galveston ("University Bank-Galveston") and Charter
Bank, SSB ("Charter-SSB") (hereinafter such banks and their operating
subsidiaries may be referred to collectively as the "Subsidiary Banks" and
individually as a "Subsidiary Bank").
Charter's principal activity is the ownership and management of the
Subsidiary Banks. Charter-Houston, Charter-Colonial and University
Bank-Galveston are national banks organized under the laws of the United
States and Charter-SSB is a state savings bank organized under the laws of
the state of Texas. Other than asset management and trust services which are
offered solely through Charter-Houston, each of the Subsidiary Banks offers a
full range of banking services to its customers, including demand and time
deposits and various types of commercial and consumer loans. The Subsidiary
Banks also offer discount brokerage services for the purchase of securities
through a consortium of the Subsidiary Banks, which operates as Investor
Services at Charter Banks ("Charter Investor Services"). Charter-Houston,
Charter-Colonial and Charter-SSB draw substantially all of their deposits and
a majority of their loans in the Houston-Harris County area, while University
Bank-Galveston draws substantially all of its deposits and makes
substantially all of its loans in the Galveston, Texas area.
Charter-Houston and Charter-Colonial own all of the outstanding capital stock
of Charter Venture Group, Inc., a small business investment company ("Charter
Venture"). Charter also is a joint venturer in Charter Venture Group-Joint
Venture ("Charter Joint Venture"). On April 27, 1994, Charter-Houston
acquired and now owns 90% of the outstanding capital stock of Capital
Standard Mortgage Company, which subsequently changed its name to Charter
Mortgage Company. Charter-Houston owns all of the outstanding capital stock
of Charter-Houston Securities, Inc., ("Charter-Houston Securities") and
Charter-Colonial owns all of the outstanding capital stock of
Charter-Colonial Securities, Inc. ("Charter-Colonial Securities").
As a multibank holding company, Charter may own or control, directly or
indirectly, more than one bank and furnish services to such banks and their
operating subsidiaries. Banking activities of Charter are conducted by the
Subsidiary Banks, each of which is a separately chartered banking
organization. The officers and directors of each Subsidiary Bank direct its
operations. The principal role of Charter is to provide management
assistance with respect to various aspects of the Subsidiary Banks'
operations, including the areas of asset and liability management, capital
provision and planning, business development, advertising, loan policies and
procedures, loan review, electronic data processing and communication,
accounting, auditing, financial reporting, budgetary and long-range planning,
and legal and regulatory compliance. While each of the Subsidiary Banks is
separately chartered, the holding company system allows the Subsidiary Banks
to participate in joint credit extensions and enables them to more
effectively meet the credit needs of their local communities.
MERGER AGREEMENT WITH NATIONSBANK. On January 25, 1996, Charter and
NationsBank Corporation, a North Carolina corporation and registered bank
holding Company ("NationsBank"), entered into an Agreement and Plan of Merger
(the "Merger Agreement"). Consummation of the transactions contemplated by
the Merger Agreement is subject to numerous conditions, including approval by
the shareholders of Charter and by applicable regulatory authorities.
Pursuant to the Merger Agreement, Charter will merge (the "Merger") with and
into NB Holdings Corporation, a Delaware corporation and wholly owned
subsidiary of NationsBank or another subsidiary of NationsBank (the "Merger
Subsidiary"), with the Merger Subsidiary as the surviving corporation. Upon
consummation of the Merger, each share of Charter Common Stock, $1.00 par
value per share ("Common Stock") and each share of Special Common Stock,
$1.00 par value per share, will be converted into the right to receive 0.385
shares of NationsBank Common Stock, no par value per share ("NationsBank
Common Stock"), with cash to be paid in lieu of any resulting fractional
shares of NationsBank Common Stock. The Proxy Statement-Prospectus relating
to the shares of NationsBank Common Stock that would be issued to Charter's
shareholders upon consummation of the Merger, the notice of and solicitation
of proxies for the special meeting at which the Merger will be submitted to a
vote of Charter's shareholders, and other information regarding the proposed
Merger will be distributed to Charter's shareholders once the Registration
Statement relating thereto has been declared effective by the Securities and
Exchange Commission. It is presently anticipated that, subject to
satisfaction of all conditions, the special meeting of Charter's shareholders
to vote on the Merger will be held in May 1996, and the Merger will occur
prior to June 30, 1996, although no assurances can be made as to when the
special meeting will be held or whether or when the Merger will occur.
1
<PAGE>
FINANCIAL SERVICES
The Subsidiary Banks offer a full range of financial services to commercial,
industrial, financial and individual customers, including short-term and
medium-term loans, revolving credit arrangements, inventory and accounts
receivable financing, equipment financing, real estate lending, interim
construction lending, mortgage warehousing and purchase arrangements, Small
Business Administration lending, Export-Import Bank lending, letters of
credit, installment and other consumer loans, savings accounts and various
savings programs, including individual retirement accounts, and interest and
non-interest-bearing checking accounts. Other services include federal tax
depository, safe deposit, night depository and cash management services. The
Subsidiary Banks also make other installment loans, home improvement loans
and mortgage loans to their customers. Charter Investor Services offers a
broad array of non-deposit investment products including annuities, mutual
funds and discount brokerage. Charter-Houston also offers trust and asset
management services. Charter Mortgage originates and services one-to-four
single family residential mortgage loans.
SUBSIDIARY BANKS
The following table sets forth certain balance sheet and operating
information at December 31, 1995, with respect to the Subsidiary Banks:
<TABLE>
<CAPTION>
CHARTER-HOUSTON CHARTER-COLONIAL UNIVERSITY BANK CHARTER SSB
--------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Balance Sheet: (IN THOUSANDS)
Assets.................... $478,504 $231,634 $97,864 $129,910
Deposits.................. 399,198 179,389 73,200 88,939
Loans..................... 300,589 75,400 43,287 93,958
Allowance for Credit
Losses................... 2,612 547 512 941
Total Equity.............. 35,550 14,447 8,177 10,385
Results of Operations:
Interest Income........... 34,488 13,647 6,240 13,245
Interest Expense.......... 12,518 5,574 2,669 7,410
Provision for Credit
Losses................... (605) -- (20) (250)
Net Earnings.............. 6,835 2,308 635 2,073
Capital Ratios:
Core capital (Tier 1) as
a percentage of
risk-weighted assets..... 10.0% 14.9% 12.4% 13.9%
Total capital (Tier 1 and
Tier 2) as a percentage
of risk-weighted assets.. 11.0 15.8 13.4 14.9
Tangible core capital as
a percentage of quarterly
average assets (tangible
leverage ratio).......... 6.2 7.0 7.0 7.2
Asset Quality Ratios:
Allowance as a percentage
of loans outstanding at
year end................. 0.9% 0.7% 1.2% 1.0%
Allowance as a percentage
of non-performing loans
(non-performing loans
include non-accruals,
restructured and 90+
days past due)........... 113.8 295.2 67.4 106.6
Allowance as a percentage
of total non-accrual
loans.................... 253.1 306.7 108.8 143.4
Non-performing loans as
a percentage of total
loans 0.8 0.2 1.8 0.7
Total non-performing
assets as a percentage
of total assets.......... 0.6 0.2 0.5 0.9
</TABLE>
2
<PAGE>
CHARTER-HOUSTON is a national banking association organized by Jerry E.
Finger and others in 1963. Charter-Houston's main office is at 2600 Citadel
Plaza Drive, Suite 100, on Houston's North Loop (I-610), with branches in
Houston at 5150-5200 North Shepherd, 5433 Westheimer, 2401 Fountainview, 7500
Beechnut, 4821 Cornish, 1005 Blalock, 14315 Bellaire Boulevard and a branch
in LaPorte at 851 Highway 146 South. The various locations that together
comprise Charter-Houston's banking facilities are leased, with the exception
of the LaPorte branch facility and a facility held for a future banking use
at 3000 Bering Drive, each of which is owned by Charter-Houston.
Charter-Houston's banking facilities include an aggregate of 38 drive-in
lanes. Charter-Houston's two-story office building at 5150 North Shepherd
houses the consolidated accounting, bookkeeping and data processing
operations of Charter and the Subsidiary Banks. The consolidated credit
department of the Subsidiary Banks is also located at Charter-Houston's main
office at 2600 Citadel Plaza Drive. Charter-Houston employed 318 full-time
and 38 part-time persons at January 31, 1996, including 42 senior officers.
The foregoing number of employees includes approximately 80 full-time and 12
part-time persons who staff the consolidated accounting, item processing,
customer service, bookkeeping and data processing operations of Charter and
the Subsidiary Banks and approximately 43 full-time and 6 part-time persons
who staff the Subsidiary Banks consolidated central credit department.
Charter-Houston acts as an upstream correspondent bank in providing such
services to Charter-Colonial, University Bank-Galveston and Charter-SSB.
Charter-Houston also offers asset management and trust services to pension
and profit-sharing plans, private trusts and individual customers. At
December 31, 1995, Charter-Houston had approximately $290 million under trust
department management, as compared to $180 million at December 31, 1994.
CHARTER-COLONIAL is a national banking association organized by Jerry E.
Finger and others and opened for business in 1975 as Colonial National Bank.
The bank was acquired by Charter in December 1978. The main banking house of
Charter-Colonial is located at 2301 FM 1960 West in north Harris County with
branches in Houston at 7915 FM 1960, 11025 FM 1960, 2240 FM 1960 and 8320 FM
1960. Except for the land and building comprising its main banking house and
the 11-lane drive-in facility adjacent to the Willowbrook Branch of
Charter-Colonial, each of which is owned by Charter-Colonial, the various
lobby and drive-in locations that together comprise Charter-Colonial's
banking facilities are leased. Charter-Colonial's banking facilities include
an aggregate of 22 drive-in lanes. At January 31, 1996, Charter-Colonial
employed 44 full-time and 10 part-time persons, including 3 senior officers.
UNIVERSITY BANK-GALVESTON ("University") is a national banking association
which was organized and opened for business in 1967. University was acquired
and consolidated into Charter on April 20, 1993. The main banking house of
University is located at 700 University Boulevard in close proximity to the
Galveston Medical Center with branches in Galveston at 200 University
Boulevard and 6109 Central City Boulevard. The land and building comprising
University's main banking house and the land comprising the drive-in facility
adjacent to the Central City Boulevard Branch are owned by University, while
the lobby areas that comprise University's two branches are leased.
University banking facilities include an aggregate of 14 drive-in lanes. At
January 31, 1996, University employed 27 full-time and 7 part-time persons,
including 3 senior officers.
CHARTER BANK, SSB. On January 10, 1995, Charter acquired West Loop Savings
and Loan Association, which represented the fifth largest thrift in the
Houston area with total assets of approximately $130 million at December 31,
1995. Immediately following the acquisition, West Loop's charter was
converted to a Texas state savings bank under the name Charter Bank, SSB, in
order to reduce certain regulatory burdens, establish a vehicle for possible
expansion of nonbank activities, and implement a product mix which is
consistent with Charter's other subsidiary banks. Charter Bank- SSB has a
banking facility at 4672 Beechnut, which is leased, and another facility in
Baytown at 401 West Texas Avenue, which is owned. At January 31, 1996,
Charter-SSB employed 8 full-time and 1 part-time persons, none of which are
senior officers.
NON-BANKING ACTIVITIES
CBH, INC. On September 17, 1992, Charter and the Subsidiary Banks completed
a corporate reorganization involving the formation of an intermediary bank
holding company to be domiciled in Delaware under the name CBH, Inc.,
whereupon all of the capital stock of CBH was issued to Charter in exchange
for all of the outstanding capital stock of the Subsidiary Banks, effective
as of December 31, 1991. Except for tax savings and certain organizational
and operating expenses, this corporate reorganization has not had any affect
on the operations of Charter or its subsidiaries or Charter's consolidated
financial statements.
CHARTER MORTGAGE. On April 27, 1994, Charter consummated the acquisition of
certain assets and the assumption of certain liabilities of Capital Standard
Mortgage, Inc. through a 90-percent owned subsidiary of Charter-Houston known
as Charter Mortgage Company ("Charter Mortgage"). The remaining 10 percent
of Charter Mortgage's stock is owned by principals of Charter Mortgage.
Charter Mortgage presently operates mortgage production offices in Houston,
Austin, Dallas, Plano, Arlington, El Paso and Phoenix. At December 31, 1995,
Charter Mortgage's servicing portfolio totalled approximately $276 million
and loans in the pipeline totalled approximately $170 million. At January
31, 1996, Charter Mortgage employed 133 full-time persons, 4 part-time
persons, including 18 senior officers.
3
<PAGE>
CHARTER VENTURE is a small business investment company licensed by the Small
Business Administration with capitalization of approximately $994,000 and
offices at 2600 Citadel Plaza Drive in Houston. Charter Venture's investment
activities involve participation in venture capital private placements of
established small business concerns. All of Charter Venture's investments
include actual or potential equity ownership in the small businesses being
funded. At December 31, 1995, Charter Venture had an investment portfolio
comprised of equity ownership positions in five small business concerns.
Charter Venture strives to develop a diversified mixture of industries in its
investment portfolio with a concentration of investments in Texas and
bordering states.
CHARTER INVESTOR SERVICES was established in October 1983 as a consortium of
the Subsidiary Banks to offer discount brokerage services to customers.
Charter Investor Services is operated through a networking arrangement with
Tradestar, Inc. ("Tradestar"), which is intended to both complement
traditional banking services and generate fee income to the Subsidiary Banks.
Each Subsidiary Bank is a licensed securities dealer and has a Tradestar
registered representative to supervise the brokerage activity. In January
1984, Charter Venture purchased an investment in Tradestar, an affiliate of
which is the clearing agent for Charter Investor Services.
CHARTER JOINT VENTURE was an investment made by Charter in 1984, along with
six other joint venture partners, in a non-voting investment unit of Equus
Capital Corporation ("Equus"). On June 29, 1995, Charter Joint Venture's
investment in Equus was restructured and converted into 4,004 shares of Equus
Series C Preferred Stock, where upon the 4,004 shares of Equus Series C
Preferred Stock were redeemed by Equus resulting in the distribution to
Charter of 5,344 shares of common stock of Equus II Incorporated and a
promissory note from Equus in the original principal amount of $248,800.
Equus II Incorporated is a business development company that trades as a
closed end fund on the American Stock Exchange and invests in equity-oriented
securities of small to medium-sized, mostly private owned companies. This
reclassification and redemption resulted in a long-term capital loss of
approximately $175,000 which Charter recognized during the year ended
December 31, 1995.
CHARTER-HOUSTON SECURITIES AND CHARTER-COLONIAL SECURITIES. For investment
securities management purposes, Charter contributed and assigned all of the
outstanding capital stock of Charter-Houston Securities and Charter-Colonial
Securities ("Operating Subsidiaries") to Charter-Houston and
Charter-Colonial, respectively, effective as of December 31, 1991. The
Operating Subsidiaries had been inactive for a number of years. The
business activity of each of the Operating Subsidiaries is confined to
owning, holding and trading investment securities for their own accounts, to
the extent permitted by applicable federal banking law. The investment
securities which have been contributed to the Operating Subsidiaries by the
respective Subsidiary Banks are principally comprised of collateralized
mortgage obligations ("CMOs") and governmental securities with longer term
maturities.
EXPANSION
EXPANSION OPPORTUNITIES. Charter has availed itself of the opportunities
created by branch banking through the consummation of various bank
acquisitions and corporate reorganizations. Charter has pursued
opportunities for expansion through the acquisition of financial institutions
that could be efficiently integrated into Charter's existing infrastructure
and which enhance Charter's market position as a community bank and a
diversified financial services provider. By concentrating on acquisition
opportunities within roughly a 100-mile radius of Charter's corporate
headquarters, Charter has been able to preserve its community and middle
market focus, while realizing some of the centralized operating efficiencies
and product standardization characteristic of larger banking organizations.
This acquisition strategy led to Charter's following acquisitions during 1995
and 1996:
On November 17, 1995, Charter consummated the acquisition of LaPorte State
Bank ("LaPorte") which was merged into Charter-Houston. At the time of the
acquisition, LaPorte had approximately $34 million in total assets, $32
million in deposits, and $13 million in loans. LaPorte added one banking
facility to Charter's branch network at 815 Highway 146 South in southeast
Harris County. This acquisition has been accounted for under the purchase
method of accounting.
In November 1995, Charter agreed to acquire Cypress National Bank, Houston,
Texas ("Cypress"), pending shareholder and regulatory approval. At December
31, 1995, Cypress had total loans of $12 million, total assets of $21
million, and total deposits of $19 million. Following receipt of the
requisite shareholder and regulatory approvals, the acquisition was closed on
March 15, 1996, after which Cypress' three northwest Houston locations became
branches of Charter-Colonial.
During November 1995, Charter agreed to acquire Texas Bank, Baytown, Texas
("Texas Bank") pending shareholder and regulatory approval and subject to the
resolution of certain contingencies by Texas Bank. At December 31, 1995,
Texas Bank had $19 million in total loans, $39 million in total assets, and
$35 million in total deposits. Texas Bank has a banking facility in
Baytown and another in nearby Mont Belvieu.
During January 1996, Charter also agreed to acquire Houston Independent Bank,
National Association ("HIB") pending shareholder and regulatory approval. At
December 31, 1995, HIB had total loans of $7 million, total assets of $33
million, and total deposits of $29 million. HIB has one banking facility in
southwest Houston near the intersection of Beltway 8 and Highway 59.
4
<PAGE>
SUPERVISION AND REGULATION
CHARTER. As a bank holding company, Charter is subject to regulation by the
Board of Governors of the Federal Reserve System ("Federal Reserve Board") and
is required to file with the Federal Reserve Board an annual report and to
furnish such additional information as the Federal Reserve Board may require
pursuant to the Holding Company Act. The Federal Reserve Board may conduct
examinations of Charter and each of its subsidiaries.
Charter is required to obtain the prior approval of the Federal Reserve Board
for the acquisition of five percent or more of the voting shares or
substantially all the assets of any bank or bank holding company. In
considering proposed acquisitions, the Federal Reserve Board considers the
expected benefits to the public, including greater convenience, identifying
and meeting the credit needs of its entire community, increased competition
or gains in efficiency, weighed against the risks of possible adverse
effects, such as undue concentration of resources, lessening or elimination
of competition, conflicts of interest or unsound banking practices. After an
application to acquire the voting shares of a state or national bank in Texas
has been accepted for filing by the Federal Reserve Board, a copy of such
application must be submitted to the Texas Banking Commissioner
("Commissioner") pursuant to the Texas Banking Code of 1943, as amended
("Code"). No application to acquire shares of a bank located outside Texas
may be approved by the Federal Reserve Board unless such acquisition is
expressly authorized by the statutes of the state where the bank whose shares
or assets are to be acquired is located.
Bank holding companies are prohibited by law, except in certain instances
prescribed by statute, from acquiring a direct or indirect interest in or
control of more than five percent of the voting shares of any company which
is not a bank or bank holding company and from engaging directly or
indirectly in activities other than those of banking, managing or controlling
banks or providing service to its subsidiaries. Bank holding companies,
however, may engage in, and may own shares of companies engaged in certain
activities found by the Federal Reserve Board to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
After an application concerning these activities has been accepted for filing
by the Federal Reserve Board, a copy of such application also must be
submitted to the Commissioner pursuant to the Code for a determination as to
whether the application should be approved. The Commissioner is required to
deny the application unless he/she finds that the proposed activities will
produce benefits to the public, such as greater convenience or increased
competition, that outweigh possible adverse effects, such as unfair
competition, conflicts of interest or unsound banking practices.
Under the Holding Company Act and the regulations of the Federal Reserve
Board, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or lease or sale of property or furnishing of services. The Federal
Reserve Board possesses enforcement powers intended to prevent or eliminate
practices of bank holding companies and their non-bank subsidiaries deemed to
be unsafe and unsound or in violation of applicable laws.
Congress passed legislation in 1994 to remove geographic restrictions on bank
expansion. The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Branching Act") removes state law barriers to
acquisitions in all states and allows multi-state banking operations to merge
into a single bank with interstate branches. Interstate banking and
branching authority will be subject to certain conditions and restrictions,
such as capital adequacy, management and CRA compliance. The Interstate
Branching Act preempts existing barriers that restrict entry into all
states--such as regional compacts and reciprocity agreements--thus creating
opportunities for expansion into markets that were previously closed. Under
the law, bank holding companies will be able to acquire banks in any state,
subject to certain conditions. When the interstate branching provisions of
the law become effective, banks acquired pursuant to this authority may
subsequently be converted to branches. Interstate branching will be
permitted by allowing banks to merge across state lines to form a single
institution. Interstate merger transactions can be used to consolidate
existing multistate operations or to acquire new branches. Banks will be
able to establish a new branch as its initial entry into a state only if the
state has authorized de nove branching. In addition, out-of-state banks may
merge with a single branch of a bank if the state has authorized such a
transaction. The interstate branching provisions will become effective on
June 1, 1997, unless a state takes action before that time. A state can pass
laws either to opt in early or to opt out completely, as long as they act
before June 1, 1997.
SUBSIDIARY BANKS. Various requirements of federal and Texas law affect the
operation of the Subsidiary Banks, including the requirement to maintain
reserves against deposits, restrictions on the nature and amount of loans
which may be made and the interest that may be charged thereon, and
restrictions relating to investments and other activities. All national
banks and are subject to regulation, supervision and periodic examination by
the Office of the Comptroller of the Currency ("OCC"). Charter Bank, SSB, is
a state savings bank subject to regulations by the Texas Savings and Loan
Department. Any future subsidiary bank which might be a State of Texas
chartered bank would be subject to regulation by the Texas Department of
Banking. National and state savings banks are both subject to further
regulation by the Federal Reserve Board and the FDIC. The OCC has been
granted enforcement powers with respect to the Subsidiary Banks which are
similar in scope and nature to those powers previously described with respect
to bank holding companies.
At December 31, 1995, $550,000 of the $63,443,000 of regulatory total capital
of the Subsidiary Banks was represented by subordinated capital notes. The
Federal Reserve Board and the OCC have adopted guidelines originally proposed
by the Federal Financial Institutions Regulatory Board that restrict the
extent to which such capital notes qualify in meeting the capital
requirements imposed upon the Subsidiary Banks by the OCC. In accordance
with such guidelines, Charter in the past provided additional capital to its
Subsidiary Banks through now partially repaid bank borrowings by Charter, the
proceeds of which have been used to purchase capital stock in the Subsidiary
Banks.
5
<PAGE>
Cash revenues derived from dividends and management fees received by Charter
from the Subsidiary Banks and non-bank subsidiaries represent the largest
source of total cash revenues of Charter. In addition to certain statutory
limitations restricting payments of dividends, approval of the OCC is
required for the payment of any dividend to Charter by any of the Subsidiary
Banks if the total of all dividends, including any proposed dividends,
declared by any such bank in any calendar year exceeds the total of its net
profits, as defined by the OCC, for that year, combined with its retained net
profits for the preceding two years, less any required transfers to surplus
or a fund for the retirement of any preferred stock. At December 31, 1995,
pursuant to applicable law $11,505,000 of retained earnings was available for
the payment of dividends by the Subsidiary Banks to Charter.
Each Subsidiary Bank, as well as any other controlled subsidiary of Charter,
is an affiliate within the meaning of the Federal Reserve Act and as such is
subject to certain restrictions with respect to loans and extensions of
credit to Charter or to other subsidiaries, or investment in their stock
securities and acceptance of such stock or securities as collateral for loans
to any borrower.
For further discussion of certain additional regulations affecting Charter
and the Subsidiary Banks, reference should be made to the "Government Fiscal
and Monetary Policies" discussion below.
COMPETITION
The activities in which the Subsidiary Banks engage are highly competitive.
Each activity engaged in and geographic market served involves competition
with other banks, as well as with non-banking financial institutions and
non-financial enterprises. The Subsidiary Banks actively compete with other
banks in their efforts to obtain deposits and make loans, in the scope and
types of services offered, in interest rates paid on time deposits and
charged on loans, and in other aspects of banking. At December 31, 1995, the
Subsidiary Banks had aggregate deposits of $740,726,000.
In addition to competing with other commercial banks within and outside their
primary service area, the Subsidiary Banks compete with other financial
institutions engaged in the business of making loans or accepting deposits,
such as savings and loan associations, credit unions, industrial loan
associations, insurance companies, small loan companies, finance companies,
mortgage companies, real estate investment trusts, certain governmental
agencies, credit card organizations and other enterprises. In recent years,
competition for funds from securities brokers for money market accounts has
intensified. Additional competition for deposits comes from government and
private issues of debt obligations and other investment alternatives for
depositors such as money market funds. The Subsidiary Banks also compete
with a variety of other institutions in the provision of discount brokerage
services as well as trust and investment management services.
GOVERNMENT FISCAL AND MONETARY POLICIES
The commercial banking business is affected not only by general economic
conditions but also by the fiscal and monetary policies of the Federal
Reserve Board. Changes in the discount rate on Federal Reserve member bank
borrowings, availability of borrowings at the Federal Reserve "discount
window", open market operations, the imposition of and changes in reserve
requirements against member banks' deposits and assets of foreign branches,
the imposition of and changes in reserve requirements against certain
borrowings by member banks and their affiliates, and the placing of limits on
interest rates which member banks may pay on time and savings deposits are
some of the instruments of fiscal and monetary policy available to the Board.
Fiscal and monetary policies influence to a significant extent the overall
growth of bank loans, investments and deposits and the interest rates charged
on loans or paid on time and savings deposits. The nature of future monetary
policies and the effect of such policies on the future business and earnings
of Charter and the Subsidiary Banks cannot be predicted.
The 1982 Garn-St. Germain Depository Institutions Act ("Garn Act") revised
many basic banking laws. Central provisions of the Garn Act include the
authorization for banks and savings and loan associations to offer insured
deposit accounts which are directly competitive with money market funds,
increased lending limits to a single customer for national banks, and the
elimination of borrowing limits by banks which are Federal Reserve members.
Also, the Garn Act liberalized laws regarding transactions by a member bank
with its affiliates, including its bank affiliates.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") contains important provisions affecting all federally insured
financial institutions ("banking organizations") in such areas as anti-fraud
and anti-abuse enforcement powers, each banking organization's performance
and record in meeting community credit needs, and acquisitions of savings and
loan institutions. During 1990 initial phase-in of risk-based capital
guidelines commenced and guidelines relative to the leverage ratio of minimum
capital to total assets, which became effective after year-end 1990, were
issued. For further discussion of these new capital requirements, reference
should be made to the "Capital Resources" presentation beginning on page 26
of this report.
6
<PAGE>
In 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted. The provisions of FDICIA include a plan to
recapitalize the Bank Insurance Fund that is the source of deposit insurance
coverage to FDIC-insured institutions, authority to ultimately fund such
recapitalization plan through increased deposit insurance premiums, various
supervisory reforms which will increase the frequency of on-site examinations
by federal banking regulators, changes in the deposit insurance system, an
array of new consumer lending requirements, and the adoption of the Truth in
Savings Act. FDICIA also authorizes federal banking regulators to take
prompt, corrective action against institutions which are under-capitalized,
institute a risk-based assessment system for deposit insurance, and implement
a series of operational and management-based standards and potential
sanctions for violations of such standards. It is clearly anticipated that
FDICIA will unquestionably increase the regulatory burden on financial
institutions and impose substantial actual and incidental costs on financial
institutions and their customers.
While the Equal Credit Opportunity Act, the Fair Housing Act and the
Community Reinvestment Act ("CRA")--laws that require financial institutions
to practice fair lending and meet the credit needs of the communities in
which they are located--have been in effect for a number of years, regulatory
attention to enforcement of such laws has increased significantly in recent
years. The fair lending laws strictly prohibit discriminatory lending
practice. Using Home Mortgage Disclosure Act and other data which financial
institutions are required to maintain and report to the federal government,
federal and state governmental authorities are vigorously targeting financial
institutions suspected of violating the fair lending laws. Financial
institutions may be subject to fair lending enforcement actions, including
civil money penalties, even though their lending practices unintentionally
have disparate impact or discriminatory effect.
Similar to the fair lending laws, CRA initiatives and enforcement actions
have been given increased attention in recent years. The rules and
regulations governing CRA compliance have been revised in an effort to
establish more objective measurements of CRA performance. The focus of
performance will be on each institution's actual lending, services and
investment records relative to low and moderate income areas which are
located within the institution's delineated community. The penalties for
inadequate CRA performance may include monetary penalties and severe
limitations on any further acquisition or expansion activities. The board of
directors of Charter and its Subsidiary Banks and Charter's management are
firmly committed to nondiscriminatory lending practices and ensuring that the
Subsidiary Banks meet the credit needs of low and moderate income areas in
our local communities. Charter continues to devote a substantial amount of
time and resources to fair lending and CRA training and compliance.
EMPLOYEES
Charter and its subsidiaries had approximately 549 full-time and 61 part-time
employees as of January 31, 1996, approximately 73 of whom are senior
officers of either Charter or a Subsidiary Bank. None of the employees are
represented by any union or similar group, and management believes it has
excellent relations with the staff. Charter and its subsidiaries are equal
opportunity employers and provide equal employment opportunities to
individuals without regard to race, sex, age, national origin, religion,
veteran status or disability.
ITEM 2. PROPERTIES
The executive offices of Charter are located at 2600 Citadel Plaza Drive,
Suite 600, Houston, Texas 77008. Charter-Houston owns (i) a one-acre vacant
lot adjacent to its leased facility at 5200 North Shepherd (ii) the land and
building comprising the facility held for future banking use at 3000 Bering
Drive and (iii) the land and building which comprise the LaPorte branch at
815 Highway 146 South, LaPorte, Texas. Charter-Colonial owns the land and
building comprising its main banking premises and its Cy-Fair Branch, as well
as the land and improvements comprising the drive-in banking facility of its
Willowbrook Branch. University owns the land and building comprising its
main banking house and the land comprising the drive-in facility constructed
during 1994 adjacent to the West 61st Street Branch. Charter-SSB owns the
land and building which comprise it's Baytown branch at 401 Texas Avenue,
Baytown, Texas. Beechnut Holdings, Inc., a subsidiary of Charter-SSB, owns a
.9708 acre tract of land held for a future banking unit at 4946 Beechnut,
Houston, Texas. Charter or its Subsidiary Banks lease the remaining banking
premises and remote facilities under various leases extending through the
year 2000. (See "Subsidiary Banks" under Item 1.)
ITEM 3. LEGAL PROCEEDINGS
Neither Charter nor any of its subsidiaries are a party to any legal
proceedings that in management's judgment would have a material adverse
effect on the consolidated financial position of Charter and its subsidiaries.
7
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Since the annual shareholders' meeting held on April 27, 1995, no matters
have been submitted to a vote of the shareholders of Charter.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
PRICE RANGE OF COMMON STOCK. Charter's Common Stock ("Common Stock") is
listed on the automated quotation system ("Nasdaq") of the National
Association of Securities Dealers, Inc. ("NASD") and trades over-the-counter
on Nasdaq under the symbol SAIL. The table below sets forth the high and
low sales prices as reported on Nasdaq for each fiscal quarter of 1995 and
1994. Amounts have not been adjusted to reflect the 5% stock dividends paid
on October 31, 1995 and October 31, 1994.
<TABLE>
<CAPTION>
REPORTED PERIOD HIGH LOW
--------------- ---- ---
<S> <C> <C>
Fourth Quarter of 1995 $20.00 $17.50
Third Quarter of 1995 $19.50 $15.75
Second Quarter of 1995 $16.38 $14.25
First Quarter of 1995 $15.50 $13.75
Fourth Quarter of 1994 $15.25 $13.75
Third Quarter of 1994 $14.75 $13.75
Second Quarter of 1994 $13.75 $13.50
First Quarter of 1994 $14.25 $13.75
</TABLE>
On March 15, 1996, the high and low sales price of the Common Stock was
$27.125.
PRICE INFORMATION ON OTHER CLASSES. The shares of Charter's Special Common
Stock ("Special Common Stock") and initial series of preferred stock
("Preferred Stock") (hereinafter collectively referred to, together with the
Common Stock, as the "Charter Stock") are inactively traded and there has not
been an active market maker. To the best of Charter's knowledge, the most
recent trades involved only shares of Charter's Common Stock.
REDEMPTION OF PREFERRED STOCK. In accordance with the terms of the Merger
Agreement, Charter's board of directors authorized and approved the
redemption of all 14,201 outstanding shares of preferred stock, initial
series, $50.00 par value (the "Preferred Stock"). The Preferred Stock will
be redeemed on March 31, 1996, at which time each share of Preferred Stock
will be converted into the right to receive the redemption price of $50.00 per
share, together with the regular semiannual dividend of $2.00 per share, upon
surrender of the certificates evidencing such shares of Preferred Stock. The
record date for the redemption of the Preferred Stock was fixed at February
26, 1996, and notice of such redemption has been sent to all of the holders
of the Preferred Stock.
HOLDERS. At March 15, 1996, Charter's Common Stock, Special Common Stock,
and Preferred Stock were owned of record by approximately 520, 13 and 340
shareholders, respectively, excluding, however, shares held through
brokerage, custodial or other nominee accounts.
8
<PAGE>
DIVIDENDS AND DIVIDEND POLICY
DIVIDEND POLICY. Holders of Common Stock and Special Common Stock are
entitled to receive such dividends as are declared by Charter's Board of
Directors in accordance with Charter's dividend policy. Factors which
Charter's Board of Directors considers prior to declaring a dividend include
earnings, regulatory capital requirements, general business conditions and
the capital needs of its subsidiaries, as well as other factors which the
Board of Directors may deem relevant. The payment of dividends by Charter
also is restricted by the terms of a loan agreement, which agreement is
further described in Note 11 to the financial statements on page 45.
Dividends on Common Stock and Special Common Stock are subject to the prior
payment of any cumulated and unpaid dividends on the Preferred Stock.
Subject to compliance with Charter's dividend policy, the Board of Directors
has authorized the payment of regular quarterly dividends on Charter's Common
Stock and Special Common Stock to be paid in the first month of each fiscal
quarter at a rate to be fixed by the Board of Directors. Such regular
quarterly dividends may be suspended at any time by the Board of Directors
and there is no assurance that Charter will continue to pay regular quarterly
dividends on the Common Stock and Special Common Stock.
DIVIDENDS FROM SUBSIDIARY BANKS. Since Charter is a bank holding company it
is dependent upon receipt of dividends or advances from its subsidiaries
(primarily the Subsidiary Banks) for payment of dividends to shareholders.
The payment of dividends by the Subsidiary Banks is limited by applicable
federal banking law. (See "Supervision and Regulation - Subsidiary Banks"
beginning on page 5.)
DIVIDEND HISTORY. Charter paid quarterly cash dividends on its Common Stock
from 1979 through September 30, 1985. Effective December 31, 1985, Charter
suspended the payment of dividends to holders of Common Stock and Special
Common Stock as a consequence of losses sustained from operations and a
resulting desire to conserve capital. On August 10, 1992, Charter paid a
five percent (5%) stock dividend to the holders of record of Common Stock and
Special Common Stock as of July 31, 1992. On February 17, 1993, Charter's
Board of Directors resumed the payment of cash dividends on Charter's Common
Stock and Special Common Stock by declaring a quarterly cash dividend of $.03
per share to be paid on March 31, 1993, to the holders of Common Stock and
Special Common Stock as of March 15, 1993. The quarterly cash dividend on
Charter's Common Stock and Special Common Stock was increased to $.05 per
share for payment on June 30, 1993.
The following table sets forth dividends per share on Charter Common Stock
and Special Common Stock, respectively, for the periods indicated:
<TABLE>
<CAPTION>
REPORTED PERIOD CASH DIVIDENDS, (1) (2)
--------------- -----------------------
<S> <C>
First Quarter of 1996 $.08
Fourth Quarter of 1995 .08
Third Quarter of 1995 .08
Second Quarter of 1995 .07
First Quarter of 1995 .07
Fourth Quarter of 1994 .06
Third Quarter of 1994 .06
Second Quarter of 1994 .06
First Quarter of 1994 .06
</TABLE>
(1) Dividends on certain of the shares of Class B Special Common Stock
were restricted to fifty percent of the dividend rate set by
Charter's board of directors, which restriction lapsed during the
second quarter of 1995.
(2) Charter also declared and paid five percent dividends on shares of
Common Stock and Special Common Stock on October 31, 1995, October 31,
1994, and September 30, 1993.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
CHARTER BANCSHARES, INC. AND SUBSIDIARIES
1995 1994 1993 1992 1991
----------------------------------------------------------------
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31:
Interest income..................... $ 66,470 $ 43,856 $ 39,227 $ 40,072 $ 44,977
Interest expense.................... 27,425 14,605 13,786 16,394 23,975
---------- ---------- ---------- ---------- ----------
Net interest income................. 39,045 29,251 25,441 23,678 21,002
Provision for credit losses......... 979 233 911 1,465 1,662
Non-interest income................. 18,394 12,243 8,699 8,272 8,167
Non-interest expense (1)............ 39,509 29,814 26,668 23,704 22,800
---------- ---------- ---------- ---------- ----------
Earnings before income taxes (1).... 16,951 11,447 6,561 6,781 4,707
Income tax expense (1).............. 6,192 3,761 1,305 136 339
---------- ---------- ---------- ---------- ----------
Earnings before effect of change
in accounting principle............ 10,759 7,686 5,256 6,645 4,368
Cumulative effect of a change in
accounting for income taxes........ -- -- 2,950 -- --
---------- ---------- ---------- ---------- ----------
Net earnings........................ $ 10,759 $ 7,686 $ 8,206 $ 6,645 $ 4,368
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net earnings as a percent of:
Average assets.................... 1.26% 1.13% 1.25% 1.16% 0.79%
Average shareholders' equity...... 19.91 15.86 19.16 18.35 13.36
Average common shareholders' equity. 20.18 16.10 19.49 19.90 14.89
Per Common Share(2):
Primary earnings before change in
accounting principle............ $ 1.69 $ 1.21 $ 0.82 $ 1.10 $ 0.70
Fully diluted earnings before
change in accounting principle.. 1.69 1.21 0.82 1.05 0.69
Cumulative effect of change in
accounting for income taxes..... -- -- 0.47 -- --
Net earnings - primary........... 1.69 1.21 1.29 1.10 0.70
Net earnings - fully diluted..... 1.69 1.21 1.29 1.05 0.69
Book value (3)................... 9.69 7.61 7.14 6.01 4.96
Dividends........................ 0.30 0.24 0.18 -- --
Dividend pay-out ratio.............. 17.75% 19.83% 13.95% --% --%
Weighted average shares outstanding:
Primary........................ 6,330,861 6,326,658 6,312,515 5,777,836 5,590,233
Fully diluted.................. 6,330,861 6,330,861 6,330,746 6,297,446 6,264,446
BALANCE SHEET DATA AS OF DECEMBER 31:
Loans............................... $ 513,235 $ 343,761 $ 290,674 $ 237,212 $ 221,748
Total assets........................ 914,565 722,398 667,096 597,302 556,338
Deposits............................ 733,714 616,880 588,754 525,446 499,078
Long-term debt...................... 14,650 14,850 13,550 7,511 7,757
Shareholders' equity (3)............ 62,042 48,888 45,772 38,636 34,206
Shareholders' equity (percent
change) (3)........................ 26.91% 6.81% 18.47% 12.95% 11.29%
Average shareholders' equity
as a percent of average
assets (3)......................... 6.34% 7.14% 6.52% 6.33% 5.94%
</TABLE>
(1) Non-interest expenses for 1993 include approximately $1.5 million in
accelerated amortization of core deposit intangibles. The total of income
tax expense for 1993 was reduced by an approximately $1.4 million tax
benefit related to this accelerated amortization of core deposit
intangibles. Excluding the effect of this accelerated amortization,
earnings before income taxes would have increased to approximately
$8 million in 1993.
(2) All per share figures and weighted average shares outstanding have been
adjusted for the 5% stock dividends paid on October 31, 1995, October 31,
1994, September 30, 1993 and August 10, 1992.
(3) At December 31, 1995, Charter's shareholders' equity was increased
by $978,000 and at December 31, 1994 shareholders' equity was reduced by
$3,352,000 to reflect the effect of SFAS #115, which requires the net
unrealized gain (loss) on securities available for sale to be included in
shareholders' equity. Excluding the affect of this adjustment to
shareholders' equity at December 31, 1995 and 1994, certain selected
financial data reflected above would be adjusted as follows: shareholders'
equity of $61,064,000 and $52,240,000,respectively, the percent change in
shareholders' equity of 16.90% and 14.13%, respectively, and book value per
common share of $9.53 and $8.13, respectively.
10
<PAGE>
CONDENSED STATEMENTS OF EARNINGS
The following is a comparison of Charter's condensed statements of earnings
for the most recent five-year period. The amounts for the years ended
December 31, 1995 through 1991 have not been presented on a taxable
equivalent basis due to Charter's federal income tax-loss carry forward
position in years prior to 1993 and the immaterial effect on earnings from
tax-exempt income in each year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
---------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income(1)................... $66,470 $43,856 $39,227 $40,072 $44,977
Interest expense..................... 27,425 14,605 13,786 16,394 23,975
------- ------- ------- ------- -------
Net interest income(1)........... 39,045 29,251 25,441 23,678 21,002
Provision for credit losses.......... 979 233 911 1,465 1,662
Non-interest income.................. 18,394 12,243 8,699 8,272 8,167
Non-interest expense (2)............. 39,509 29,814 26,668 23,704 22,800
------- ------- ------- ------- -------
Earnings before income taxes (2)..... 16,951 11,447 6,561 6,781 4,707
Income tax expense(2)................ 6,192 3,761 1,305 136 339
------- ------- ------- ------- -------
Earnings before effect of change in
accounting principle................ 10,759 7,686 5,256 6,645 4,368
Cumulative effect of a change in
accounting for income taxes......... -- -- 2,950 -- --
------- ------- ------- ------- -------
Net earnings..................... $10,759 $ 7,686 $ 8,206 $ 6,645 $ 4,368
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
(1) For the years ended December 31, 1995 through 1991, interest income would
have been $66,495,000, $43,876,000, $39,232,000, $40,080,000 and
$44,995,000, respectively, and net interest income would have been
$39,070,000, $29,271,000, $25,446,000, $23,686,000 and $21,020,000,
respectively, if all such amounts were shown using a comparable fully
taxable equivalent basis (using a tax rate of 34%).
(2) Non-interest expenses for 1993 included approximately $1.5 million in
accelerated amortization of core deposit intangibles. The total of income
tax expense for 1993 was reduced by an approximately $1.4 million tax
benefit related to this accelerated amortization of core deposit
intangibles. Excluding the effect of this accelerated amortization,
earnings before income taxes would have increased to approximately
$8 million in 1993.
11
<PAGE>
CONDENSED AVERAGE BALANCE SHEETS
Although year-end statistics present general trends, the daily average
balance sheets are more indicative of Charter's levels of activity throughout
the years indicated and less subject to day-to-day business activity
fluctuations. The following schedule sets forth a comparison of the most
recent five years' consolidated daily average balance sheets for Charter.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------------------------------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------- --- -------- --- -------- --- -------- --- -------- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets: (IN THOUSANDS)
Cash and due from banks................ $ 35,248 4% $ 36,397 5% $ 32,658 5% $ 28,172 5% $ 27,117 5%
Loans.................................. 469,591 55 293,536 43 277,409 42 217,643 38 197,969 36
Interest-bearing deposits.............. -- -- 465 -- 398 -- 1,766 -- 3,335 1
Trading account assets................. -- -- 2,615 -- 4,320 -- 1,937 -- 7,231 1
Securities:
Taxable.............................. 292,772 34 294,227 43 294,714 45 269,241 47 260,110 47
Non-taxable.......................... 948 -- 797 -- 183 -- 204 -- 457 --
-------- --- -------- --- -------- --- -------- --- -------- ---
Total securities..................... 293,720 34 295,024 43 294,897 45 269,445 47 260,567 47
-------- --- -------- --- -------- --- -------- --- -------- ---
Federal funds sold and securities
purchased under agreements to
resell................................ 21,959 3 27,654 4 23,662 4 32,183 6 29,909 5
Other assets........................... 36,297 5 27,853 4 28,483 4 24,663 4 27,700 5
Allowance for credit losses............ (5,415) (1) (4,451) 1 (4,673) -- (3,591) -- (3,328) --
-------- --- -------- --- -------- --- -------- --- -------- ---
Total Assets........................... $851,400 100% $679,093 100% $657,154 100% $572,218 100% $550,500 100%
-------- --- -------- --- -------- --- -------- --- -------- ---
-------- --- -------- --- -------- --- -------- --- -------- ---
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Non-interest-bearing demand.......... $180,466 21% $167,207 25% $154,310 24% $120,936 21% $107,822 20%
Interest-bearing demand.............. 85,422 10 93,001 14 99,608 15 75,591 13 55,636 10
Savings.............................. 34,181 4 37,328 5 35,599 5 21,325 4 19,823 4
Money market savings................. 104,018 12 109,923 16 103,187 16 85,579 15 62,895 11
Time................................. 292,846 35 176,837 26 185,218 28 204,559 36 236,665 43
-------- --- -------- --- -------- --- -------- --- -------- ---
Total Deposits.................... 696,933 82 584,296 86 577,922 88 507,990 89 482,841 88
-------- --- -------- --- -------- --- -------- --- -------- ---
Securities sold under
agreements to repurchase.............. 47,663 6 26,183 4 17,641 2 14,467 3 21,916 4
FHLB advances.......................... 26,365 3 -- -- -- -- -- -- -- --
Long-term debt......................... 14,850 2 14,549 2 12,087 2 7,991 1 8,341 2
Other liabilities...................... 11,562 1 5,604 1 6,679 1 5,559 1 4,717 1
-------- --- -------- --- -------- --- -------- --- -------- ---
Total Liabilities.................... 797,373 94 630,632 93 614,329 93 536,007 94 517,815 95
-------- --- -------- --- -------- --- -------- --- -------- ---
Shareholders' Equity................... 54,027 6 48,461 7 42,825 7 36,211 6 32,685 5
-------- --- -------- --- -------- --- -------- --- -------- ---
Total Liabilities and
Shareholders' Equity................ $851,400 100% $679,093 100% $657,154 100% $572,218 100% $550,500 100%
-------- --- -------- --- -------- --- -------- --- -------- ---
-------- --- -------- --- -------- --- -------- --- -------- ---
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Earnings before income taxes increased to $16,951,000 as compared to
$11,447,000 for 1994. Net earnings increased in 1995 to $10,759,000, as
compared to $7,686,000 for 1994. In 1995 fully diluted earnings per common
share were $1.69; compared to $1.21 for 1994. Highlights of the major
components that affect Charter's net earnings are as follows:
- Average assets grew $172,307,000, or 25.4%, to $851,400,000, with average
deposits totalling $696,933,000.
- Non-performing assets - non-accrual and restructured loans plus other real
estate ("ORE") and collateral acquired was $4,356,000 at December 31, 1995,
or 0.48% of total assets, representing a decrease from 0.53% at the prior
year-end.
- Net-interest income - the difference between total interest income on
earning assets and total interest expense on deposits and borrowings -
increased 33.5%, or $9.8 million, to $39,045,000 for the year.
- Provision for credit losses - the amounts charged to earnings in order to
maintain an adequate allowance for credit losses - increased by $746,000 to
$979,000 for 1995, reflecting the impact from an increase in loans by
$169,474,000 to $513,235,000 at December 31, 1995.
- Non-interest income, excluding securities transactions and mortgage banking
income - the fees charged for banking services - increased by $1,637,000 to
$11,667,000 for the year.
- Mortgage banking income - the revenues earned from mortgage banking
activity, such as loan origination fees, fees from the sale of loans and
sales of related servicing rights on originated loans - increased by
$4,224,000 to $6,450,000 for the year.
- Securities transactions - including trading account profits or losses and
investment securities gains or losses - resulted in a net gain before taxes
of $277,000 for 1995.
- Non-interest expense - carrying costs and losses incurred with the
acquisition and sale of other real estate, employee compensation and other
expenses, such as for occupancy, furniture and equipment, advertising,
professional fees, deposit insurance premiums and supplies - increased by
32.5%, or $9,695,000, to $39,509,000 for 1995. Approximately $1.8 million
of this increase was due to mortgage banking activities and $2.7 million
was due to the acquisition of Charter, SSB.
- Income tax expense - the income tax provision on current year earnings -
increased by $2,431,000 to $6,192,000 for 1995.
In the following sections, these and other major factors and trends affecting
the components of income and expense are examined in more detail.
Information concerning assets and liabilities is subsequently provided so
that an evaluation can be made of capitalization and liquidity as they may
affect Charter's future outlook.
13
<PAGE>
NET INTEREST INCOME
Net interest income increased 33.5% in 1995 to $39,045,000, compared to
$29,251,000 in 1994. The data used in the analysis of the changes in net
interest income is derived from the daily average levels of interest-earning
assets and interest-bearing liabilities as well as from the yields earned and
rates paid on such amounts. The schedule below gives a three-year history of
Charter's daily average interest-earning accounts (including non-accruing
loans) and interest-bearing accounts. The amounts earned and paid on each
major type of asset and liability account are then shown beside the average
balance in the account for the year. The average yields on all
interest-earning assets (including non-accruing loans) and the average cost
of all interest-bearing liabilities are also summarized.
COMPARATIVE NET INTEREST MARGIN
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------------------------------------
AVERAGE YIELD OR AVERAGE YIELD OR AVERAGE YIELD OR
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- -------- ------- -------- -------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans. . . . . . . . . . . . . . . $ 469,591 $ 46,842 9.98% $ 293,536 $ 25,875 8.81% $ 277,409 $ 22,303 8.04%
--------- -------- ---- --------- -------- ---- --------- -------- ----
Interest-bearing deposits -- -- -- 465 18 3.87 398 10 2.51
Trading account assets -- -- -- 2,615 175 6.69 4,320 131 3.03
Securities:
Taxable. . . . . . . . . . . . . 292,772 18,461 6.31 294,227 16,609 5.64 294,714 16,145 5.48
Non-taxable (1). . . . . . . . . 948 49 5.17 797 38 4.77 183 10 5.46
--------- -------- ---- --------- -------- ---- --------- -------- ----
Total Securities . . . . . . . . 293,720 18,510 6.30 295,024 16,647 5.64 294,897 16,155 5.48
Federal funds sold and
securities purchased under
agreements to resell . . . . . . 21,959 1,118 5.09 27,654 1,141 4.13 23,662 628 2.65
--------- -------- ---- --------- -------- ---- --------- -------- ----
Total Earning
Assets/Yields. . . . . . . . . 785,270 66,470 8.46 619,294 43,856 7.08 600,686 39,227 6.53
--------- -------- ---- --------- -------- ---- --------- -------- ----
Cash and due from banks. . . . . . 35,248 36,397 32,658
Other assets, net of allowance
for credit losses. . . . . . . . 30,883 23,402 23,810
--------- --------- ---------
Total Assets . . . . . . . . . . $ 851,400 $ 679,093 $ 657,154
--------- --------- ---------
--------- --------- ---------
Liabilities and Shareholders' Equity:
Interest-bearing
demand deposits. . . . . . . . . $ 85,422 1,411 1.65 $ 93,001 1,515 1.63 $ 99,608 2,387 2.40
Savings deposits . . . . . . . . . 34,181 835 2.44 37,328 905 2.42 35,599 842 2.37
Money market savings . . . . . . . 104,018 3,570 3.43 109,923 3,195 2.91 103,187 2,922 2.83
Other time deposits. . . . . . . . 292,846 15,953 5.45 176,837 6,704 3.79 185,218 6,285 3.39
Federal funds purchased and
securities sold under
agreements to repurchase . . . . 47,663 2,701 5.67 26,183 1,113 4.25 17,641 368 2.09
FHLB advances. . . . . . . . . . . 26,365 1,725 6.54 -- -- -- -- -- --
Long-term debt . . . . . . . . . . 14,850 1,230 8.28 14,549 1,173 8.06 12,087 982 8.12
--------- -------- ---- --------- -------- ---- --------- -------- ----
Total Interest-Bearing
Liabilities/Rate . . . . . . . 605,345 27,425 4.53 457,821 14,605 3.19 453,340 13,786 3.03
--------- -------- ---- -------- ---- -------- ----
Demand deposits. . . . . . . . . 180,466 167,207 154,310
Other liabilities. . . . . . . . . 11,562 5,604 6,679
--------- --------- ---------
Total Liabilities. . . . . . . . 797,373 630,632 614,329
Shareholders' Equity . . . . . . . 54,027 48,461 42,825
Total Liabilities and
Shareholders' Equity . . . . . $ 851,400 $ 679,093 $ 657,154
--------- --------- ---------
--------- --------- ---------
Net Interest Income. . . . . . . . $ 39,045 $ 29,251 $ 25,441
-------- -------- --------
-------- -------- --------
Interest Rate Spread . . . . . . . 3.93% 3.89% 3.50%
---- ---- ----
---- ---- ----
Net Interest Margin (2). . . . . . 4.97% 4.72% 4.24%
---- ---- ----
---- ---- ----
</TABLE>
(1) The yields for 1995, 1994 and 1993 are not presented on a taxable
equivalent basis due to the immaterial effect on earnings from tax-exempt
income in each year.
(2) The net interest margins for 1995, 1994 and 1993 would have been
unchanged if such data had been prepared on a comparable fully taxable
equivalent basis. In addition, the yields on non-taxable investment
securities would have been 7.83%, 7.22% and 8.20%, respectively.
14
<PAGE>
ANALYZING EARNING ASSETS AND ALL FUNDING SOURCES
The preceding table indicated that net interest income increased by
$9,794,000 over that of 1994. Moreover, the net interest margin increased to
4.97% for 1995 over the 4.72% reported for 1994. There are many factors
working together which result in changes to net interest income. The table
below allocates the change in net interest income between changes in volumes
and the level of interest rates. The remaining variance is allocable to a
combination of changes in rates and volumes. The rate/volume variance is
then allocated on a pro rata basis to arrive at a final variance.
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 COMPARED TO 1994 1994 COMPARED TO 1993
DUE TO DUE TO
------------------------- ----------------------
INCREASE RATE/ INCREASE RATE/
(DECREASE) VOLUME RATE VOLUME (DECREASE) VOLUME RATE VOLUME
---------- ------ ---- ------ ---------- ------ ---- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans............................$20,967 $15,519 $3,405 $2,043 $3,572 $1,297 $2,150 $125
Interest-bearing deposits........ (18) -- -- (18) 8 2 5 1
Trading account assets........... (175) -- -- (175) 44 (52) 158 (62)
Securities:
Taxable.......................... 1,852 (82) 1,944 (10) 464 (27) 491 (1)
Non-taxable (1).................. 11 8 2 1 28 34 (1) (4)
------- ------- ------ ------ ------ ------ ------ ----
Total securities................. 1,863 (74) 1,946 (9) 492 7 490 (5)
Federal funds sold
and securities purchased
under agreements to resell.... (23) (235) 267 (55) 513 106 348 59
Total interest income............ 22,614 15,210 5,618 1,786 4,629 1,360 3,151 118
------- ------- ------ ------ ------ ------ ------ ----
Interest Expense:
Deposits......................... 9,450 2,935 5,261 1,254 (116) (191) 76 (1)
Federal funds purchased and
other short-term borrowings... 1,588 913 371 304 744 178 382 184
FHLB advances.................... 1,725 -- -- 1,725 -- -- -- --
Long-term debt................... 57 24 32 1 191 200 (7) (2)
------- ------- ------ ------ ------ ------ ------ ----
Total interest expense........... 12,820 3,872 5,664 3,284 819 187 451 181
------- ------- ------ ------ ------ ------ ------ ----
Net interest income before
allocation of volume/rate..... 9,794 11,338 (46) (1,498) 3,810 1,173 2,700 (63)
------- ------- ------ ------ ------ ------ ------ ----
Allocation of volume/rate........ -- (1,504) 6 1,498 -- (19) (44) 63
------- ------- ------ ------ ------ ------ ------ ----
Changes in net interest income...$ 9,794 $ 9,834 $ (40) $ -- $3,810 $1,154 $2,656 $ --
------- ------- ------ ------ ------ ------ ------ ----
------- ------- ------ ------ ------ ------ ------ ----
</TABLE>
(1) The amounts indicated are not presented on a taxable equivalent basis due
to the immaterial effect on earnings from tax-exempt income in each year.
COMPARING 1995 WITH 1994
The rate/volume analysis above indicates that substantially all the increase
in net interest income can be attributed to the higher level of earning
assets. Also contributing to the improvement was a more favorable earning
asset mix as loans compised a greater portion of total earning assets. For
1995, average loans were 60% of total earning assets as compared with 47% in
1994. The level of interest rates was generally higher in 1995 as the prime
rate averaged 8.83%. This represents an increase over the 7.14% average for
1994. Interest spreads between earning assets and interest bearing funds
widened as earning assets repriced at a slightly faster rate than deposits.
Offsetting these advantages to some degree was a greater reliance in higher
cost funding sources such as CDs and FHLB advances, reflecting the impact on
net interest margins from the January, 1995 acquisition of Charter Bank, SSB.
COMPARING 1994 WITH 1993
The above table shows that an increased level of earning assets accounted for
nearly one-third of the overall increase in net interest income. Earning
assets averaged $691,294,000 in 1994 for an increase of $18,608,000 or 3.1%.
A generally higher level of interest rates combined with increasing spreads
accounts for a majority of the increased net interest income. The table on
the previous page indicates the average rate paid on interest bearing
liabilities increased by 0.16% while the yield on earning assets changed by
0.55%. While total loans and investment securities were repricing at higher
interest rates, many rates on deposit categories exhibited little change.
15
<PAGE>
A further understanding of the factors responsible for the year-to-year
increases in net interest income can be obtained by examining the changes in:
(1) the volume of earning assets and (2) the net interest income produced
after the related cost of funding these earning assets.
The following table allocates total interest income earned at the "interest
spread" between assets funded with: (1) interest-bearing liabilities and (2)
non-interest-bearing liabilities (primarily non-interest-bearing demand
deposits) and equity capital. The interest spread on earning assets funded
by interest-bearing liabilities is defined as the difference between the
average rate earned on total earning assets and the average rate paid on the
interest-bearing liabilities. The interest spread on assets funded with
non-interest-bearing sources of funds is simply the rate earned on total
earning assets.
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
----------------------------------------------------------------------------------------------------
NET NET NET
AVERAGE INTEREST INTEREST AVERAGE INTEREST INTEREST AVERAGE INTEREST INTEREST
EARNING ASSETS SPREAD INCOME EARNING ASSETS SPREAD INCOME EARNING ASSETS SPREAD INCOME
-------------- ------ ------ -------------- ------ ------ -------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Source of funding
Interest-bearing
liabilities................ $605,345 3.93% $23,815 $457,821 3.89% $17,816 $453,340 3.50% $15,843
Non-interest-bearing liabilities
and equity capital........ 179,924 8.46 15,230 161,473 7.08 11,435 147,346 6.53 9,598
-------- ---- ------- -------- ---- ------- -------- ---- -------
Total......................... $785,269 $39,045 $619,294 $29,251 $600,686 $25,441
-------- ---- ------- -------- ---- ------- -------- ---- -------
-------- ---- ------- -------- ---- ------- -------- ---- -------
</TABLE>
COMPARING 1995 WITH 1994
The table above readily identifies the value added by interest free sources
of funding. The interest spread on this funding category increased by 1.38%
to 8.46% in 1995. Approximately 23% of earning assets were funded through
non interest bearing sources in 1995 as compared with 26% in 1994. The table
also indicated the interest spread on interest bearing liabilities increased
by 0.04% to 3.93% in 1995. The increase resulted from the improved earning
asset mix and a lagging increase in funding costs in a rising rate
environment.
COMPARING 1994 WITH 1993
As outlined on the previous page, the increased level of net interest income
can be attributed to a higher level of earning asset volumes and an improved
interest rate spread variance. The growth in earning assets occurred within
the higher yielding loan category, thereby contributing to a higher earning
asset yield and wider spread over funding sources. In addition, there was a
greater reliance on non-interest-bearing funding than in 1993. Since these
funding sources become more valuable in a higher rate environment, net
interest income expanded accordingly. Approximately 26.1% of earning assets
were funded through non-interest-bearing sources. This compares more
favorably with the 24.5% in 1993.
16
<PAGE>
LOANS
The following table shows the composition of the loan portfolio at the end of
each of the last five years:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial and industrial...$ 73,591 $ 65,945 $ 58,421 $ 54,097 $ 64,695
Commercial real estate................. 57,566 40,923 50,467 45,432 42,028
Real estate - construction............. 110,602 90,478 6,477 8,135 9,690
Real estate - multi-family............. 17,599 10,611 16,573 18,850 17,042
Real estate - 1-4 family............... 180,262 75,468 101,375 57,710 45,636
Loans to individuals................... 73,615 60,336 57,361 52,988 42,657
-------- -------- -------- -------- --------
Total loans.......................$513,235 $343,761 $290,674 $237,212 $221,748
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
Charter presently is a middle-market banking organization serving individuals
and businesses with interests in and around Harris County, Texas. Charter's
middle-market orientation with respect to both commercial and real estate
lending generally results in avoidance of large commitments to any single
project. At the end of 1995, Charter had a loan-to-deposit ratio of 70.0%.
Management believes that maintaining a loan-to-deposit ratio in the range of
65-75% over the next several years, coupled with prudent evaluation and
administration of such loan growth, is within Charter's capabilities in a
generally, although modestly, expanding economy.
During 1994 and 1995, Charter saw growth in its real estate loans in the real
estate construction category primarily as a result of the purchase of
residential construction loans from Roosevelt Financial Group as discussed
earlier. Included in the total of real estate-construction loans are $106
million of loans secured by one-to-four family residential properties, which
amount comprises approximately 96% of the total of construction loans.
The composition of Charter's loan portfolio reflects management's desire to
maintain relatively low exposure to commercial real estate loans. Commercial
real estate, multi-family and construction loans as a percent of total loans
were 36.2% at December 31, 1995, as compared to 41.3% at year-end 1994. At
December 31, 1995, loans to individuals and 1-4 family owner-occupied
residential mortgages represented 49.5% of total loans outstanding versus
39.5% of total loans outstanding at year-end 1994. Charter has no highly
leveraged transaction ("HLT") loans as of December 31, 1995.
Economic indicators generally suggest that the U.S. and Houston-Galveston
area economies will continue to experience at least modest growth during the
next year. Most indicators suggest that the national and local economies
should not be materially different from 1995. Statistics released during
1994 and early 1995 continue to reflect steady national economic growth. Due
to the diversification that has been ongoing since the late 1980's, the
Houston, Harris County, and Galveston County economy now tends to track more
closely the national economy, although the energy sector remains the most
significant component of the local economy. Management generally subscribes
to a forecast of modest job growth for Houston during 1996.
17
<PAGE>
PROVISION FOR CREDIT LOSSES
The allowance for credit losses at December 31, 1995 was $5,620,000,
representing 1.10% of outstanding loans. A year earlier, this ratio was
1.29%. The provision for credit losses charged against earnings was $979,000
in 1995, $233,000 in 1994 and $911,000 in 1993. Net loans charged off in
1995 were $823,000, compared to $403,000 in 1994 and $609,000 in 1993. These
net charge-offs resulted in a net charge-off ratio to average loans of 0.18%
in 1995, as compared to 0.14% in 1994 and 0.22% in 1993, with the latter
percentages being significantly lower than the levels experienced from 1986
through 1992.
To a very large extent Charter's loan portfolio remains secured and current
re-appraisals of collateral value have been received or undertaken in an
effort to further assess loss potential. Management has closely scrutinized
its loss potential on its non-performing assets, as well as on the entire
loan portfolio, and has, to the best of its knowledge and belief, reserved
for losses accordingly.
The transactions occurring in the allowance for credit losses for the five
years ended December 31, 1995, including a breakdown of net charge-offs by
type of loan, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding ........................ $469,591 $293,536 $277,409 $217,643 $197,969
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Loans outstanding at year-end .................... $513,235 $343,761 $290,674 $237,212 $221,748
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Transactions in the allowance for credit losses:
Balance at beginning of period ................. $ 4,446 $ 4,616 $ 3,792 $ 3,116 $ 2,792
Provision charged to operating expenses ........ 979 233 911 1,465 1,662
Allowance of acquired bank ..................... 1,018 -- 522 -- --
Loans charged off:
Real estate .................................. 149 264 148 667 705
Commercial ................................... 530 308 272 549 620
Individuals .................................. 343 367 441 201 454
-------- -------- -------- -------- --------
Total loans charged off ................... 1,022 939 861 1,417 1,779
-------- -------- -------- -------- --------
Recoveries of loans previously charged off:
Real estate .................................. 45 186 75 106 42
Commercial ................................... 59 176 93 299 324
Individuals .................................. 95 174 84 223 75
-------- -------- -------- -------- --------
Total recoveries ........................... 199 536 252 628 441
-------- -------- -------- -------- --------
Net loans charged off ...................... 823 403 609 789 1,338
-------- -------- -------- -------- --------
Balance at year end ............................ $ 5,620 $ 4,446 $ 4,616 $ 3,792 $ 3,116
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios:
Allowance as a percent of loans
outstanding at year end ....................... 1.10% 1.29% 1.59% 1.60% 1.40%
Allowance as a percent of average loans ........ 1.20 1.51 1.66 1.74 1.57
Net loans charged off as a percent of
average loans outstanding ..................... 0.18 0.14 0.22 0.36 0.68
</TABLE>
Management of Charter maintains a process of identifying and addressing
credit problems. Efforts have been undertaken and are ongoing to strengthen
credit review policies and procedures. Intensive efforts are ongoing to
ensure that any existing or identifiable developing problem loans receive the
necessary effective attention. Charter's procedures for reviewing the
adequacy of its allowance for credit losses involve a review of lending
policies and practices, the lending history of personnel involved in the
lending process and the compliance by those personnel with the policies.
Consideration also is given to (i) management's review of individual
outstanding and proposed credits, (ii) the current size and composition of
the loan portfolio, (iii) expectations of future economic conditions and
their impact on particular industries and specific borrowers, (iv) the level
and composition of non-performing loans, (v) evaluation of the underlying
collateral for secured loans, (vi) historical loan loss and recovery
experience and (vii) comments made during regular examinations or audits by
banking regulators, Charter's internal loan review staff and independent
auditors. The above-referenced policies and procedures have been implemented
on an integrated company-wide basis.
18
<PAGE>
The allocation of Charter's allowance for credit losses by loan category for
the five years ended December 31, 1995, is presented in the following table.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allocation amount:
Commercial, financial and industrial ........... $ 53 $ 231 $ 49 $ 183 $ 609
Commercial real estate ......................... 435 80 21 462 87
Real estate - construction ..................... -- -- -- 4 3
Real estate - multi-family ..................... 56 55 64 211 21
Real estate - 1-4 family ....................... 76 17 21 141 95
Loans to individuals ........................... 2 3 13 83 94
Unallocated allowance .......................... 4,998 4,060 4,448 2,708 2,207
------ ------ ------ ------ ------
Total ........................................ $5,620 $4,446 $4,616 $3,792 $3,116
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Percent of each loan category to total loans:
Commercial, financial and industrial ........... 14% 19% 20% 23% 29%
Commercial real estate ......................... 11 12 17 19 19
Real estate - construction (1) ................. 22 26 2 3 4
Real estate - multi-family ..................... 3 3 6 8 7
Real estate - 1-4 family ....................... 35 19 35 25 22
Loans to individuals ........................... 15 18 20 22 19
------ ------ ------ ------ ------
Total ........................................ 100% 100% 100% 100% 100%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
(1) At December 31, 1995, 21% of total loans are one-to-four family residential
construction loans.
NON-PERFORMING ASSETS AND PAST DUE LOANS
Non-performing assets are comprised of loans that are not accruing interest,
restructured loans on which certain concessions have been granted due to the
borrowers' financial condition, and real estate or other assets that have
been acquired in partial or total satisfaction of loan obligations. Assets
totaling $4,355,000, or 0.48% of total assets, were classified as
non-performing assets at year-end 1995, an increase in dollar amount but a
reduction in percentage compared to the prior level of $3,812,000, or 0.53%
of total assets, at year-end 1994. At December 31, 1995, Charter had no
loans identified as highly leveraged transactions. At December 31, 1995,
Charter had $2,541,000 of energy-related loans outstanding. Charter has no
loans outstanding to foreign corporations or governments.
Earnings for the years ended December 31, 1995, 1994 and 1993 would have been
increased by $79,000, $68,000 and $100,000, respectively, if the
non-accrual and restructured loans as of such dates had continued to perform
at the terms originally agreed upon. The corresponding improvement in the
per share earnings performance would have been $0.01 in 1995, $0.01 in 1994
and $0.02 in 1993. The amount of interest payments recorded in interest
income for all such non-performing loans at December 31, 1995 was $117,000.
Further reference is made to Note 5 to the consolidated financial statements
beginning on page 41.
19
<PAGE>
NON-INTEREST INCOME
Non-interest income increased 50.2% in 1995 as compared to an increase of
40.7% during 1994. Excluding the effect of securities transactions and
mortgage banking income, non-interest income increased 16.3% in 1995
following a 19.9% increase in 1994. Service charges on deposits, increased
by 4.9% to $6,636,000 in 1995 as compared to an increase of 14.9% in 1994.
The increase in service charge income was primarily due to an increase in the
average volume of transaction deposit accounts, particularly
non-interest-bearing demand accounts, which generate the majority of this fee
income. Average non-interest-bearing demand accounts increased by
approximately $8 million, or 4.8% in 1995.
Mortgage banking income increased by 189.8% to $6,450,000 in 1995 as compared
$2,226,000 in 1994. The increase in mortgage banking income is primarily due
to acquisitions of Charter Mortgage in April 1994 and the increase in loans
originated and sold in 1995 of $371 million and $324 million, respectively,
compared to 1994 of $172 million and $154 million, respectively. Components
of mortgage banking income include loan origination income, fees from the
sale of originated mortgage servicing rights represent premiums received from
the sale of servicing rights on loans originated.
Other customer service fees increased $123,000 in 1995 as compared to the
same period in 1994. Components of other customer service fees include check
printing fees, ATM settlement fees, research fees and wire transfer fees.
Investment securities gains increased by $257,000 during 1995. Trust fees
represent revenues earned by services provided to customers of Charter's
Asset Management and Trust Services Department. In 1995 trust fees increased
$1,150,000 to $1,929,000, due to an increase in the average assets under
administration. Total assets under administration grew to approximately $282
million at the end of 1995, compared to $180 million at the end of 1994.
Approximately $62,000,000 in assets under administration were acquired in
January 1995 when Charter purchased the Houston branch of Providence Trust
Company.
The components of the "other" category of non-interest income consist of fees
generated from customers engaged in international trade such as foreign
exchange fees and letter of credit fees, plus miscellaneous fees such as
collection fees, credit card fees, safe deposit rentals and discount
brokerage commissions. These fees correlate to the level of transactions in
each of the referenced categories. Other non-interest income increased
$57,000 or 3.1% in 1995 compared to a $335,000 or 23.8% increase in 1994.
The following table sets forth by category the non-interest income and the
percentage change from the prior year for the most recent three years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993
------------------ ------------------- -----------------
PERCENT PERCENT PERCENT
AMOUNT CHANGE AMOUNT CHANGE AMOUNT CHANGE
------- ------- ------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposits ................ $ 6,636 4.9% $ 6,329 14.9% $5,509 22.2%
Other customer service fees ................ 1,199 11.4 1,076 37.8 781 12.9
Trust fees ................................. 1,929 147.6 779 33.6 583 64.2
Investment securities gains ................ 277 NM 20 (94.0) 335 (69.5)
Trading account profits (losses) ........... -- NM (33) NM 0 (100.0)
Mortgage banking income .................... 6,450 189.8 2,226 NM 0 --
Other ...................................... 1,903 3.1 1,846 23.8 1,491 (9.7)
------- ----- ------- ----- ------ ------
Total .................................... $18,394 50.2% $12,243 40.7% $8,699 5.2%
------- ----- ------- ----- ------ ------
------- ----- ------- ----- ------ ------
</TABLE>
"NM" denotes a comparison that is not meaningful.
20
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense increased 32.5% in 1995 as compared to a 11.8% increase
in 1994 and a 12.5% increase in 1993. Non-interest expenses from Charter
Mortgage were $4.4 million in 1995 and $2.6 million in 1994. Excluding the
impact in expenses from Charter Mortgage, non-interest expense increased
28.8% during 1995 as compared to the same period in 1994. The most
significant decrease in expense was in deposit insurance premiums which
decreased by $369,000 or 28.9% due to the Federal Deposit Insurance
Corporation's change in assessment rate from $.23 to $.04 per $100 of
deposits effective June 1, 1995.
The largest single line item for non-interest expense continues to be
salaries and benefits which increased by $3,866,000, or 26.3% for 1995.
Approximately $754,000 of the increase in salaries and benefits was generated
by Charter Mortgage while the Charter, SSB acquisition generated an
additional $1,187,000. Excluding the impact of these two entities, total
salaries and benefits increased by $1,925,000, or 13.1% for 1995 as compared
to 1994. This remaining increase in salary expense is due to merit increases
and Charter's expanded activities and strategic initiatives in the areas of
trust services, services facilitating international trade, and expanded
retail banking.
The acquisition of Charter, SSB gave rise to increases in several categories
of non-interest expense, including net premises and equipment expense,
advertising, deposit insurance premiums and EDP expense. Expense incurred by
Charter, SSB and reflected on the consolidated financial statements of
Charter for 1995 in each of the preceding categories increased approximately
$411,000, $73,000, $245,000 and $106,000, respectively, over amounts
reflected for 1994.
The following table sets forth by category the operating expenses and the
percentage change from the prior year for the most recent three years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993
------------------ ------------------- -----------------
PERCENT PERCENT PERCENT
AMOUNT CHANGE AMOUNT CHANGE AMOUNT CHANGE
------- ------- ------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits ..................... $18,591 26.3% $14,725 26.6% $11,630 14.2%
Occupancy expense ......................... 5,815 22.4 4,749 29.5 3,667 12.9
Advertising ............................... 1,316 66.8 789 40.4 562 21.4
Electronic data processing ................ 1,722 24.7 1,381 27.2 1,086 38.0
Legal expense ............................. 1,442 (3.4) 1,492 163.6 566 (38.2)
ORE losses and carrying costs ............. 328 96.4 167 (89.9) 1,653 (39.4)
Amortization of intangibles .............. 820 93.4 424 (79.9) 2,108 372.6
Professional fees ......................... 962 82.2 528 66.6 317 84.3
Travel & entertainment .................... 752 67.5 449 25.4 358 30.7
Telephone ................................. 696 45.3 479 84.9 259 13.6
Deposit insurance premiums ................ 910 (28.9) 1,279 (2.1) 1,306 15.7
Stationery and supplies ................... 1,070 45.2 737 70.6 432 31.3
Other ..................................... 5,085 94.4 2,615 51.7 1,724 5.4
------- ----- ------- ----- ------- -----
Total ................................. $39,509 32.5% $29,814 11.8% $26,668 12.5%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
</TABLE>
21
<PAGE>
INCOME TAXES
As of December 31, 1995, Charter had utilized all of its tax net operating
loss carryforwards that were generated in prior periods. At December 31,
1995, there were $2,400,000 in net deferred tax assets recorded on the
consolidated balance sheets.
As discussed in Note 1, "Summary of Significant Accounting and Reporting
Policies", SFAS No. 109 was required to be adopted effective as of the
beginning of fiscal year 1993. Management elected to adopt this statement on
a prospective basis, and therefore, prior to 1993 financial statements have
not been restated to apply the provisions of SFAS No. 109.
Management determined that a net deferred tax asset of approximately
$2,950,000 should be recognized as of January 1, 1993. Income earned
subsequent to the application of this statement would be reduced by the
amount of any tax benefit that may have been recognized from the utilization
of deductible temporary differences in those subsequent periods, thereby
initially resulting in an increase in equity of $2,950,000 and a decrease in
future net earnings after taxes. Further reference is made to Note 13 to the
consolidated financial statements on page 47.
On October 1, 1987, Charter purchased from the Federal Deposit Insurance
Corporation ("FDIC") certain assets and insured deposits of a failed Houston
bank, Western Bank-Westheimer ("Western Bank"). Charter paid the FDIC a
premium of $4,055,000. Previously, this premium had been recorded as an
intangible asset and amortized over ten years on a straight-line basis for
financial reporting purposes. Due to uncertainties prior to a 1993 decision
by the U.S. Supreme Court, the amortization of this intangible asset had not
been deducted as a business expense on Charter's tax returns or in its
computations for book federal income tax expenses. Charter engaged the
services of outside valuation experts to assist management in determining the
value and the useful life of this core deposit intangible. The results of
this valuation study were completed in October 1993, and supports
management's conclusion that the original purchase premium of $4,055,000 is
deductible over its determined useful life. The remaining $1.6 million core
deposit intangible associated with this acquisition was fully amortized in
1993 in accordance with the revised estimated useful life established by the
valuation study. A corresponding tax benefit for the entire premium of
$4.055 million, or $1,379,000 after applying a 34% tax rate, was also
recognized in the third quarter of 1993.
ASSET/LIABILITY MANAGEMENT
The primary objective of the asset/liability management process is to
optimize net interest income while prudently managing balance sheet risk.
These risks include liquidity risk, interest rate risk, and maintenance of
capital adequacy. Most management decisions involve a trade-off between risk
elimination and profitability. For example, a certain amount of interest
rate sensitivity in the balance sheet may produce an enhanced level of
earnings. Thus, it is not the objective of the asset/liability management
function to eliminate interest rate risk entirely. Rather, the process
attempts to ensure that the level of risk associated with decisions is fully
understood and reasonable, and that Charter's consolidated level of interest
rate risk is constantly monitored.
Charter's asset/liability committee uses interest rate sensitivity, "gap"
analysis, balance sheet and income statement simulation models, and to a
limited extent, duration analysis to project multiple interest rate scenarios
to measure the potential effects of changes in interest rates and/or
alternative funding and investments on Charter's interest rate sensitivity
profile. Charter also has policies which establish parameters for acceptable
fluctuations in net interest income arising from changing interest rates.
With approximately 23% of earning assets funded through non-interest bearing
sources, Charter should benefit from a modestly rising rate environment.
Moreover, a significant portion of Charter's funding is derived from low cost
transaction accounts whose rates are not as responsive to changes in market
rates.
22
<PAGE>
RATE-SENSITIVE ASSETS AND LIABILITIES
Interest rate sensitivity is a measure of the volatility of the net interest
margin as a consequence of changes in market rates. The following table
summarizes the rate sensitivity of earning assets and interest-bearing
liabilities of Charter at December 31, 1995. Charter monitors the rate
sensitivity gap (rate-sensitive earning assets less rate-sensitive
interest-bearing liabilities) at least monthly in the normal process of asset
and liability management. Passbook savings accounts and regular interest-
bearing demand accounts with balances at December 31, 1995, of approximately
$35 million and $94 million, respectively, are included in the 91-180 day
category. Although repricing on such accounts is possible at any time, the
historical stability of the rates paid on such accounts supports this
classification.
At year-end 1995, the table shows a positive (asset-sensitive) rate sensitivity
gap of $151 million in the 1-30 day repricing category. The gap beyond thirty
days becomes more liability-sensitive as interest-bearing liabilities that
reprice within 90 days, 180 days and one year become greater in volume than
rate-sensitive assets that are subject to repricing in the same respective time
periods.
<TABLE>
<CAPTION>
RATE SENSITIVE WITHIN
---------------------
1-30 31-90 91-180 181 DAYS- OVER
DAYS DAYS DAYS 1 YEAR 1 YEAR TOTAL
--------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans . . . . . . . . . . . . . . . $277,172 $ 34,391 $ 25,184 $ 63,824 $112,664 $513,235
Securities . . . . . . . . . . . . 21,815 11,995 16,606 54,260 191,392 296,068
Other earning assets. . . . . . . . 22,716 -- -- -- -- 22,716
-------- -------- --------- -------- -------- --------
Total Earning Assets. . . . . . . 321,703 46,386 41,790 118,084 304,056 832,019
-------- -------- --------- -------- -------- --------
Interest-Bearing Liabilities:
Interest-bearing deposits . . . . . 68,255 136,693 182,196 52,799 92,460 532,403
Borrowed funds. . . . . . . . . . . . 71,972 -- 9,700 200 24,019 105,891
-------- -------- --------- -------- -------- --------
Total Interest-Bearing Liabilities. 140,227 136,693 191,896 52,999 116,479 638,294
-------- -------- --------- -------- -------- --------
Asset - Liability Gap. . . . . . . . 181,476 (90,307) (150,106) 65,085 187,577 193,275
Derivatives affecting interest
sensitivity:
Libor Floor Purchased . . . . . . . 30,000 -- -- -- (30,000) --
-------- -------- --------- -------- -------- --------
Interest rate sensitivity gap . . . . $151,476 $(90,307) $(150,106) $ 65,085 $217,577 $193,275
-------- -------- --------- -------- -------- --------
-------- -------- --------- -------- -------- --------
Cumulative interest rate
sensitivity gap . . . . . . . . . . $151,476 $ 61,169 $ (88,937) $(23,852) $193,275 --
Cumulative Amounts as a
Percentage of Cumulative
Earning Assets. . . . . . . . . . . 47.1% 16.6% (21.7)% (4.5)% 23.2% --
Cumulative Ratio. . . . . . . . . . . 1.89x 1.20x 0.82x 0.96x 1.30x --
</TABLE>
The foregoing table shows the interval of time in which given volumes of
earning assets and interest-bearing liabilities would be responsive to changes
in market interest rates based on their contractual maturities or terms for
repricing. It is, however, only a single-day depiction of Charter's rate
sensitivity structure, which can be adjusted in response to changes in
forecasted interest rates.
Charter enters into various types of interest rate contracts in managing its
interest rate risk. The notional amounts of derivatives do not represent
amounts exchanged by the parties and are not a measure of Charter's exposure
through its use of derivatives. The amounts exchanged are determined by
reference to the notional amounts and the other terms of the derivatives.
At December 31, 1995, $30 million notional amount Libor rate floor had been
purchased and was outstanding with a final maturity date of May 4, 1999. This
strategy is expected to stabilize net interest income in the event of a decline
in 3-month Libor below 4%.
23
<PAGE>
SECURITIES
Charter maintained a securities portfolio larger than the loan portfolio until
1994. Expansion of the securities portfolios occurred over the last half of
the prior decade for various reasons, including the acquisition of deposits
from other failed institutions in which Charter purchased very few assets and
even fewer loans, a desired increase in liquidity which was orchestrated by
management to address a discouraging regional economic environment that
prevailed during much of the 1980's, and an apparent absence in the supply of
loans that met Charter's underwriting standards during the region's prolonged
economic downturn. Expansion of the investment portfolio coincided with
management's desire to achieve certain balance sheet and interest rate risk
objectives. Charter concentrated on a shift from traditional investment
securities to higher-yielding mortgage-backed securities and CMOs. All of
Charter's holdings in mortgage-backed securities and CMOs are backed by U.S.
Government or federal agency guarantees.
During 1992, certain securities were designated as securities held for sale,
thereby reflecting management's future intent with respect to this group of
securities. Effective January 1, 1994, Charter's adoption of SFAS No. 115
changed the description and definition of these securities to securities
available for sale. This securities portfolio serves a primary role in the
management of the interest-rate sensitivity of the Company and, therefore, is
managed in the context of the overall balance sheet. This portfolio generates
substantial interest income and serves as a necessary reservoir of liquidity.
The decision to purchase securities is based upon the current assessment of
long-term economic and financial conditions, including the interest rate
environment and other balance sheet components. These conditions can change
quickly, considerably and unexpectedly, and as a result, repositioning of the
portfolio may be appropriate.
The tables below set forth the distribution by maturity, yield and fair value
of Charter's securities portfolio at December 31, 1995. The yield has been
computed by relating the forward income stream on the investments, plus or
minus the anticipated accretion of discounts or amortization of premiums, to
the book value of the securities. The tables incorporate the stated maturity
dates of all investment securities, excluding securities not due at a single
maturity date, such as mortgage-backed securities issued by U.S. Government
agencies and corporations ("MBSs") and CMOs.
SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT
WITHIN WITHIN FIVE WITHIN TEN AFTER
ONE YEAR YEARS YEARS TEN YEARS TOTAL
--------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury . . . . . $ -- --% $ -- --% $ -- --% $ -- --% $ -- --%
U. S. Government
agencies . . . . . . . 5,994 5.30 3,543 5.37 1,439 8.14 6,151 8.63 17,128 6.75
State and political
subdivisions (1) . . . -- -- 1,169 6.40 1,082 4.56 -- -- 2,251 5.52
Other securities . . . . -- -- 255 8.44 225 7.08 -- -- 480 7.81
MBSs (2) . . . . . . . . -- -- -- -- -- -- -- -- 56,578 6.57
CMOs (2) . . . . . . . . -- -- -- -- -- -- -- -- 22,478 6.94
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
Total . . . . . . . . $5,994 5.30% $4,967 5.77% $2,746 6.64% $6,151 8.63% $98,915 6.67%
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
Fair value . . . . . . . $5,972 $4,952 $2,823 $6,349 $99,446
------ ------ ------ ------ -------
------ ------ ------ ------ -------
</TABLE>
1) The yields are not presented on a taxable equivalent basis due to the
immaterial effect on earnings from tax-exempt income.
(2) Based on the actual principal payments experienced over the prior twelve
months, the average lives of the MBSs and CMOs at December 31, 1995 were
approximately 4.9 years and 4.4 years, respectively.
24
<PAGE>
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT
WITHIN WITHIN FIVE WITHIN TEN AFTER
ONE YEAR YEARS YEARS TEN YEARS TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury . . $4,042 6.78% $41,518 5.42% $ -- --% $ -- --% $ 45,560 5.54%
Other securities . -- -- -- -- -- -- 6,356 5.16 6,356 5.16
MBSs (1) . . . . . -- -- -- -- -- -- -- -- 79,742 6.40
CMOs (1) . . . . . -- -- -- -- -- -- -- -- 65,495 7.18
------ ----- ------- ----- ---- --- ------ ----- -------- -----
Total. . . . . . $4,042 6.78% $41,518 5.42% $ -- --% $6,356 5.16% $197,153 6.42%
------ ----- ------- ----- ---- --- ------ ----- -------- -----
------ ----- ------- ----- ---- --- ------ ----- -------- -----
</TABLE>
(1) Based on the actual principal payments experienced over the prior twelve
months, the average lives of the MBSs and CMOs at December 31, 1995 were
approximately 6.5 years and 3.9 years, respectively.
DEPOSITS
The deposit base of the Subsidiary Banks continues to be the most important
funding source. The type of deposits held by the Subsidiary Banks on a daily
average basis and the related average rates paid during each of the last three
years are categorized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
------------------------------------------
RATE RATE RATE
AMOUNT PAID AMOUNT PAID AMOUNT PAID
-------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing demand
deposits . . . . . . . . . . . $180,466 -- $167,207 -- $154,310 --
Interest-bearing demand
deposits . . . . . . . . . . . 85,422 1.65% 93,001 1.63% 99,608 2.40%
Savings deposits . . . . . . . . 34,181 2.44 37,328 2.42 35,599 2.37
Money market savings deposits. . 104,018 3.43 109,923 2.91 103,187 2.83
Time $100,000 and over . . . . . 100,864 5.53 64,280 4.04 68,192 3.29
Time under $100,000. . . . . . . 191,982 5.41 112,557 3.65 117,026 3.45
-------- ----- -------- ----- -------- -----
Total average deposits . . . . $696,933 3.13% $584,296 2.11% $577,922 2.15%
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
</TABLE>
The scheduled maturity of time deposits $100,000 and over at December 31, 1995,
is as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Due in 3 months or less . . . . . . . . . . . $ 48,391
Due in over 3 through 6 months . . . . . . . 20,939
Due in over 6 through 12 months . . . . . . . 12,122
Due in over 12 months . . . . . . . . . . . 18,611
--------
Total. . . . . . . . . . . . . . . . . . . $100,063
--------
--------
</TABLE>
Charter has maintained relationships with certain state and political
subdivisions and has acquired appropriate contracts to be depositories for
these public bodies. As of December 31, 1995, Charter had a total of
$19,467,000 in deposits from these sources. This represents approximately 2.7%
of Charter's total deposits on that date.
25
<PAGE>
LIQUIDITY
Like any commercial bank, the liability structure of the Subsidiary Banks
requires that Charter maintain an appropriate level of liquid resources to meet
normal day-to-day fluctuations in deposit volume and to make new loans and
investments as opportunities arise. Liquidity can be provided by either assets
or liabilities. Traditional sources of liquidity include cash and due from
demand balances, money market investments, investment security maturities and
prepayments, loan maturities and repayments, and core deposit growth. Other
sources of asset liquidity readily available to Charter include interest-
bearing deposits with other financial institutions and trading account assets.
At December 31, 1995, Charter had $50,193,000 in cash, $22,716,000 in federal
funds sold, and a $296,068,000 total securities portfolio for which the market
value was $531,000 greater than the carrying value. The average
loan-to-deposit ratio was 65.3% for 1995, compared to 50.0% for 1994.
A financial service company's activities consist primarily of financing and
investing activities. These activities result in large cash flows. Charter's
consolidated Statements of Cash Flows on page 33 indicates the sources of these
cash flows. In addition to the assets which could be readily converted to cash
(of which no sales or asset securitizations are presently contemplated),
Charter received during 1995 $52,676,000 in proceeds from maturities and
prepayments of securities.
Charter has substantial liability liquidity through its customer base. In
addition to normal core deposit growth, liability liquidity is available
through various sources of purchased funds. Charter emphasizes direct
issuance of liabilities in order to develop stable, long-lasting funding
relationships. At December 31, 1995, Charter had $16,680,000 in securities
sold under agreements to repurchase, all of which were transactions effected
through existing deposit customers, rather than through the national markets.
Back up sources of liquidity may include securities sold under agreements to
repurchase in the national markets, thereby allowing Charter to utilize its
significant holdings of investment securities. Additional liquidity can be
generated through borrowings from the Federal Reserve Bank of Dallas, of which
each of the Subsidiary Banks is a member. Liquidity and matched funding may
also be obtained from the Federal Home Loan Bank of Dallas, of which Charter-
Houston, University and Charter-SSB are members. At December 31, 1995, Charter
had $35,519,000 in Federal Home Loan Bank advances outstanding.
CAPITAL RESOURCES
Risk-based capital guidelines of the Federal Reserve Board stipulate that four
categories of risk weights (0%, 20%, 50%, and 100%), primarily based on
relative credit risk, be applied to the different types of balance sheet
assets. Risk weights for all off-balance sheet exposures are determined by a
two-step process. First, the notional principal amount, or face value, of the
off-balance sheet item is generally multiplied by a credit conversion factor to
arrive at the balance sheet credit-equivalent amount, and then such credit
equivalent amount is assigned to the appropriate risk category to determine its
risk weight.
Under the Federal Reserve Board's guidelines, Charter's aggregate risk-weighted
assets and off-balance sheet exposures at December 31, 1995 and 1994 were
approximately $497,732,000 and $386,041,000, respectively, calculated as
follows:
RISK-WEIGHTED ASSETS
<TABLE>
<CAPTION>
1995 1994
-----------------------------
AGGREGATE RISK-WEIGHTED AGGREGATE RISK-WEIGHTED
AMOUNT AMOUNT AMOUNT AMOUNT
---------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities . . . . . . $296,068 $ 42,117 $280,314 $ 42,971
Loans . . . . . . . . . . . . . . 513,235 405,651 343,761 294,394
Other interest-earning assets . . 22,717 4,543 28,007 5,602
Cash and due from banks . . . . . 50,192 6,856 45,163 5,576
All other assets. . . . . . . . . 37,973 37,973 29,599 29,599
-------- ------- -------- --------
Total Adjusted Assets (1). . . $920,185 497,140 $726,844 378,142
-------- --------
-------- --------
Total Credit-Equivalent Amount
of Off-Balance Sheet Items &
Adjustments. . . . . . . . . . . 592 7,899
-------- --------
Total Risk-Weighted Assets . . $497,732 $386,041
-------- --------
-------- --------
</TABLE>
(1) Total adjusted assets are total assets plus the allowance for credit
losses.
26
<PAGE>
The Federal Reserve Board's guidelines classify capital into two tiers,
referred to as Tier 1 and Tier 2. Tier 1 capital consists of common and
qualifying preferred shareholders' equity less goodwill. Tier 2 capital
consists of mandatory convertible debt, preferred stock not qualifying as Tier
1 capital, qualifying subordinated debt and the allowance for loan losses up to
1.25% of risk-weighted assets. At year-end 1995, the minimum ratio for the sum
of Tier 1 and Tier 2 is 8.00%, at least one-half of which should be in the form
of Tier 1 capital. At December 31, 1995 and 1994, Charter's capital as
calculated in accordance with the Federal Reserve Board's fully phased-in 1992
guidelines was as follows:
RISK-WEIGHTED CAPITAL
<TABLE>
<CAPTION>
1995 1994
--------------------
(in thousands)
<S> <C> <C>
Core Capital (Tier 1):
Common equity . . . . . . . . . . . . . . . $52,764 $47,721
Preferred equity . . . . . . . . . . . . . . 710 710
-------- --------
Total Core Capital . . . . . . . . . . . . 53,474 48,431
-------- --------
Supplementary Capital (Tier 2):
Allowance for credit losses. . . . . . . . . 5,620 4,446
Subordinated debt. . . . . . . . . . . . . . 10,550 11,100
-------- --------
Total Supplementary Capital. . . . . . . . 16,170 15,546
-------- --------
Total Capital. . . . . . . . . . . . . . . . $69,644 $63,977
-------- --------
-------- --------
Core capital (Tier 1) as a percentage
of risk-weighted assets . . . . . . . . . . 10.75% 12.55%
Total capital (Tier 1 and Tier 2) as a
percentage of risk-weighted assets. . . . . 13.99 16.57
Core capital as a percentage of adjusted
quarterly average assets (leverage ratio) . 6.24 7.04
</TABLE>
In addition to its risk-based capital ratios for Tier 1 and Tier 2 capital, the
Federal Reserve Board has issued guidelines establishing a 3% minimum Tier 1
leverage ratio of capital to total assets. Under the Federal Reserve Board's
guidelines, these standards would be minimum requirements. Any institution
operating at or near these levels would be expected to have well-diversified
risk, including no undue interest rate risk exposure, excellent asset quality,
high liquidity, good earnings and, in general, would have to be considered a
strong banking organization, rated composite 1 under the appropriate bank or
bank holding company rating system. The Federal Reserve Board proposal does
not delineate a specific minimum leverage ratio for institutions with higher
risk profiles or which are experiencing or anticipating significant growth;
however, the Federal Reserve Board has indicated that such institutions should
maintain capital levels ranging to 200 basis points above the 3% minimum, or
5%.
For purposes of the above-described Tier 1 capital to total assets leverage
ratio, the definition of Tier 1 capital under the risk-based capital guidelines
applies. Total assets consist of quarterly average total consolidated assets
(defined net of any allowance for credit losses), less goodwill and any other
intangible assets or investments in subsidiaries that the primary regulator
determines should be deducted from Tier 1 capital on a case-by-case basis. At
December 31, 1995, Charter had Tier 1 capital of $53,474,000, and average total
consolidated assets (net of allowance for credit losses) of $865,556,000 for
the fourth quarter, 1995. Therefore, Charter's leverage ratio at December 31,
1995 was 6.24%. While the Federal Reserve Board has not yet identified the
required minimum leverage ratio for all banking institutions, Charter's ratio
nonetheless presently exceeds the highest proposed minimum leverage ratio of
5%. Further reference is made to the table on page 2 for a comparison of
similar capital ratios for each Subsidiary Bank.
27
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . 29
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994. . . . 30
Consolidated Statements of Earnings - Years Ended December 31,
1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Changes in Shareholders' Equity -
Years Ended December 31, 1995, 1994 and 1993. . . . . . . . . . . 32
Consolidated Statements of Cash Flows - Years Ended December 31,
1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . 33
Notes to Consolidated Financial Statements. . . . . . . . . . . . . 34
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Charter Bancshares, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of Charter
Bancshares, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Charter Bancshares, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 14 to the consolidated financial statements,
effective January 1, 1993, Charter Bancshares, Inc. and subsidiaries changed
their method of accounting for income taxes to conform with Statement of
Financial Accounting Standards No. 109. As discussed in Note 1 to the
consolidated financial statements, on January 1, 1994, Charter Bancshares, Inc.
and subsidiaries changed their method of accounting for certain investments in
debt and equity securities to conform with Statement of Financial Accounting
Standards No. 115.
/s/ Deloitte & Touche
- ------------------------------
Houston, Texas
February 20, 1996
29
<PAGE>
CHARTER BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------------------
ASSETS (IN THOUSANDS)
<S> <C> <C>
Cash and due from banks (Note 3) . . . . . . . . . . . . . . . . . . . . $ 50,193 $ 45,166
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . . 22,716 28,004
-------- --------
Total cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . 72,909 73,170
-------- --------
Securities held to maturity (Note 4)(fair value of $99,446,000
and $160,016,000 at December 31, 1995 and 1994, respectively) . . . . . 98,915 168,461
Securities available for sale (Note 4) (amortized cost of $195,529,000
and $116,636,000 at December 31, 1995 and 1994, respectively) . . . . . 197,153 111,853
Loans (Notes 5 and 10) . . . . . . . . . . . . . . . . . . . . . . . . . 513,235 343,761
Less: Allowance for credit losses (Note 6) . . . . . . . . . . . . . . . 5,620 4,446
-------- --------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507,615 339,315
-------- --------
Premises and equipment (Note 8). . . . . . . . . . . . . . . . . . . . . 16,182 14,263
Accrued interest receivable. . . . . . . . . . . . . . . . . . . . . . . 5,598 4,212
Other real estate, net (Note 7). . . . . . . . . . . . . . . . . . . . . 1,985 1,660
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . 7,838 4,223
Purchased mortgage servicing rights. . . . . . . . . . . . . . . . . . . 2,121 2,371
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,249 2,870
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $914,565 $722,398
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest-bearing demand . . . . . . . . . . . . . . . . . . . . . . $201,311 $182,686
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,665 34,077
Interest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . . 93,607 93,753
Money market savings . . . . . . . . . . . . . . . . . . . . . . . . . . 98,406 101,554
Time $100,000 and over . . . . . . . . . . . . . . . . . . . . . . . . . 100,063 94,377
Time under $100,000. . . . . . . . . . . . . . . . . . . . . . . . . . . 205,662 110,433
-------- --------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733,714 616,880
-------- --------
Federal funds purchased and securities sold under
agreements to repurchase (Note 9) . . . . . . . . . . . . . . . . . . . 55,722 20,594
Federal Home Loan Bank advances (Note 10). . . . . . . . . . . . . . . . 35,519 13,000
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . 2,436 1,168
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,482 7,018
Subordinated long-term debt (Note 11). . . . . . . . . . . . . . . . . . 12,750 12,750
Other long-term debt (Note 11) . . . . . . . . . . . . . . . . . . . . . 1,900 2,100
-------- --------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 852,523 673,510
-------- --------
Commitments and contingencies (Notes 8, 15, and 16)
Shareholders' Equity (Notes 12 and 19):
Preferred stock (400,000 shares authorized, issued: 1995
and 1994 - 14,204 shares) . . . . . . . . . . . . . . . . . . . . . . . 710 710
Common stock (12,000,000 shares authorized, issued: 1995 -
6,240,413 shares; 1994 - 5,943,491 shares). . . . . . . . . . . . . . . 6,240 5,944
Class B special common stock (250,000 shares authorized,
issued: 1995 - 219,718 shares; 1994 - 209,261 shares) . . . . . . . . . 220 209
Series C special common stock (50,000 shares authorized,
issued: 1995 - 49,518 shares; 1994 - 47,160 shares) . . . . . . . . . . 50 47
Capital surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,107 35,609
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,475 10,459
Net unrealized gain (loss) on securities available for sale (Note 4) . . 978 (3,352)
Treasury stock at cost (1995 -178,788 shares common and 3
shares preferred; 1994 - 170,275 shares common and 3 shares
preferred). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (738) (738)
-------- --------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . 62,042 48,888
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . $914,565 $722,398
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
30
<PAGE>
CHARTER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Interest Income:
Loans, including fees ........................................ $46,842 $25,875 $22,303
Investment securities ........................................ 18,510 16,647 16,154
Federal funds sold ........................................... 894 1,112 620
Other earning assets ......................................... 224 222 150
------- ------- -------
Total Interest Income ...................................... 66,470 43,856 39,227
------- ------- -------
Interest Expense:
Deposits:
Interest-bearing demand .................................... 1,411 1,515 2,387
Savings .................................................... 835 905 842
Money market savings ....................................... 3,570 3,195 2,922
Time $100,000 and over ..................................... 5,576 2,599 2,246
Time under $100,000 ........................................ 10,377 4,105 4,039
Securities sold under agreements to repurchase ............... 1,884 503 368
Federal funds purchased and
Federal Home Loan Bank Advances ............................. 2,542 610 --
Long-term debt ............................................... 1,230 1,173 982
------- ------- -------
Total Interest Expense ..................................... 27,425 14,605 13,786
------- ------- -------
Net interest income ............................................ 39,045 29,251 25,441
Provision for credit losses (Note 6) ........................... 979 233 911
------- ------- -------
Net Interest Income After Provision for Credit Losses ........ 38,066 29,018 24,530
------- ------- -------
Non-Interest Income:
Service charges on deposit accounts .......................... 6,636 6,329 5,509
Other customer service fees .................................. 1,199 1,076 781
Trust fees ................................................... 1,929 779 583
Trading account (losses) ..................................... -- (33) --
Securities gains ............................................. 277 20 335
Mortgage banking income ...................................... 6,450 2,226 --
Other ........................................................ 1,903 1,846 1,491
------- ------- -------
Total Non-Interest Income .................................. 18,394 12,243 8,699
------- ------- -------
Non-Interest Expense:
Salaries and employee benefits ............................... 18,591 14,725 11,630
Net premises and equipment expense ........................... 5,815 4,749 3,667
Advertising .................................................. 1,316 789 562
Data processing .............................................. 1,722 1,381 1,086
Legal expense (Note 16) ...................................... 1,442 1,492 566
Losses and carrying costs of other real estate (Note 7) ...... 328 167 1,653
Deposit insurance premiums ................................... 910 1,279 1,306
Amortization of intangibles .................................. 820 424 2,108
Stationery and supplies ...................................... 1,070 737 432
Other ........................................................ 7,495 4,071 3,658
------- ------- -------
Total Non-Interest Expense ................................. 39,509 29,814 26,668
------- ------- -------
Earnings before income taxes ................................... 16,951 11,447 6,561
Income tax expense (Note 13) ................................. 6,192 3,761 1,305
------- ------- -------
Earnings before effect of change in accounting principle ....... 10,759 7,686 5,256
Cumulative effect of a change in accounting for
income taxes (Note 13) ...................................... -- -- 2,950
------- ------- -------
NET EARNINGS ............................................... $10,759 $ 7,686 $ 8,206
------- ------- -------
------- ------- -------
Earnings per Common Share (Note 19):
Earnings before a change in accounting principle ............. $ 1.69 $ 1.21 $ 0.82
Cumulative effect of change in accounting for income taxes ... -- -- 0.47
Earnings per share ........................................... 1.69 1.21 1.29
------- ------- -------
Weighted Average Shares Outstanding ............................ 6,330,861 6,326,613 6,312,507
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE>
CHARTER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Preferred stock ($50.00 par value)
Balance at beginning of year ..................................... $ 710 $ 710 $ 710
------- ------- -------
Balance at end of year (14,204 shares issued and
14,201 shares outstanding) ..................................... 710 710 710
------- ------- -------
Common stock ($1.00 par value)
Balance at beginning of year ..................................... 5,944 5,643 5,374
Stock dividend (296,922 shares in 1995; 282,769 shares
in 1994; and 268,472 shares in 1993) ........................... 296 283 269
Conversion of debentures (18,040 shares in 1994 and
123 shares in 1993) ............................................. -- 18 --
------- ------- -------
Balance at end of year (6,240,413 shares
issued and 6,061,625 shares outstanding) ....................... 6,240 5,944 5,643
------- ------- -------
Class B special common stock ($1.00 par value)
Balance at beginning of year ..................................... 209 199 190
Conversion of debentures (19 shares in 1994)
Stock dividend (10,457 shares in 1995, 9,960 shares in 1994
and 9,484 shares in 1993) ....................................... 11 10 9
------- ------- -------
Balance at end of year (219,718 shares issued
and outstanding) ............................................... 220 209 199
------- ------- -------
Series C special common stock ($1.00 par value)
Balance at beginning of year ..................................... 47 45 43
Stock dividend - common stock (2,358 shares in 1995,
2,245 shares in 1994 and 2,138 shares in 1993) .................. 3 2 2
------- ------- -------
Balance at end of year (49,518 shares issued and outstanding) .... 50 47 45
------- ------- -------
Capital surplus
Balance at beginning of year ..................................... 35,609 31,159 27,726
Conversion of debentures ......................................... -- 247 2
Stock dividend - common stock .................................... 5,498 4,203 3,431
------- ------- -------
Balance at end of year .......................................... 41,107 35,609 31,159
------- ------- -------
Retained earnings
Balance at beginning of year ..................................... 10,459 8,749 5,326
Cash dividends - preferred stock ................................. (57) (57) (57)
Cash dividends - common stock .................................... (1,878) (1,421) (1,015)
Stock dividends - common stock ................................... (5,808) (4,498) (3,711)
Net earnings ..................................................... 10,759 7,686 8,206
------- ------- -------
Balance at end of year ........................................... 13,475 10,459 8,749
------- ------- -------
Unrealized gain (loss) on securities available for sale ........... 978 (3,352) --
------- ------- -------
Treasury stock
Balance at beginning of period ................................... (738) (733) (733)
Treasury stock acquired through conversion of debentures
(639 shares in 1994) ........................................... -- (5) --
------- ------- -------
Balance at end of period (178,788 shares common
and 3 shares preferred) ......................................... (738) (738) (733)
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY (NOTE 12) .............................. $62,042 $48,888 $45,772
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE>
CHARTER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ........................................................... $ 10,759 $ 7,686 $ 8,206
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................................... 2,398 2,399 1,478
Amortization of intangibles ........................................ 820 424 2,108
Net amortization of premiums and
discounts on securities .......................................... (98) 1,996 4,107
Provision for credit losses ........................................ 979 233 911
Provision for other real estate losses ............................. 185 16 1,463
Net gain on sales of securities..................................... (277) (43) (455)
Origination of loans available for sale ............................ (370,956) (171,669) --
Proceeds from sales of loans available for sale .................... 327,704 155,454 --
Net gain on sales of loans..... .................................... (3,795) (1,423) --
Net (gain) loss on sales of fixed assets, other real
estate and collateral acquired ................................... (111) (91) (12)
Net decrease in other assets and interest receivable ............... 259 1,685 361
Net increase (decrease) in other liabilities and interest payable .. (290) 1,908 (354)
Net (increase) decrease in deferred tax asset ...................... (1,456) 230 (1,129)
Net trading account activity ....................................... 39,757 -- --
Other .............................................................. (2) 284 195
--------- --------- ---------
Total Adjustments ................................................ (4,883) (8,597) 8,673
--------- --------- ---------
Net Cash Provided by (Used In) Operating Activities ............ 5,876 (911) 16,879
--------- --------- ---------
Cash flows from investing activities:
Net decrease in interest-bearing deposits .......................... 2 -- 754
Proceeds from sales of securities (Note 4) ......................... 28,792 8,026 25,629
Proceeds from maturities and prepayments of securities ............ 52,676 99,238 143,050
Purchase of securities ............................................. (87,493) (110,664) (159,144)
Net increase (decrease) in loans ................................... (24,764) 40,108 (12,505)
Purchase of loans held to maturity ................................. -- (75,537) --
Capital expenditures, net .......................................... (3,248) (3,067) (1,272)
Proceeds from sales of other real estate ........................... 1,655 524 1,167
Purchase of mortgage servicing rights .............................. -- (1,032) --
Purchase of mortgage company ....................................... (52) (3,371) --
Purchase of banking organization, net of acquired
cash and cash equivalents ........................................ 9,530 19,317 4,433
--------- --------- ---------
Net Cash Provided by (Used in) Investing Activities ............ (22,902) (26,458) 2,112
--------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in non-interest-bearing
demand, savings, interest-bearing demand
and money market accounts ........................................ (14,946) (17,490) 6,210
Net increase (decrease) in certificates of deposit ................. (1,090) 24,826 (31,631)
Net increase (decrease) in securities sold under
agreements to repurchase .......................................... 35,428 7,653 (7,778)
Net increase (decrease) in Federal Home Loan Bank Advances ......... (350) 13,000 --
Payment of preferred dividends ..................................... (57) (57) (57)
Payment of common dividends ........................................ (1,720) (1,055) (1,015)
Repayment of long-term debt ........................................ (200) (1,200) (1,461)
Increase in long-term debt ......................................... -- 2,500 7,500
--------- --------- ---------
Net Cash Provided by (Used in) Financing Activities .............. 16,765 28,177 (28,232)
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents .................. (261) 808 (9,241)
--------- --------- ---------
Cash and Cash Equivalents at Beginning of Period ...................... 73,170 72,362 81,603
--------- --------- ---------
Cash and Cash Equivalents at End of Period (Note 1) ................... $ 72,909 $ 73,170 $ 72,362
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES:
Interest paid ..................................................... $ 24,964 $ 14,414 $ 13,925
Income taxes paid ................................................. 9,110 800 1,305
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Other real estate and collateral acquired ......................... $ 1,233 $ 386 $ 1,068
Loans made to finance sales of other real estate .................. 205 201 448
Transfer of securities held to maturity and available for
sale to trading account .......................................... 39,757 -- --
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
33
<PAGE>
CHARTER BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES
NATURE OF OPERATIONS: Charter Bancshares, Inc. ("Charter" or "Company") is a
bank holding company headquartered in Houston, Texas. Charter's principal
activity is the ownership and management of the Subsidiary Banks. Charter-
Houston, Charter-Colonial and University Bank-Galveston are national banks
organized under the laws of the United States and Charter-SSB is a state
savings bank organized under the laws of the state of Texas. Other than asset
management and trust services which are offered solely through Charter-
Houston, each of the Subsidiary Banks offers a full range of banking services
to its customers, including demand and time deposits and various types of
commercial and consumer loans. The Subsidiary Banks also offer discount
brokerage services for the purchase of securities through a consortium of the
Subsidiary Banks, which operates as Investor Services at Charter Banks
("Charter Investor Services"). Charter-Houston, Charter-Colonial and
Charter-SSB draw substantially all of their deposits and a majority of their
loans in the Houston-Harris County area, while University Bank-Galveston draws
substantially all of its deposits and makes substantially all of its loans
in the Galveston, Texas area.
SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: The accounting and
reporting policies of Charter and subsidiaries conform to generally accepted
accounting principles ("GAAP") and general practices within the banking
industry. A summary of significant accounting policies is as follows:
CONSOLIDATION: The consolidated financial statements include the accounts of
Charter and its subsidiaries, after elimination of significant intercompany
balances and transactions.
USE OF ESTIMATES: The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
SECURITIES AND TRADING ACCOUNT ASSETS: Charter reviews its financial
position, liquidity and future plans in evaluating the criteria for
classifying securities. Generally, securities are classified between held to
maturity, available for sale and trading at the time the securities are
purchased. Securities held to maturity are stated at cost, increased by
accretion of discounts and reduced by amortization of premiums. Premiums and
discounts are amortized and accreted to opertaions using the level-yield
method of accounting, adjusted for prepayments as applicable. The adjusted
cost of specific securities sold is used to compute gains or losses on
securities transactions. Market values of securities are estimated based on
available market quotations. In the few instances where market quotations are
unavailable, the securities are stated at cost or appraised values as
estimated by management.
On January 1, 1994, Charter adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under the new rules, debt securities that the Company has
both the positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities that the Company does not have the positive
intent and ability to hold to maturity and all marketable equity securities
are classified as available-for-sale or trading and carried at fair value.
Unrealized holding gains and losses on securities classified as available-for-
sale are carried as a separate component of shareholders' equity. Unrealized
holding gains and losses on securities classified as trading are reported in
earnings.
Effective January 1, 1994, certain securities were designated as available for
sale, thereby replacing the category of securities designated as held for sale
in prior periods. Application of the new rules resulted in an estimated
increase of approximately $860,000 in shareholders' equity as of January 1,
1994, representing the recognition in shareholders' equity of unrealized
gains, net of taxes, for the Company's investment in debt and equity
securities determined to be available for sale.
LOANS: Loans are stated at the principal amount outstanding, net of unearned
discount. The unearned discount relates principally to consumer installment
loans. The related interest income for multi-payment loans is recognized
principally by the "sum of the digits" method which records interest in
proportion to the declining outstanding balances of the loans; for single
payment loans such income is recognized under the straight-line method. Both
methods approximate the interest method.
Mortgage warehouse loans available for sale are carried at the lower of book
value or market value as determined by commitments from investors or current
investor yield requirements calculated on an aggregate loan basis. Net
unrealized losses, if any, are recognized in a valuation allowance by a charge
to current operations.
34
<PAGE>
Premiums and discounts on mortgage warehouse loans available for sale are not
recognized in income until the related loans are sold. Premiums and discounts
associated with Charter's other loans for which the collection is probable and
estimatable are recognized in income using the level-yield method over the
loans' remaining lives (adjusted for anticipated prepayments) or when such
loans are sold.
Loan fees on mortgage warehouse loans available for sale, net of certain
direct loan origination costs, are not recognized in income until the related
loans are sold. Loan fees on other loans, net of certain direct origination
costs, are deferred and recognized in income, using the level-yield method
over the loans' remaining lives (adjusted for anticipated prepayments) or
until such loans are sold.
Effective January 1, 1995, Charter adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a
Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosure." SFAS No. 114 applies only to
impaired loans, with the exception of groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment. A loan is defined as
impaired by SFAS No. 114 if, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due, both
interest and principal, according to the contractual terms of the loan
agreement. Specifically, SFAS No. 114 requires that the allowance for credit
losses related to impaired loans be determined based on the present value of
expected cash flows discounted at the loan's effective interest rate or, as a
practical expedient, the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. Prior to the adoption of
SFAS No. 114, the Bank's methodology for determining the adequacy of the
allowance for credit losses did not incorporate the concept of the time value
of money and the expected future interest cash flow.
As permited by SFAS No. 118, interest revenue on impaired loans continues to
be either applied against principal or realized as interest revenue, according
to management's judgment as to the collectibility of principal.
SALES OF SINGLE FAMILY LOANS AND SERVICING RIGHTS: From time to time, Charter
sells loans to institutional and private investors. Gains or losses on loan
sales, recognized at the time of sale, are determined on the specific
identification method and reflect the extent that net sales proceeds differ
from the book value of the loans. Certain of the loans and servicing rights
are sold with general representations and warranties under contracts for sales
of loans and servicing rights. Repurchases of the loans and servicing rights
may be required when a loan fails to meet certain conditions specified in the
contract pursuant to which the loans and servicing rights were sold and that
failure was caused by a matter covered by the general representations and
warranties. Charter determines an accrual for the estimated future costs of
its obligations, which is included in other liabilities on the consolidated
balance sheets and maintained at levels management believes are adequate to
cover estimated losses. The related expense is reflected in non-interest
expense in the consolidated statements of earnings.
From time to time, Charter sells its rights to service single family loans
that it originates. The sale of the servicing rights is recognized upon
execution of a contract, receipt of an adequate downpayment, and the transfer
of the related risks and rewards of ownership to the purchaser.
ALLOWANCE FOR CREDIT LOSSES: The allowance for credit losses is a valuation
allowance available for losses incurred on loans. All losses are charged to
the allowance for credit losses when the loss actually occurs or when a
determination is made that a loss is likely to occur. Recoveries are credited
to the allowance at the time of recovery.
Prior to the beginning of each year and at least quarterly during the year,
management estimates the likely level of future losses to determine whether
the allowance for credit losses is adequate to absorb losses in the existing
portfolio. Based on these estimates, an amount is charged to the provision
for credit losses and credited to the allowance for credit losses in order to
adjust the allowance to a level estimated to be adequate to absorb losses.
Management's judgment as to the level of future losses on existing loans
involves the consideration of current and anticipated economic conditions and
their potential effects on specific borrowers; an evaluation of the existing
relationships among credits with potential losses; the present level of the
allowance; historical loan loss and recovery experience; results of
examinations of the loan portfolio by regulatory agencies; and management's
internal review of the loan portfolio. In determining the collectibility of
certain loans, management also considers the fair value of any underlying
collateral.
It should be understood that estimates of credit losses involve an exercise of
judgment. While it is reasonably possible that in the near term Charter may
sustain losses which are substantial relative to the allowance for credit
losses, it is the judgment of management that the allowance for credit losses
reflected in the consolidated balance sheets is adequate to absorb estimated
losses in the existing loan portfolio.
35
<PAGE>
NON-PERFORMING ASSETS: Included in the non-performing asset category are (i)
loans which have been categorized by management as non-accrual because
collection of interest and/or principal is doubtful, (ii) loans which have
been restructured to provide a reduction in the interest rate or a deferral of
interest or principal payments, and (iii) other assets which consist of real
estate and other property that have been acquired in lieu of loan balances
due, which are awaiting disposition.
When the payment of principal or interest on a loan is delinquent for 90 days,
or earlier in some cases, the loan is placed on non-accrual status, unless the
loan is in the process of collection and the underlying collateral fully
supports the carrying value of the loan. If the decision is made to continue
accruing interest on the loan, periodic reviews are made to confirm the basis
for the accruing status of the loan. When a loan is put on non-accrual
status, interest accrued during the current year and prior to the loan being
put on non-accrual status is charged to operations. Interest accrued during
prior periods, and deemed uncollectible, is charged to the allowance for
credit losses. Generally, any payments received on non-accrual loans are
applied first to outstanding loan amounts and next to the recovery of charged
off loan amounts. Any excess is treated as a recovery of lost interest.
Charter records other real estate acquired by foreclosure at the lesser of the
outstanding loan amount or fair value less estimated costs to sell at the time
of foreclosure. Required developmental costs associated with foreclosed
property under construction are capitalized and considered in determining the
fair value of the property. If at a later date it is determined that the fair
value less estimated costs to sell the asset is less than the total
capitalized cost, the additional loss is recognized by a credit to the
allowance for other real estate losses.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization
are charged to operations at rates based upon the straight-line method over
the estimated useful lives of the underlying assets.
INCOME TAXES: On January 1, 1993, Charter adopted SFAS No. 109, "Accounting
for Income Taxes" which provides for a deferred tax asset to be recognized for
the estimated future tax effects attributable to temporary differences and
carryforwards. Accordingly, a deferred tax asset was recognized upon
adoption. The cumulative effect of initially applying this statement is
reported as the effect of a change in accounting principle.
Prior to January 1, 1993, Charter applied the provisions of SFAS No. 96.
Under SFAS Nos. 109 and 96 there are two components of income tax provision,
current and deferred. Current income tax provisions approximate taxes to be
paid or refunded for the applicable period. The balance sheet amounts of
deferred tax assets or liabilities are recognized based upon the temporary
differences between the basis of assets and liabilities as measured by tax
laws and their basis as reported on the financial statements. Deferred tax
expense or benefit is then recognized for the change in deferred tax
liabilities or assets between periods.
Realization of net deferred tax assets is dependent on generating sufficient
future taxable income. Although realization is not assured, management
believes it is more likely than not that all of the net deferred tax assets
will be realized. The amount of the net deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced.
INTEREST RATE CONTRACTS: Interest rate swap agreements, forward and futures
contracts, options and cap, collar and floor agreements are used to manage
interest rate exposure by hedging certain assets and liabilities. Contracts
used in trading activities are carried at market value, and gains and losses
are recognized currently in income. For contracts used to manage interest
rate risk, income and expense are accrued based upon expected settlement
payments, and are recorded as an adjustment to interest income and expense.
INTANGIBLES ARISING FROM ACQUISITIONS: Because of the earning power or other
special values of certain purchased companies or businesses, the Company paid
amounts in excess of fair value for tangible assets acquired. Generally, such
amounts are being amortized by systematic charges to income (primarily for
periods from 6 to 15 years) over a period no greater than the estimated
remaining life of the assets acquired or not exceeding the estimated average
remaining life of the existing deposit base assumed.
36
<PAGE>
PURCHASED MORTGAGE SERVICING RIGHTS: The acquisition of Charter Mortgage
included the purchase of Charter Mortgage's mortgage servicing portfolio.
Management determined the fair value of the purchased mortgage servicing
rights ("PMSR's") from Charter Mortgage to be approximately $1.7 million
at acquisition. During the third quarter of 1994, Charter purchased
additional servicing rights on approximately $57 million in loans for
approximately $700,000. These PMSR's are includable in regulatory
tangible capital. PMSRs are amortized in proportion to, and over the
period of, the estimated net servicing revenue of the underlying mortgages,
which are collateralized by both single and multi-family properties. Charter
periodically evaluates the carrying value of PMSRs for impairment, on a
desegregated basis. This evaluation includes discounting the estimated
future net servicing revenue of the servicing portfolio at an appropriate
long-term discount rate. The evaluation incorporates prepayment, default
and certain interest rate assumptions. Impairment losses are charged to
operations as incurred.
EARNINGS PER COMMON SHARE: Earnings per common share are based on the average
number of shares of Common, Class B Special Common and Series C Special Common
Stock outstanding during the year after deducting from net earnings the
current period preferred dividends only, excluding accumulated and unpaid
dividends and interest on preferred stock from any prior periods. All per
share figures have been adjusted for the 5% stock dividends paid on August 10,
1992, September 30, 1993, October 31, 1994 and October 31, 1995.
RECLASSIFICATION OF PRIOR YEAR AMOUNTS: Certain amounts have been
reclassified in the accompanying consolidated financial statements from those
previously reported to conform to current year financial statement
classifications.
STATEMENTS OF CASH FLOWS: Cash equivalents include amounts due from banks and
federal funds sold and securities sold under agreements to resell. Generally,
federal funds and securities sold under agreements to resell are purchased and
sold for one-day periods.
RECENTLY ISSUED ACCOUNTING STANDARDS: In March 1995 the FASB issued SFAS
No. 121 "Accounting for Impairment of Long- Lived Assets and for Long-Live
Assets to Be Disposed Of." This statement established accounting standards
for reconizing and measuring impairment of long-lived assets (and related
goodwill) to be held and used and for such assets held for disposal. The
statement is effective for financial statements with fiscal years beginning
after December 15, 1995. Implementation of this pronouncement should
have no material adverse effect on the Company's consolidated financial
statements.
In May 1995 the FASB issued SFAS No. 122 "Accounting for Mortgage Servicing
Rights." This statement requires that a mortgage banking enterprise
recognize as separate assets rights to service mortgage loans for others,
however those servicing rights are acquired. Also, the statement requires
that capitalized mortgage servicing rights be assessed for impairment based
on the fair value of those rights. The statement is applicable beginning
January 1, 1996. Implementation of this pronouncement should have no
material adverse effect on the Company's consolidated financial statements.
37
<PAGE>
NOTE 2 - ACQUISITIONS
On April 20, 1993, Charter consummated the acquisition of University National
Bank-Galveston, Galveston, Texas ("University"). This acquisition has been
accounted for under the purchase method of accounting. At April 20, 1993,
University had total assets of $96.3 million, total deposits of $88.7 million,
and total loans of $41.7 million.
University was acquired for cash consideration of approximately $9.4 million,
or $50.00 per share of outstanding capital stock of University. A portion of
the purchase price was financed by Charter's issuance of a $7.5 million
subordinated debenture to a bank holding company. A portion of the proceeds
from such subordinated debt was used to retire an outstanding bank loan with a
principal balance of $1,361,000, which loan was secured by all of the capital
stock of Charter National Bank-Colonial and 30% of the capital stock of Charter
National Bank-Houston ("Charter-Houston"). All of such stock was released upon
retirement of the loan.
On April 8, 1994, Charter consummated the acquisition of certain assets and
liabilities that comprise an aggregate of four branches which are located in
Fiesta Mart supermarkets in the Houston, Harris County area. The Fiesta Mart
branches had total deposits in excess of $20 million at April 8, 1994. The
purchase price for the Fiesta Mart branches was equal to the net book value of
the acquired assets less the assumed liabilities, plus a premium of $775,000.
On April 27, 1994, Charter consummated the acquisition of certain assets and
liabilities of Capital Standard Mortgage, Inc., through a 90 percent owned
subsidiary known as Charter Mortgage Company ("Charter Mortgage"). The
remaining 10 percent of Charter Mortgage's stock is owned by principals of
Charter Mortgage. Charter Mortgage presently operates loan production
offices in Texas and Arizona. At April 27, 1994, the servicing portfolio
totalled approximately $126 million and loans in the pipeline totalled
approximately $80 million; both the servicing portfolio and the pipeline were
comprised of relatively low rate mortgages with a weighted average coupon of
approximately 7.5% which should be resistant to accelerated prepayments.
On July 1, 1994, Charter consummated the acquisition of residential
construction loans and selected fixed assets from Roosevelt Financial Group,
Chesterfield, Missouri. The residential construction loans represented the
existing construction portfolio generated by the construction lending
operations of Farm and Home Savings Association ("Farm and Home") prior to the
June 30, 1994 acquisition of Farm and Home by Roosevelt Financial Group. In
addition to purchasing these construction loans and selected fixed assets,
Charter employs approximately 20 persons previously employed by Farm and Home
and associated with the construction lending area. The loans and selected
fixed assets were purchased by Charter-Houston.
The purchased residential construction loans represented approximately $75
million in outstanding balances, with total credit lines of approximately $210
million. Approximately one-third of the outstanding loans were for home
construction in Houston, one-third in Dallas, and the balance are for homes in
Austin and San Antonio. A typical interim construction loan will have an
average life of less than one year and earn interest that floats at the prime
rate plus one to one and one-half percent (the prime rate as of December 31,
1994 was 8.5%) Additional fees may be earned on construction loans in the
form of origination fees, inspection fees, appraisal fees and extension fees.
The purchased fixed assets of approximately $267,000 are primarily comprised of
the furniture and equipment used in Farm and Home's construction lending area.
Except for approximately $11,000 in miscellaneous accounts payable related to
construction loans, there were no other liabilities assumed by Charter in the
transaction. All of the loans and selected fixed assets were purchased at the
existing net book values as reflected on Roosevelt Financial Group's books,
which amounts approximate their fair value. No purchase premium or discount
was paid to or received from Roosevelt Financial Group.
On June 24, 1994, Charter agreed to acquire Houston-based West Loop Savings and
Loan Association ("West Loop") pending shareholder and regulatory approval. At
December 31, 1994, West Loop had total loans of $91,139,000, total deposits of
$103,793,000 and total assets of $140,301,000. Following receipt of the
requisite shareholder and regulatory approvals the acquisition was closed on
January 10, 1995, after which West Loop's charter was converted to a Texas
state savings bank with the name Charter Bank, SSB. A pro forma condensed
statement of earnings assuming the acquisition of West Loop was effective
January 1, 1994 is presented as follows:
38
<PAGE>
PRO FORMA CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-------------------------------------------
CHARTER WEST LOOP ADJUSTMENTS PRO FORMA
------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Interest Income ................... $43,856 $14,332 $(1,160) $57,028
Total Interest Expense .................. 14,605 5,892 20,497
Provisions for credit losses ............ 233 (98) 140 275
------- ------- ------- -------
Net Interest Income After Provision
for Credit Losses .................... 29,018 8,538 (1,300) 36,256
------- ------- ------- -------
Total Non-Interest Income ............... 12,243 165 12,408
Total Non-Interest Expense .............. 29,814 3,798 33,612
------- ------- ------- -------
Earnings before income taxes ............ 11,447 4,905 (1,300) 15,052
Income tax expense .................... 3,761 1,677 (400) 5,038
------- ------- ------- -------
Net Earnings ........................ $ 7,686 $ 3,228 $ (900) $10,014
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Note A - other adjustments to Pro Forma statements of earnings
Pro forma adjustments related to the pro forma condensed statements of earnings
have been computed assuming the acquisition was consummated as of January 1,
1994. Included in the historical financial information of West Loop, in the
opinion of Charter's management, are estimates for non-recurring revenues and
reduced provisions for credit losses. The non-recurring revenues include gains
on sales of loans and the accretion of unearned discount recognized on prepaid
loans.
On November 17, 1995, Charter consummated the acquisition of LaPorte which was
merged into Charter-Houston. This acquisition has been accounted for under the
purchase method of accounting. At acquisition LaPorte had approximately $34
million in total assets, $32 million in deposits, and $13 million in loans.
LaPorte has one banking facility located at 815 Highway 146 South in southeast
Harris County.
Effective January 1, 1995, Charter purchased certain assets and liabilities
from Providence Trust Company for a purchase premium of approximately $1.2
million. This acquisition increased the trust assets under management by
approximately $66 million and generated new fee income in excess of $1
million for 1995.
Each of the above acquisitions has been accounted for under the purchase
method of accounting with cash as the sole form of consideration given. The
resulting goodwill is being amortized using the straight line method over ten
to fifteen years.
NOTE 3 - RESERVE REQUIREMENTS
Cash and due from bank demand balances of approximately $15,728,000 and
$14,572,000 at December 31, 1995 and 1994, respectively, were maintained to
satisfy regulatory reserve requirements.
39
<PAGE>
NOTE 4 - SECURITIES
The amortized cost and fair values of securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------
1995 1994
-------------------------------------------- --------------------------------------------
GROSS GROSS GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- -------- --------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held to Maturity:
U.S. Treasury securities
and obligations of U.S. government
corporations and agencies ......... $ 17,128 $ 290 $ (54) $ 17,364 $ 55,571 $225 $ (2,636) $ 53,160
Mortgage-backed securities
issued by U.S. government
agencies and corporations ......... 56,578 1,151 (1,056) 56,673 56,157 194 (4,062) 52,289
Collateralized mortgage
obligations ....................... 22,478 228 (28) 22,678 55,320 19 (2,112) 53,227
Obligations of states and
political subdivisions ............ 2,251 8 (8) 2,251 1,133 -- (71) 1,062
Debt securities issued by
foreign governments ............... 480 -- -- 480 280 -- (2) 278
-------- ------ ------- -------- -------- ---- -------- --------
Total Securities Held to Maturity .. 98,915 1,677 (1,146) 99,446 168,461 438 (8,883) 160,016
-------- ------ ------- -------- -------- ---- -------- --------
Securities Available for Sale:
U.S. Treasury securities
and obligations of U.S. government
corporations and agencies ......... 45,541 106 (87) 45,560 28,397 -- (764) 27,633
Mortgage-backed securities
issued by U.S. government
agencies and corporations ......... 79,432 846 (536) 79,742 51,763 263 (3,422) 48,604
Collateralized mortgage
obligations ....................... 64,456 1,140 (101) 65,495 27,748 69 (1,148) 26,669
Other equity securities ............ 6,100 256 -- 6,356 8,728 219 -- 8,947
-------- ------ ------- -------- -------- ---- -------- --------
Total Securities Held for Sale ..... 195,529 2,348 (724) 197,153 116,636 551 (5,334) 111,853
-------- ------ ------- -------- -------- ---- -------- --------
Total Securities ................... $294,444 $4,025 $(1,870) $296,599 $285,097 $989 $(14,217) $271,869
-------- ------ ------- -------- -------- ---- -------- --------
-------- ------ ------- -------- -------- ---- -------- --------
</TABLE>
In November 1995, the FASB issued "A Guide to Implementation of Statement 115
on Accounting for Certain Investments in Debt and Equity Securities" (the
"Implementation Guide"). Concurrent with the initial adoption of the
Implementation Guide, but no later than December 31, 1995, the Bank was
permitted to reassess the appropriateness of the classifications of all
securities held at that time. Under the Implementation Guide,
reclassifications from the held to maturity category resulting from this one-
time reassessment do not call into question the intent to hold other securities
to maturity in the future. Upon adoption of the Implementation Guide, the Bank
reclassified $39.1 million in securities from its held to maturity portfolio to
its available for sale portfolio and $39.8 million to its trading portfolio.
The effect of these transfers decreased non-interest income by $104,000 and
increased stockholders' equity by $395,000.
The collateralized mortgage obligations are secured by certificates backed by
U.S. Government or federal agency guarantees. Proceeds from the sales of total
securities during 1995 were $68,549,000. Gross gains of $573,000 and gross
losses of $403,000 were realized on total sales. Of the total amount of
proceeds from securities sales, all were from sales of securities included in
the available for sale category. There were no sales of securities from the
held to maturity category. There was also a recovery of $107,000 from the
settlement of a security sold in 1992.
Proceeds from the sales of total securities during 1994 were $8,026,000. Gross
gains of $50,000 and gross losses of $30,000 were realized on total sales. Of
the total amount of proceeds from securities sales, all were from sales of
securities included in the held for sale category that was established January
1, 1994. There were no sales of securities from the held to maturity category.
Proceeds from sales of total securities during 1993 were $25,629,000. Gross
gains of $465,000 and gross losses of $130,000 were realized on total sales.
Of the total amount of proceeds from securities sales all were from sales of
securities included in the held for sale category.
Securities with amortized costs of $163,329,000 and $209,089,000 at December
31, 1995 and 1994, respectively, were pledged to secure public deposits and
repurchase agreements with customers and for other purposes as required by
law. The section on page 25 entitled "Securities" is incorporated herein as
part of this note as it relates to the maturities and yields on investment
securities.
40
<PAGE>
NOTE 5 - LOANS
Set forth in the following table are loans classified by major type.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and industrial . . . . . . . . . $73,591 $65,945
Commercial real estate . . . . . . . . . . . . . . . . 57,566 40,923
Real estate - construction . . . . . . . . . . . . . . 110,602 90,478
Real estate - multi-family . . . . . . . . . . . . . . 17,599 10,611
Real estate - 1-4 family . . . . . . . . . . . . . . . 180,262 75,468
Loans to individuals (net of unearned discounts of
$3,749,000 in 1995 and $2,861,000 in 1994). . . . . . 73,615 60,336
-------- --------
Total Loans $513,235 $343,761
-------- --------
-------- --------
</TABLE>
Included in total loans as of December 31, 1995 and 1994 were mortgage
warehouse loans available for sale of $48,885,000 and $17,906,000,
respectively. There were no realized or unrealized losses on loans available
for sale. During 1995, Charter saw growth in its real estate loans in the
real estate construction category primarily as a result of the purchase of
residential construction loans from Roosevelt Financial Group as discussed
earlier. Included in the total of real estate-construction loans are $106
million of loans secured by one-to-four family residential properties, which
amount comprises approximately 96% of the total of construction loans.
As discussed in Note 1, the Bank adopted SFAS No. 114 and 118 effective
January 1, 1995. Adoption of these statements had no impact on Charter's
financial statements including the level of the allowance for credit losses.
At December 31, 1995, the recorded investment in impaired loans under SFAS
No. 114 is $2,581,000, with a required allowance for credit losses of
$677,000. The approximate average recorded investment in impaired loans for
the year ended December 31, 1995 was $1,600,000. The Bank recognized no
interest revenue on these impaired loans in 1995.
As of December 31, 1995 and 1994, loans outstanding to directors, officers and
their affiliates were approximately $1,275,000 and $1,735,000, respectively.
All such transactions were made, in the opinion of management, in the ordinary
course of business on substantially the same terms as to interest rate and
collateral as those prevailing at the time for comparable transactions with
other persons and did not involve more than a normal risk of collectibility.
The following is a detail of the activity in loans to officers and directors
for the year ended December 31, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Beginning of period ................................... $1,735
Additions ............................................. 655
Payments .............................................. 1,115
Charge-offs ........................................... --
------
End of Period ......................................... $1,275
------
------
</TABLE>
41
<PAGE>
The maturities of loans as of December 31, 1995, excluding mortgages and loans
to individuals, based on remaining scheduled repayments of principal appear
below:
<TABLE>
<CAPTION>
MATURING MATURING MATURING
IN 1 YEAR AFTER 1 YEAR AFTER
OR LESS THROUGH 5 YEARS FIVE YEARS
------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Commercial, financial and
industrial . . . . . . . . . . $ 41,503 $26,287 $ 5,801
Commercial real estate. . . . . 7,951 36,808 12,807
Real estate - construction. . . 104,796 3,973 1,833
-------- ------- -------
Total. . . . . . . . . . . . . $154,250 $67,068 $20,441
-------- ------- -------
-------- ------- -------
</TABLE>
With respect to loans due after one year, as of December 31, 1995, $61,170,000
of such loans had a variable interest rate and $26,339,000 of such loans had a
fixed interest rate.
The following table sets forth the components of non-performing assets and past
due loans for the last five years:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994 1993 1992 1991
------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Real estate . . . . . . . . . . . . . . . $1,746 $ 688 $1,172 $ 352 $ 110
Commercial and industrial . . . . . . . . 520 227 464 537 1,085
Individual. . . . . . . . . . . . . . . . 71 32 98 37 37
------ ------ ------ ------ -------
Total non-accrual loans . . . . . . . . 2,337 947 1,734 926 1,232
------ ------ ------ ------ -------
Restructured loans:
Real estate . . . . . . . . . . . . . . . -- -- 213 --
Commercial and industrial . . . . . . . . -- 1,203 -- -- --
Other . . . . . . . . . . . . . . . . . . -- -- -- -- --
------ ------ ------ ------ -------
Total restructured loans. . . . . . . . -- 1,203 213 -- 832
------ ------ ------ ------ -------
Other real estate, net and
collateral acquired. . . . . . . . . . . . 2,018 1,662 2,218 5,088 8,164
------ ------ ------ ------ -------
Total non-performing assets . . . . . . $4,355 $3,812 $4,165 $6,014 $10,228
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Loans past due 90 days or more
and still accruing interest:
Real estate . . . . . . . . . . . . . . . $1,275 $ 313 $ 207 $ 149 $ 618
Commercial and industrial . . . . . . . . 172 226 19 452 690
Individual. . . . . . . . . . . . . . . . 233 159 342 142 454
All other loans . . . . . . . . . . . . . 7 2 9 -- 3
------ ------ ------ ------ -------
Total loans past due 90 days or
more and still accruing interest . . . $1,687 $ 700 $ 577 $ 743 $ 1,765
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Ratios:
Allowance for credit losses as a
percentage of loans. . . . . . . . . 1.1% 1.3% 1.6% 1.6% 1.4%
Allowance for credit losses as a
percentage of non-accrual loans . 240.4 469.24 266.2 409.5 252.9
Allowance for credit losses as a
percentage of non-performing
loans . . . . . . . . . . . . . . 139.6 156.0 182.9 227.2 81.4
Non-performing loans as a
percentage of total loans . . . . 0.8 0.8 0.9 0.7 1.5
Total non-performing assets as a
percentage of total assets. . . 0.5 0.5 0.6 1.0 1.8
</TABLE>
The preceding table provides historical data highlighting Charter's overall
level of non-performing assets and its levels of allowances relative to non-
performing assets.
42
<PAGE>
NOTE 6 - ALLOWANCE FOR CREDIT LOSSES
An analysis of activity in the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
---------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year . . . . . . $ 4,446 $4,616 $3,792
Provision for credit losses. . . . . . . 979 233 911
Allowance of acquired bank . . . . . . . 1,018 -- 522
Loans charged off. . . . . . . . . . . . (1,022) (939) (861)
Less recoveries. . . . . . . . . . . . . 199 536 252
------- ------ ------
Net charge-offs . . . . . . . . . . . (823) (403) (609)
------- ------ ------
Balance at End of Year . . . . . . . . . $ 5,620 $4,446 $4,616
------- ------ ------
------- ------ ------
</TABLE>
NOTE 7 - ALLOWANCE FOR OTHER REAL ESTATE LOSSES
Other real estate is reflected on the consolidated balance sheets net of an
allowance for anticipated losses on other real estate. An analysis of
activity in the allowance for losses on other real estate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
---------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year . . . . . . $2,362 $2,418 $ 3,569
Provision for losses . . . . . . . . . . 185 16 1,463
Allowance of acquired bank . . . . . . . 137 -- 10
Reductions . . . . . . . . . . . . . . . (458) (72) (2,624)
------ ------ -------
Balance at End of Year . . . . . . . . . $2,226 $2,362 $ 2,418
------ ------ -------
------ ------ -------
</TABLE>
NOTE 8 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
--------------------
(IN THOUSANDS)
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . $ 4,365 $ 3,399
Buildings. . . . . . . . . . . . . . . . . 9,908 8,288
Equipment. . . . . . . . . . . . . . . . . 15,448 11,361
Construction in progress . . . . . . . . . 106 362
Leasehold improvements . . . . . . . . . . 4,779 4,649
------- -------
Total premises and equipment. . . . . . . 34,606 28,059
Less accumulated depreciation
and amortization. . . . . . . . . . . . . 18,424 13,796
------- -------
Premises and Equipment, net. . . . . . . . $16,182 $14,263
------- -------
------- -------
</TABLE>
43
<PAGE>
Rental expense for the years ended December 31, 1995, 1994 and 1993 totalled
approximately $2,147,000, $1,781,000 and $1,286,000, respectively. A summary
of non-cancelable future operating lease commitments follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
PERIOD LEASE COMMITMENTS
(IN THOUSANDS)
<S> <C>
1996 . . . . . . . . . . . . . . . $1,830
1997 . . . . . . . . . . . . . . . 1,477
1998 . . . . . . . . . . . . . . . 1,213
1999 . . . . . . . . . . . . . . . 740
2000 . . . . . . . . . . . . . . . 669
Thereafter . . . . . . . . . . . . 629
------
Total. . . . . . . . . . . . . . $6,558
------
------
</TABLE>
It is expected that, in the normal course of business, leases that expire will
be renewed or replaced by leases on other property or equipment. It is
anticipated that future minimum lease commitments will not be less than the
amounts recorded for 1995.
In October 1993, University purchased a 1.91 acre tract of land adjacent to
its West 61st Street branch for a purchase price of approximately $463,000.
During 1994, construction and operation of a motor banking facility comprised
initially of three drive-in lanes was completed.
During 1985, a Subsidiary Bank sold the land and improvements that comprise a
banking facility and operations center to a third party and simultaneously
leased back the facilities. The initial term is for a fifteen-year period
with options to repurchase the facility (including land) in years five, seven
and ten of the term of the lease. The minimum lease payments are included in
the table above. The gain of approximately $1.2 million on the sale was
deferred for financial statement purposes has been amortized into income over
a ten-year period.
NOTE 9 - SHORT-TERM BORROWINGS
Securities sold under agreements to repurchase generally mature within one day
to one year from the transaction date. Information relating to these
borrowings is shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
----------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Daily average balance . . . . . . . . . . . $20,431 $12,335 $13,837
Daily average rate. . . . . . . . . . . . . 4.82% 4.01% 2.37%
Maximum month-end balance . . . . . . . . . $27,053 $19,594 $19,068
Balance at end of year. . . . . . . . . . . 16,680 19,594 12,941
Average rate on balance at end of year. . . 4.80% 4.76% 2.02%
</TABLE>
At December 31, 1995, Charter had $16,680,000 in securities sold under
agreements to repurchase, all of which were transactions effected with
existing deposit customers.
NOTE 10 - FEDERAL HOME LOAN BANK ADVANCES
Three of Charter's subsidiary banks (Charter National Bank - Houston,
University National Bank - Galveston and Charter Bank, SSB) are members of the
FHLB. The FHLB provides advances as a source of funds to each of its members.
These advances are collateralized by a blanket pledge of the subsidiary banks'
residential mortgage loans. Charter continues to utilize FHLB advances in
concert with its daily funds management.
44
<PAGE>
At December 31, 1995, outstanding advances totaled $35,519,000 with an
average rate of 6.80%. Of this amount, $9,700,000 has a final maturity date
of June 7, 2001 and bears interest at a current rate of 5.625% adjustable
semi-annually to 6-month LIBOR. In addition, a $13,500,000 advance with a
rate of 5.72% matures on January 3, 1996. Finally, there are $12,319,000 in
amortizing advances with an average fixed rate of 8.91% with final maturities
from 2001 through 2013.
NOTE 11 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
----------------
(IN THOUSANDS)
<S> <C> <C>
Parent company-secured borrowing from an
insurance company . . . . . . . . . . . . . . . . . $ 1,900 $ 2,100
Parent company-unsecured borrowing from a bank
holding company . . . . . . . . . . . . . . . . . 10,000 10,000
Subordinated capital notes of subsidiary banks . . . 2,750 2,750
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . $14,650 $14,850
------- -------
------- -------
</TABLE>
The $1,900,000 insurance company loan is secured by 66% of the capital stock
of Charter-Houston and a $500,000 life insurance policy on the largest
shareholder of Charter. As a result of increases in the net worth of
Charter-Houston, portions of the securities pledged may be released; however,
51% of the common stock of Charter-Houston must be pledged at all times. The
loan bears interest at 10-7/8% payable quarterly and, pursuant to a
renegotiation of terms that took place during 1991, is repayable in annual
installments of $200,000 in 1995 through 1997, with a final payment of
$1,500,000 due when the loan matures on December 1, 1998. Terms of the loan
agreement specify a minimum voting control requirement for the largest
shareholder of Charter, minimum net worth requirements, dividend restrictions
and other customary covenants. Pursuant to such dividend restrictions, at
December 31, 1995, approximately $4,304,000 of the consolidated retained
earnings were available for the payment of dividends on common stock.
Unsecured bank holding company debt in the amount of $7,500,000 matures April
2005 and bears interest at 7.2% per annum, payable semiannually. Unsecured
bank holding company debt in the amount of $2,500,000 matures April 2006 and
bears interest at 8.11% per annum, payable semiannually.
The subordinated capital notes of the Subsidiary Banks represent unsecured
obligations which are subordinated to depositors and other creditors. These
notes contain several restrictive covenants, including limitations on funded
debt which may be incurred and specified capital requirements. During the
second quarter of 1990, Charter reduced the aggregate principal balance of the
subordinated capital notes of the Subsidiary Banks from $5,122,000 to
$2,750,000, and extended the remaining term to maturity of the unpaid capital
notes from 1992 to 1997. The notes bear interest payable quarterly at a
floating rate of prime plus one-half percent (prime rate was 8.5% at December
31, 1995).
Aggregate future principal payments on long-term debt as of December 31, 1995,
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING BANK
DECEMBER 31, CHARTER SUBSIDIARIES TOTAL
- ------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
1996 . . . . . . . . . . . . . $ 200 $ -- $ 200
1997 . . . . . . . . . . . . . 200 2,750 2,950
1998 . . . . . . . . . . . . . 1,500 -- 1,500
1999 . . . . . . . . . . . . . -- -- --
2000 . . . . . . . . . . . . . -- -- --
Thereafter . . . . . . . . . . 10,000 -- 10,000
------- ------ -------
Total. . . . . . . . . . . . $11,900 $2,750 $14,650
------- ------ -------
------- ------ -------
</TABLE>
45
<PAGE>
NOTE 12 - CAPITAL STOCK
PREFERRED STOCK
There are 400,000 shares of $50 par value preferred stock authorized, of
which 200,000 shares are authorized to be issued in the initial series,
60,000 shares are authorized to be issued in a second series designated as
Series B Nonvoting Cumulative Convertible Preferred Stock ("Series B
Preferred Stock") and 60,000 shares are authorized to be issued in a third
series designated as Series C Nonvoting Cumulative Preferred Stock ("Series C
Preferred Stock").
At December 31, 1995 and 1994, 14,201 shares of the initial series were
outstanding. The holders of the initial series are entitled to receive
cumulative semiannual dividends at the annual rate of 8%. At December 31,
1995, there were no accumulated and unpaid dividends on the initial series of
preferred stock. Each share carries one vote. The shares are redeemable at
the option of the Board of Directors of Charter. None of the shares have
been redeemed. The liquidation preference of the initial series of preferred
stock is its par value, plus accrued unpaid dividends.
At December 31, 1995 and 1994, there were no shares of Series B or Series C
Preferred Stock issued and outstanding.
COMMON STOCK AND SPECIAL COMMON STOCK
There are 12,000,000 shares of $1 par value Common Stock authorized and
300,000 shares of $1 par value Special Common Stock authorized. Pursuant to
the articles of incorporation of Charter, the Board of Directors has created
two series of Special Common Stock: 250,000 shares have been designated
"Class B Special Common Stock" and 50,000 shares have been designated "Series C
Special Common Stock." At December 31, 1995 and 1994, there were 6,061,625
and 5,773,216 shares, respectively, of Common Stock issued and outstanding;
219,718 and 209,261 shares, respectively, of Class B Special Common Stock
issued and outstanding; and 49,518 and 47,160 shares, respectively, of
Series C Special Common Stock issued and outstanding. The increase in the
outstanding shares of Common Stock and Special Common Stock was due to (i) an
October 31, 1995 payment of a 5% stock dividend resulting in the issuance of
296,922, 10,457 and 2,358 shares of Common Stock, Class B Special Common
Stock and Series C Special Common Stock respectively, (ii) an October 31,
1994 payment of a 5% stock dividend resulting in the issuance of 282,769,
9,960 and 2,245 shares of common stock, class B Special Common Stock and
Series C Special Common Stock respectively, and (iii) the March 31, 1994
mandatory conversion of outstanding Debentures ("Debentures")resulting in the
issuance of 18,040 shares of Common Stock and 19 shares of Class B Special
Common Stock. The holders of Special Common Stock are entitled to dividends
at a rate equal to the rate of the dividend paid on Common Stock, except that
dividends on Class B Special Common Stock are limited to one-half the
dividend rate on Common Stock for five years from original issuance. The
Common Stock carries one vote per share and the Special Common Stock carries
fourteen votes per share. The Series C Special Common Stock is identical in
all respects to the Class B Special Common Stock, except that it is
convertible on a share-for-share basis into Common Stock and it is not
subject to the five-year dividend restriction on the Class B Special Common
Stock described above. The Board of Directors of Charter is authorized to
establish voting rights, dividend rights, preferences in liquidation and
other aspects with respect to the Special Common Stock, which is issuable in
series.
TREASURY STOCK
In the third quarter of 1988, Charter-Houston acquired 148,810 shares of
Charter's Common Stock and $90,000 in principal amount of Debentures as
partial satisfaction of a loan obligation. The treasury stock was acquired
at a cost of $4.25 per share which approximated common book value per share
at the time of acquisition. On December 30, 1988, Charter issued 39,808
shares of such treasury stock at a price of approximately $4.10 per share in
exchange for the outstanding minority common stock of Charter-Houston,
resulting in Charter becoming the owner of 100% of the capital stock of
Charter-Houston, rather than of 99.1% as previously had been the case. In
1989, Charter-Houston acquired an additional 6,000 shares of Charter's Common
Stock as partial satisfaction of a loan obligation. This treasury stock was
acquired at a cost of $4.00 per share, which approximated common book value
at the time of acquisition. Effective May 31, 1990, the $90,000 in principal
amount of Debentures held by Charter-Houston was converted into 11,405 shares
of Common Stock pursuant to a conversion offer. During the second quarter of
1992, Charter-Houston acquired 20,106 shares of Charter's Common Stock as
partial satisfaction of two unrelated loan obligations. This treasury stock
was acquired at a cost of $156,000, which approximated current market value
at the times of acquisition. On October 31, 1995, October 31, 1994,
September 30, 1993 and August 10, 1992, 8,513, 8,107, 7,691 and 7,325 shares,
respectively, of Common Stock were issued to Charter-Houston with respect to
the above described treasury stock pursuant
46
<PAGE>
to 5% stock dividends paid to holders of record of Charter's common stock as
of October 15, 1995, October 15, 1994, September 15, 1993 and July 31, 1992.
DEBENTURES
At December 31, 1995 and December 31, 1994, Charter had no Debentures. The
reduction in the original principal amount of outstanding Debentures was due
to the conversion of $1,181,000 of Debentures into 57,644 shares of Common
Stock and 91,804 shares of Class B Special Common Stock. The conversion was
pursuant to an exchange offer made solely to existing holders of the
Debentures with an effective conversion date of May 31, 1990. On March 31,
1994, the outstanding balance of the Debentures matured and 18,040 shares of
Common Stock and 19 shares of Class B Special Common Stock were issued.
Further reference is made to the section on page 26 entitled "Capital
Resources" as it relates to this note.
NOTE 13 - INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion - expense (benefit):
Federal . . . . . . . . . . . . . . . $ 9,852 $1,804 $ 101
State . . . . . . . . . . . . . . . . -- -- --
------- ------ ------
Deferred portion - expense (benefit):
Federal . . . . . . . . . . . . . . . (3,660) 1,957 1,234
State . . . . . . . . . . . . . . . . -- -- (30)
------- ------ ------
Total Income Tax Expense. . . . . . . . $ 6,192 $3,761 $1,305
------- ------ ------
------- ------ ------
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to earnings before income taxes for the
reasons set forth in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense at statutory rate. . . $5,933 $3,892 $ 2,887
Increase (decrease) in taxes
resulting from:
Utilization of operating loss
carryforwards. . . . . . . . . . . . . -- -- (1,438)
Tax-exempt interest income. . . . . . . (19) (19) (3)
Amortization of intangibles . . . . . . 287 59 49
Non-deductible expenses . . . . . . . . 72 58 18
Other, net. . . . . . . . . . . . . . . (81) (229) (178)
------ ------ -------
Total . . . . . . . . . . . . . . . . $6,192 $3,761 $ 1,335
------ ------ -------
------ ------ -------
</TABLE>
Deferred income taxes and benefits are provided for differences between the
financial statement carrying amount of existing assets and liabilities and
their respective tax bases. Significant deferred tax assets and liabilities
at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses. . . . . . . . . . . . . . $1,543 $1,457
Allowance for other real estate losses . . . . . . . . 914 810
Allowance for securities losses. . . . . . . . . . . . 130 126
Accrued liabilities. . . . . . . . . . . . . . . . . . 319 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . 556 155
------ ------
Total deferred tax assets. . . . . . . . . . . . . . 3,462 2,548
------ ------
Deferred tax liabilities:
Depreciable assets . . . . . . . . . . . . . . . . . . 112 361
Unrealized loss on securities available for sale . . . 267 781
Amortization of certain intangible assets. . . . . . . 602 432
Other. . . . . . . . . . . . . . . . . . . . . . . . . 81 75
------ ------
Total deferred tax liabilities . . . . . . . . . . . 1,062 1,649
------ ------
Net deferred asset . . . . . . . . . . . . . . . . . . $2,400 $ 899
------ ------
------ ------
</TABLE>
47
<PAGE>
SFAS No. 109, "Accounting for Income Taxes," was adopted by Charter effective
January 1, 1993. Upon adoption of SFAS No. 109, management measured the
total deferred tax asset for deductible temporary differences using the
applicable tax rate and measured the deferred tax assets for each type of tax
credit carry forward and determined that a deferred tax asset of $3,300,000
should be realized. Management further reduced these deferred tax assets by
a valuation allowance of $350,000, based upon the weight of available
evidence, and determined that a net deferred tax asset of approximately
$2,950,000 should be realized as of January 1, 1993. The adoption of SFAS
No. 109 has been reported as the effect of a change in accounting principle.
On October 1, 1987, Charter purchased from the Federal Deposit Insurance
Corporation ("FDIC") certain assets and insured deposits of a failed Houston
bank, Western Bank-Westheimer ("Western Bank"). Charter paid the FDIC a
premium of $4,055,000. Previously, this premium had been recorded as an
intangible asset and amortized over ten years on a straight-line basis for
financial reporting purposes. Due to uncertainties prior to the recent
decision by the U.S. Supreme Court, the amortization of this intangible asset
had not been deducted as a business expense on Charter's tax returns or in
its computations for book federal income tax expenses. Charter engaged the
services of outside valuation experts to assist management in determining
the value and the useful life of this core deposit intangible. This
valuation study was completed in October 1993, and supported management's
conclusion that the original purchase premium of $4,055,000 is deductible
over its determined useful life. A corresponding tax benefit for the entire
premium of $4.055 million, or $1.379 million after applying a 34% tax rate,
was recognized in the third quarter of 1993.
Charter files a consolidated federal income tax return with its subsidiaries.
The federal income tax credit for the parent company reflected in Note 18
represents the excess of amounts payable by subsidiaries in lieu of paying
federal income taxes on a separate return basis over the taxes of Charter and
subsidiaries on a consolidated return basis.
NOTE 14 - PROFIT-SHARING TRUST AND PLAN
Charter provides a profit-sharing trust and plan for all full-time employees.
Contributions to the plan are made at the discretion of the Board of
Directors. Total profit-sharing contributions by Charter for the years ended
1995, 1994, and 1993 were $434,000, $295,000 and $271,000, respectively.
During 1987 Charter adopted and incorporated into its profit-sharing plan a
thrift plan qualified pursuant to Section 401(k) of the Internal Revenue
Code. Under the thrift plan an employee, after specified periods of service,
may contribute up to 6% of his or her base compensation, which amount then
may be matched up to 100% by the employer. Amounts needed to fund this
matching contribution, which is currently 25% of the employee's contribution,
are drawn first from amounts retained in the plan due to employee
forfeitures. Accordingly, because such forfeitures covered part of the amount
of such matching contributions, approximately $104,000, $68,000 and $39,000
in matching contributions were charged to expenses in 1995, 1994 and 1993,
respectively.
NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business Charter is a party to various financial
instruments with off-balance sheet risk to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby
letters of credit and interest rate caps and floors. These instruments
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amounts recognized on the balance sheet. The contract or
notional amounts of those instruments reflect the extent of the involvement
Charter has in particular classes of financial instruments.
Charter's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount
of those instruments. Charter uses the same credit policies in making these
commitments and conditional obligations as it does for on-balance sheet
instruments. For interest rate caps and floors, the contract or notional
amounts do not represent exposure to credit loss. Charter is exposed to
credit-related losses in the event of nonperformance by counterparties to
financial instruments but does not expect any counterparties to fail to meet
their obligations. The credit exposure of derivatives is represented by the
fair value of contracts with a positive fair value at the reporting date.
48
<PAGE>
The following is a summary of the various off-balance sheet financial
instruments entered into by Charter:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
--------------------------------
CONTRACT OR CONTRACT OR
NOTIONAL AMOUNT NOTIONAL AMOUNT
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Unfunded commitments to extend credit. . . . . . $133,412 $ 90,803
Standby letters of credit. . . . . . . . . . . . 5,606 7,732
Financial instruments whose notional or contract
amounts exceed the amount of credit risk:
Interest rate caps and floors . . . . . . . . . $ 30,000 $110,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being fully drawn upon, the total commitment
amounts disclosed above do not necessarily represent future cash
requirements. Management evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if considered
necessary, upon extension of credit is based on management's credit
evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the
Subsidiary Banks to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to its customers.
Realized and unrealized gains and losses on interest rate caps and floors
designated and effective as hedges of interest rate exposure are deferred and
recognized as interest income or interest expense over the lives of the
hedged assets or liabilities. At December 31, 1995, the interest rate floor
was outstanding with a final maturity date of May 4, 1999. It is expected to
stabilize net interest income in the event of a decline in the 3-month LIBOR
rate below 4%.
NOTE 16 - LEGAL FEES AND CONTINGENCIES
Various lawsuits are pending against Charter's subsidiaries. Management of
Charter, after reviewing these lawsuits with outside counsel, considers that
the aggregate liabilities, if any, will not be material to the consolidated
financial statements.
NOTE 17 - DIVIDENDS FROM SUBSIDIARIES
Dividends paid by the Subsidiary Banks are subject to restrictions by certain
regulatory agencies. There was approximately $11,505,000 available for
payment of dividends at December 31, 1995, by the Subsidiary Banks under
these restrictions. Undistributed earnings of the Subsidiary Banks included
in retained earnings of Charter (parent company only) were $22,359,000 at
December 31, 1995.
NOTE 18 - PARENT COMPANY FINANCIAL INFORMATION
The following are parent company only condensed balance sheets as of December
31, 1995 and 1994, and condensed statements of earnings and cash flows for
each of the three years in the period ended December 31, 1995:
49
<PAGE>
CONDENSED BALANCE SHEETS
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
---- ----
(in thousands)
<S> <C> <C>
ASSETS
Investments in subsidiaries:
Bank subsidiaries. . . . . . . . . . . . . . . . . $ 66,003 $ 44,203
Non-bank subsidiaries. . . . . . . . . . . . . . . 3 8
Cash and cash equivalents with subsidiary banks. . . 9,721 19,162
Investment securities. . . . . . . . . . . . . . . . 131 165
Other assets . . . . . . . . . . . . . . . . . . . . 2,703 1,373
-------- --------
Total Assets . . . . . . . . . . . . . . . . . . . . . $ 78,561 $ 64,911
-------- --------
-------- --------
Liabilities and Shareholders' Equity
Liabilities:
Accrued expenses and other liabilities. . . . . . . . 4,619 $ 3,923
Long-term debt. . . . . . . . . . . . . . . . . . . . 11,900 12,100
-------- --------
Total Liabilities. . . . . . . . . . . . . . . . . 16,519 16,023
-------- --------
Shareholders' Equity (1). . . . . . . . . . . . . . . 62,042 48,888
-------- --------
Total Liabilities and Shareholders' Equity. . . . . . $ 78,561 $ 64,911
-------- --------
-------- --------
</TABLE>
(1) Excluding the effect of the net unrealized gain on securities available for
sale of $978,000 in 1995 and the net unrealized losses of $3,352,000 in
1994, shareholders' equity would have been $61,064,000 at December 31,
1995 and $52,240,000 at December 31, 1994.
CONDENSED STATEMENTS OF EARNINGS
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Income:
Dividends from bank subsidiaries. . . . . . . . . . . . $ 2,241 $ 9,128 $ 7,052
Interest income . . . . . . . . . . . . . . . . . . . . 499 427 139
Management fee income . . . . . . . . . . . . . . . . . 2,640 2,430 2,177
Other . . . . . . . . . . . . . . . . . . . . . . . . . 34 7 28
-------- -------- --------
Total Income . . . . . . . . . . . . . . . . . . . . 5,414 11,992 9,396
-------- -------- --------
Expenses:
Interest. . . . . . . . . . . . . . . . . . . . . . . . 972 933 685
Employee compensation . . . . . . . . . . . . . . . . . 2,020 1,681 1,717
Depreciation and amortization costs . . . . . . . . . . 94 98 100
Other operating expenses. . . . . . . . . . . . . . . . 1,666 1,039 882
-------- -------- --------
Total Expenses . . . . . . . . . . . . . . . . . . . 4,752 3,751 3,384
-------- -------- --------
Earnings Before Income Tax (Benefit) and
Equity in Undistributed Earnings of Subsidiaries. . . . 662 8,241 6,012
Income tax expense (benefit). . . . . . . . . . . . . . (492) (349) (1,505)
-------- -------- --------
Earnings Before Equity in Undistributed
Earnings of Subsidiaries . . . . . . . . . . . . . . . 1,154 8,590 7,517
-------- -------- --------
Equity in Undistributed Earnings of Subsidiaries. . . . . 9,605 (904) 689
-------- -------- --------
NET EARNINGS. . . . . . . . . . . . . . . . . . . . . . $ 10,759 $ 7,686 $ 8,206
-------- -------- --------
-------- -------- --------
</TABLE>
50
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 10,759 $ 7,686 $ 8,206
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . 94 98 100
Provisions for possible asset losses . . . . . . . . . . 104 344 (30)
Net (increase) decrease in other assets
and interest receivable. . . . . . . . . . . . . . . . 1,296 (280) (1,278)
Net increase (decrease) in other
liabilities and interest payable . . . . . . . . . . . (2,212) 752 880
Equity in undistributed earnings of subsidiaries . . . . . . (9,605) 904 (689)
-------- ------- -------
Total Adjustments. . . . . . . . . . . . . . . . . . . . (10,323) 1,818 (1,017)
-------- ------- -------
Net Cash Provided by Operating Activities. . . . . . . 436 9,504 7,189
-------- ------- -------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits . . . -- 1,000 392
Proceeds from maturities of investment securities. . . . . -- (1,003) --
Capital expenditures . . . . . . . . . . . . . . . . . . . (12) (18)
Increase in investments in subsidiaries. . . . . . . . . . (7,900) -- (9,678)
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities . . (7,900) (15) (9,304)
-------- -------- --------
Cash flows from financing activities:
Increase in long-term debt . . . . . . . . . . . . . . . . -- 2,500 7,500
Payment of long-term debt. . . . . . . . . . . . . . . . . (200) (200) (1,461)
Payment of preferred dividends . . . . . . . . . . . . . . (57) (57) (57)
Payment of common dividends. . . . . . . . . . . . . . . . (1,720) (1,055) (1,015)
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities . . (1,977) 1,188 4,967
-------- -------- --------
Net Increase (decrease) in Cash and Cash Equivalents . . . . (9,441) 10,677 2,852
-------- -------- --------
Cash and Cash Equivalents at Beginning of Period . . . . . . 19,162 8,485 5,633
-------- -------- --------
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 9,721 $ 19,162 $ 8,485
-------- -------- --------
-------- -------- --------
Supplemental disclosure:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . $ 973 $ 906 $ 616
Net income taxes paid. . . . . . . . . . . . . . . . . . . 9,110 800 1,305
</TABLE>
51
<PAGE>
NOTE 19 - EARNINGS PER COMMON SHARE
Earnings per common share are computed in the following table. All per share
figures and weighted average shares outstanding have been adjusted for the 5%
stock dividends paid on October 31, 1995, October 31, 1994 and September 30,
1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
-------- -------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Earnings before cumulative effect of a change in
accounting principle. . . . . . . . . . . . . . . . $ 10,759 $ 7,686 $ 5,256
Cumulative effect on prior years of a change in
accounting for income taxes . . . . . . . . . . . . -- -- 2,950
-------- -------- -------
Net earnings . . . . . . . . . . . . . . . . . . . . . 10,759 7,686 8,206
Less preferred dividend requirements:
Preferred stock, initial series. . . . . . . . . . . . 57 57 57
-------- -------- -------
Primary earnings applicable to common
shareholders . . . . . . . . . . . . . . . . . . . . 10,702 7,629 8,149
Interest expense on debentures. . . . . . . . . . . . . -- 4 19
-------- -------- -------
Fully diluted earnings applicable to common
shareholders . . . . . . . . . . . . . . . . . . . . $ 10,702 $ 7,633 $ 8,168
-------- -------- -------
-------- -------- -------
Primary earnings per common share:
Earnings before cumulative effect of a change in
accounting principle. . . . . . . . . . . . . . . . $ 1.69 $ 1.21 $ 0.82
Cumulative effect of a change in accounting for
income taxes. . . . . . . . . . . . . . . . . . . . -- -- 0.47
-------- -------- -------
Net earnings. . . . . . . . . . . . . . . . . . . . . $ 1.69 $ 1.21 $ 1.29
-------- -------- -------
-------- -------- -------
Fully diluted earnings per common share:
Earnings before cumulative effect of a change in
accounting principle. . . . . . . . . . . . . . . . $ 1.69 $ 1.21 $ 0.82
Cumulative effect of a change in accounting for
income taxes. . . . . . . . . . . . . . . . . . . . -- -- 0.47
-------- -------- -------
Net earnings. . . . . . . . . . . . . . . . . . . . . $ 1.69 $ 1.21 $ 1.29
-------- -------- -------
-------- -------- -------
Weighted average common shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . . . . 6,330,861 6,326,613 6,312,507
Fully diluted . . . . . . . . . . . . . . . . . . . . 6,330,861 6,330,861 6,330,746
</TABLE>
Primary earnings per common share amounts are computed by dividing net earnings
less current period preferred dividends by the weighted average number of
common shares outstanding during the period. Fully diluted earnings per share
amounts are similarly computed but include, except as described below, the pro
forma effect from conversion of Charter's other potentially dilutive
securities.
52
<PAGE>
NOTE 20 - SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following quarterly financial information is unaudited. However, in the
opinion of management, the information fairly presents the financial condition
and results of operations for such periods. All per share figures and weighted
average shares outstanding have been adjusted for the 5% stock dividends paid
on October 31, 1995 and October 31, 1994.
<TABLE>
<CAPTION>
1995 BY QUARTER 1994 by Quarter
4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
--------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income . . . . . . . . $ 17,056 $ 16,853 $ 16,613 $ 15,948 $ 12,121 $ 12,050 $ 10,439 $ 9,246
Interest expense. . . . . . . . 6,955 6,842 7,133 6,495 4,083 3,974 3,388 3,160
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income . . . . . 10,101 10,011 9,480 9,453 8,038 8,076 7,051 6,086
Provision for credit losses . . 259 340 210 170 42 82 42 67
Non-interest income . . . . . . 4,665 5,086 4,841 3,802 3,276 3,471 3,366 2,130
Non-interest expense. . . . . . 9,691 10,406 10,112 9,300 8,188 8,142 7,595 5,889
-------- -------- -------- -------- -------- -------- -------- --------
Earnings before income tax
expense (benefit) . . . . . . 4,816 4,351 3,999 3,785 3,084 3,323 2,780 2,260
Income tax expense. . . . . . 1,734 1,675 1,438 1,345 849 1,147 1,008 757
-------- -------- -------- -------- -------- -------- -------- --------
Net Earnings. . . . . . . . . . $ 3,082 $ 2,676 $ 2,561 $ 2,440 $ 2,235 $ 2,176 $ 1,772 $ 1,503
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
NET EARNINGS PER COMMON SHARE
Weighted average common
shares outstanding:
Primary . . . . . . . . . . . 6,330,861 6,330,861 6,330,861 6,330,861 6,330,861 6,330,861 6,330,861 6,313,032
Fully diluted . . . . . . . . 6,330,861 6,330,861 6,330,861 6,330,861 6,330,861 6,330,861 6,330,861 6,330,861
Earnings per common share:
Primary . . . . . . . . . . . $ 0.49 $ 0.42 $ 0.40 $ 0.38 $ 0.35 $ 0.33 $ 0.29 $ 0.24
Fully diluted . . . . . . . . 0.49 0.42 0.40 0.38 0.35 0.33 0.29 0.24
SELECTED AVERAGES
Total assets. . . . . . . . . . $ 861,788 $ 845,466 $ 861,216 $ 848,166 $ 687,345 $ 711,553 $ 672,976 $ 648,992
Loans-net . . . . . . . . . . . 499,727 490,496 465,308 421,695 329,370 316,332 250,595 253,091
Deposits. . . . . . . . . . . . 705,669 683,363 687,054 687,675 583,134 593,082 587,594 568,880
Long-term debt. . . . . . . . . 14,782 14,850 14,850 14,850 14,983 15,050 14,226 13,782
Shareholders' equity. . . . . . 59,904 57,503 54,156 52,946 49,281 48,385 48,509 46,582
</TABLE>
53
<PAGE>
NOTE 21 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values were estimated by management as of December 31, 1995 and 1994,
which required considerable judgment. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts Charter could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated values
presented.
CASH AND SHORT-TERM INSTRUMENTS - For short-term instruments, the carrying
amount is a reasonable estimate of fair value. Short-term instruments
include federal funds sold or purchased, securities purchased under
agreements to resell, short-term interest-bearing deposits and securities
sold under agreements to repurchase.
SECURITIES - For securities and derivative instruments held for trading
purposes (which include bonds, caps and floors) and marketable equity
securities held for investment purposes, fair values are based on quoted
market prices or dealer quotes. For other securities held as investments,
fair value equals quoted market price, if available. In the few instances
when market quotations are unavailable, fair value is estimated using a
quoted market price for similar securities.
LOANS - The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
DEPOSIT LIABILITIES - The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates offered as of December 31, 1995 for deposits of
similar remaining maturities.
LONG-TERM DEBT - Rates currently available to Charter for debt with similar
terms and remaining maturities are used to estimate fair value of existing
debt.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND FINANCIAL
GUARANTEES WRITTEN - The fair value of commitments is estimated using the
fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present credit worthiness of
the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of guarantees and letters of credit is based
on fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties at
the reporting date.
DERIVATIVES - The fair value of derivatives generally reflect the estimated
amount Charter would receive or pay to terminate the contracts at the
reporting date, thereby taking into account the current unrealized gains or
losses of open contracts.
The estimated fair values of Charter's financial instruments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE VALUE VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments ................. $ 72,909 $ 72,909 $ 73,170 $ 73,170
Securities ...................................... 296,068 296,599 280,314 271,869
Loans ........................................... 513,235 515,922 343,761 342,116
Less: allowance for loan losses ................ 5,620 5,620 4,446 4,446
-------- -------- -------- --------
Loans, net .................................... 507,615 510,302 339,315 337,670
-------- -------- -------- --------
Financial Liabilities:
Deposits ........................................ 733,714 738,262 616,880 615,695
Securities sold under agreements to repurchase .. 69,222 69,222 33,594 33,594
Long-term debt and Debentures ................... 36,669 37,885 14,850 13,443
-------- -------- -------- --------
Unrecognized financial instruments:
Commitments to extend credit .................... 133,412 133,412 90,803 90,803
Standby letters of credit ....................... 5,606 5,606 7,732 7,732
Instruments with off-balance sheet
risk - unrealized gain (loss):
Interest rate caps and floors ................... $ 93 $ (640)
</TABLE>
54
<PAGE>
NOTE 22 - SUBSEQUENT EVENTS
Charter signed a definitve agreement on January 25, 1996, to merge with
NationsBank Corporation ("NationsBank"). Under the terms of agreenment as
approved by Charter's board of directors, each share of Charter's regular
common, Class B special common and Series C special common stock will be
exchanged for 0.385 shares of NationsBank common stock. Based on the $67.00
closing price of NationsBank common stock on January 24, 1996, the transaction
is valued at $25.795 per share, or approximately $94.7 million for the shares
of Charter stock not already owned by NationsBank.
Prior to the transaction, NationsBank held 2,659,250 shares of Charter's common
stock or 42% of the outstanding common and special common stock of Charter as a
result of two investments totaling $13 million made by NationsBank in 1986 and
1988.
It is expected that the transaction will be treated as a tax free exchange for
Charter's shareholders. The agreement remains subject to the receipt of
regulatory approvals and the approval of Charter Bancshares' shareholders.
Charter and NationsBank expect to complete the merger by the end of the second
quarter of 1996.
As part of the transaction, and effective March 31, 1996, the Board of
Directors has approved the redemption of all outstanding shares of Charter's
Preferred Stock, initial series outstanding at its par value of $50.00 per
share plus accrued interest.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Directors of Charter are elected on an annual basis and each director holds
office until the next annual meeting of shareholders or until his successor is
elected and qualified. Listed below are those persons who were elected as
directors of Charter at the 1995 annual meeting of shareholders held on April
27, 1995. If the Merger is approved at the special meeting of Charter's
shareholders relating thereto, Charter does not plan on holding an annual
meeting of shareholders and the directors will continue to serve as directors
until the effective time of the Merger, unless they shall sooner resign or be
removed in accordance with Charter's bylaws.
The nine directors of Charter are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION SERVED AS
NAME (1) AND OTHER DIRECTORSHIPS(2)(3) DIRECTOR SINCE AGE
- ------------------ ----------------------------- -------------- ----
<S> <C> <C> <C>
Andrew M. Alexander President, Weingarten Realty Management 1984(4) 39
Company
Donald R. Collins Superintendent of Schools, Klein 1975(5) 60
Independent School District
Winston C. Davis Senior Vice President of Charter; 1988 63
Vice Chairman of Charter-Houston
Jerry E. Finger Chairman and Chief Executive Officer 1963(4) 63
of Charter
Frank L. Gentry Executive Vice President, 1987(6) 53
NationsBank Corporation
William M. Hatten Senior Judge, 1964(4) 82
Texas Judicial System
R. Steve Letbetter President and Chief Operating Officer, 1992 47
Houston Lighting & Power Co.
Herschel G. Maltz Retired, Investments 1966(4) 66
W. J. Smith, Jr. Retired, former Chairman, Loan 1989(7) 74
Policy Committee, NCNB National Bank
of North Carolina
</TABLE>
55
<PAGE>
___________________
(1) Thomas C. Sooy, Chairman of Charter-Colonial and Chief Credit Officer of
Charter-Houston, has served as an advisory director since his appointment
by the Board of Directors on January 26, 1989. L. R. Jalenak, Jr.,
personal investments and management consultant, has served as an advisory
director since June 18, 1992.
(2) Includes last five years, except for Messrs. Gentry, Letbetter, and Maltz.
Immediately prior to being promoted to executive vice president of
NationsBank on April 1, 1993, Mr. Gentry served as senior vice president of
NationsBank, a position he had held for more than the five prior years.
Immediately prior to being promoted to president and chief operating officer
of Houston Lighting & Power Co. on July 1, 1993, Mr. Letbetter served as
group vice president, a position he had held for more than the five prior
years. Since December, 1993 Mr. Maltz has served as chairman and CEO of
I.P.S. Systems, Inc. From October 1, 1993 to December, 1993, Mr. Maltz
handled personal investments and served as a management consultant. From
May 1, 1992 to September 30, 1992, Mr. Maltz served as president and vice
chairman of Petrolon Holdings, Inc. Mr. Maltz retired as president and
chief executive officer of Century Papers, Inc. on November 15, 1990, a
position he had held for more than the five prior years.
(3) Three directors serve as directors of companies that are reporting companies
under the Securities Exchange Act of 1934, as amended. Mr. Alexander serves
as a director of Weingarten Realty Investors; Mr. Maltz serves as a director
of Sterling Electronics Corporation. Mr. Smith serves as a director of
Burroughs & Chapin Company.
(4) Includes service as a director of Charter-Houston prior to the organization
of Charter.
(5) Includes service as a director of Charter-Colonial prior to the organization
of Charter.
(6) The Investment Agreement dated November 6, 1987, between Charter and
NationsBank provides that management of Charter will nominate at least one
person designated by NationsBank for election to Charter's Board of
Directors for so long as NationsBank owns Charter stock representing more
than ten percent of the combined voting power of all classes of Charter
stock. Pursuant to the foregoing arrangement, Mr. Gentry has been
designated annually by NationsBank's as a director nominee and elected at
the annual meetings of Charter's shareholders. Due to his position with
NationsBank, Mr. Gentry has abstained from all matters submitted to a vote
of the Board of Directors of Charter relative to the Merger.
(7) Mr. Smith presently is president and the sole shareholder of WJS Financial
Services, Inc.; in this capacity Mr. Smith acts as an independent consultant
to various financial institutions. In connection with his service on
Charter's Board of Directors as a nominee originally designated by
NationsBank, Mr. Smith is engaged by NationsBank under a retainer
arrangement pursuant to which Mr. Smith will advise Charter management, on
an ongoing basis and to the extent such advice is sought by Charter
management, with respect to various policies and procedures either in place
or contemplated by Charter management. Due to such relationship, Mr. Smith
has abstained from all matters submitted to a vote of the Board of Directors
of Charter relative to the Merger.
56
<PAGE>
EXECUTIVE OFFICERS
Charter's executive officers are elected annually by the Board of Directors,
each to serve until the next annual organizational meeting or until his
successor is elected and qualified, unless such officer shall sooner resign or
be removed in accordance with the bylaws of Charter. The names, ages and
current position(s) held with Charter for all executive officers are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jerry E. Finger 63 Chairman, President and Chief Executive
Officer
William S. Shropshire, Jr. 38 Senior Vice President, Chief Financial
Officer and Treasurer
Thomas C. Sooy 49 Senior Vice President, Chief Credit Officer
Winston C. Davis 63 Senior Vice President, Investments
Michael S. Dafferner 48 Senior Vice President, Manager of
Community Banking
Marshall R. Holman 47 Senior Vice President, Senior Operations
Officer
Jonathan S. Finger 36 Senior Vice President, Asset Management
and Investment Products
Michael A. Roy 36 Senior Vice President, General Counsel and
Secretary
</TABLE>
Mr. Jerry Finger has been chairman and chief executive officer of Charter for
over five years. On December 6, 1994, Mr. Finger was appointed and assumed
the additional duties of president of Charter.
Mr. Shropshire, a certified public accountant, has served as treasurer and
chief financial officer of Charter for more than five years. On December 6,
1994, Mr. Shropshire was promoted to the position of senior vice president of
Charter.
Mr. Sooy has been chairman and chief executive officer of Charter-Colonial for
over five years. Since 1991, Mr. Sooy has been principally employed as chief
credit officer of Charter's subsidiary banks, with primary responsibility for
day-to-day administration of Charter's lending activities. On December 6,
1994, Mr. Sooy was promoted to the position of senior vice president, chief
credit officer of Charter.
Mr. Davis has been principally employed as senior vice president of Charter
for over five years, with daily responsibility for managing the Company's
investment securities portfolio.
Since he was hired on February 23, 1993, Mr. Dafferner has principally served
as executive vice president, manager of community banking, for Charter-Houston
and Charter-Colonial. Prior to joining Charter, Mr. Dafferner was employed as
executive vice president of First City Bank-Houston, N.A., a position he held
for approximately five years. On December 6, 1994, Mr. Dafferner was promoted
to the position of senior vice president, manager of community banking of
Charter.
Mr. Holman, a certified public accountant, has been senior vice president and
senior operations officer of Charter and executive vice president and cashier
of Charter-Houston for over five years.
Mr. Jonathan S. Finger has been principally employed as senior vice president
and senior trust officer of Charter-Houston's asset management and trust
services department since April, 1993. Mr. Finger was hired by Charter on May
21, 1990, as vice president, trust and investment services of Charter and as
vice president of Charter Venture. On April 22, 1993, Mr. Finger was promoted
to senior vice president, asset management and investment products. Prior to
joining Charter, Mr. Finger was employed as an associate with Drexel Burnham &
Lambert, Inc. Mr. Finger is the son of Jerry E. Finger, chairman, president
and chief executive officer of Charter.
Mr. Roy has been general counsel and secretary of Charter for over five years.
On December 6, 1994, Mr. Roy was promoted to the position of Vice President of
Charter. On March 28, 1996, Mr. Roy was promoted to the position of senior
vice president of Charter.
57
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Charter's directors and executive officers, and persons who beneficially own
more than ten percent of a registered class of equity securities, to file
reports of beneficial ownership and changes in beneficial ownership on Forms
3, 4 and 5 (collectively, "SEC Forms") with the SEC and the National
Association of Securities Dealers, Inc. Directors, executive officers and ten
percent beneficial owners are required under regulations promulgated by the
SEC to furnish Charter with copies of all SEC Forms which they file.
Based solely on information provided to Charter by its directors, executive
officers and ten percent beneficial owners, Charter believes that its
directors, executive officers and ten percent beneficial owners have complied
with all filing requirements applicable to them with respect to transactions
occurring during 1995.
ITEM 11. EXECUTIVE COMPENSATION
COMPARATIVE PERFORMANCE GRAPH
The following graph compares the performance of Charter's Common Stock for the
five-year period commencing December 31, 1990, to (i) the NASDAQ market
composite index ("NASDAQ-US") and (ii) NASDAQ Bank Stocks which are comprised
of approximately 650 banks and bank holding companies which trade on either
The NASDAQ National Market System or The NASDAQ Small-Cap Market. The graph
assumes that a $100 investment was made in Charter Common Stock and each index
at December 31, 1990, and that all dividends were reinvested. Also included
are the respective investment returns based upon the stock and index values as
of the end of each year during such five-year period.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
(Charter, NASDAQ-US. NASDAQ Bank Stocks)
[GRAPH]
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charter $100 $ 93 $390 $429 $475 $713
NASDAQ-US $100 $161 $187 $215 $210 $296
NASDAQ-Banks $100 $164 $239 $272 $271 $404
-----------------------------------------------------------------------------
</TABLE>
Source: NASDAQ
58
<PAGE>
EXECUTIVE COMPENSATION INFORMATION
SUMMARY COMPENSATION INFORMATION. The table set forth on the following page
contains certain information for each of the fiscal years indicated with
respect to the chief executive officer and the next four most highly
compensated executive officers of Charter during the fiscal year ended
December 31, 1995:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION (1) LONG TERM
COMPENSATION
- --------------------------------------------------------------------------------------------------------
SAR AWARDS LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) (UNITS)(3) PAYOUTS(4) COMPENSATION(5)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jerry E. Finger 1995 $309,504 $169,000 -0- $52,251 $ 7,652
Chairman, President and 1994 286,488 154,000 -0- 10,841 8,236
CEO 1993 267,732 124,600 -0- 13,526 12,728
- --------------------------------------------------------------------------------------------------------
Winston C. Davis 1995 $128,764 $33,000 -0- $ -0- $21,263
Senior Vice President, 1994 123,000 30,000 -0- -0- 7,760
Investments 1993 123,000 27,000 -0- -0- 8,147
- --------------------------------------------------------------------------------------------------------
Michael S. Dafferner 1995 $126,975 $27,000 -0- -0- $19,020
Senior Vice President, 1994 120,000 24,000 -0- -0- 3,771
Manager of Community 1993 101,846 18,000 11,576 -0- 215
Banking (6)
- --------------------------------------------------------------------------------------------------------
Thomas C. Sooy 1995 $122,121 $36,000 -0- -0- $21,539
Senior Vice President,Chief 1994 122,440 33,000 -0- -0- 7,692
Credit Officer 1993 112,000 30,000 -0- -0- 8,045
- --------------------------------------------------------------------------------------------------------
William S. Shropshire, Jr. 1995 $101,000 $39,000 -0- -0- $20,108
Senior Vice President, Chief 1994 85,000 35,000 -0- -0- 4,926
Financial Officer and 1993 85,000 20,500 -0- -0- 5,452
Treasurer
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Other annual compensation, if any, provided to the named executive
officers during 1995, 1994 or 1993 did not exceed the disclosure
requirements of the rules promulgated by the SEC.
(2) Amounts indicated in this column represent incentive awards paid to the
named executive officers under the Charter Bancshares, Inc. Management
Incentive Compensation Plan (the "Incentive Plan"). See succeeding section
entitled "Executive Compensation Information--Incentive Plan" for a summary
description of the Incentive Plan.
(3) Amounts indicated in this column represent stock appreciation rights units
("SAR Units") awarded to the named executive officers under the 1991 Charter
Bancshares, Inc. Stock Appreciation Rights Plan (the "SAR Plan"). See
succeeding section entitled "Executive Compensation Information--SAR Plan"
for a summary description of the SAR Plan. With respect to the SAR Units
awarded in 1993 to Mr. Dafferner, the amount indicated in this column
have been adjusted for 5% stock dividends paid on Charter's Common Stock
in September, 1993, October, 1994 and October, 1995. In addition to the
amounts indicated in this column, (i) in 1991, Messrs. Davis, Sooy and
Shropshire were awarded 7,293, 7,293 and 6,077 SAR Units, respectively,
and (ii) in 1992, Mr. Shropshire was awarded 2,315 SAR Units, which
amounts have been adjusted for stock dividends paid on Charter's Common
Stock subsequent to issuance of such SAR units.
(4) As used herein, the term "LTIP" means long-term incentive plan. Amounts
indicated in this column for Mr. Finger represent earnings on existing
account balances under Charter's Deferred Plan that had been accrued as a
result of the achievement of profit objectives established under such
plan but payment of which was deferred at the election of the named
executive officer, but does not include contributions of $15,475, $14,324
and $14,324 which were made to Mr. Finger's Deferred Plan account as of
January 1, 1993, 1994 and 1995, respectively, which are more fully
discussed in the succeeding section entitled "Executive
Compensation Information--Executive Deferred Compensation Plan."
59
<PAGE>
(5) Amounts indicated in this column for 1995 are derived from the following:
(i) cash amounts paid to the named executive officers, except for Mr.
Finger, in lieu of SAR units that otherwise would have been granted to
such officers as of January 1, 1995 and which would have vested as of
January 1, 1996; (ii) employer profit-sharing contributions and 401(k)
thrift plan matching employer contributions credited to the respective
accounts of Messrs. Finger, Davis, Dafferner, Sooy and Shropshire, as
follows: $7,292, $6,964, $6,848, $7,240 and $5,835, such amounts,
however, (A) do not include trust forfeitures occurring under the terms
of the Profit-Sharing Plan but do include trust forfeitures used to fund
a portion of the 401(k) thrift plan matching employer contributions and
(B) do not include earnings on the undistributed balance held pursuant to
the Profit-Sharing Plan for the benefit of participants therein or
earnings with respect to any 401(k) thrift plan matching employer
contributions; and (iii) term life insurance premiums paid by Charter for
the benefit of Messrs. Finger, Davis, Dafferner, Sooy and Shropshire, as
follows: $360, $360, $360, $360 and $334. Amounts indicated in this
column for both 1994 and 1993 are derived from similar employer
profit-sharing contributions, 401(k) thrift plan matching employer
contributions and term life insurance premiums.
1995 SAR GRANTS. The SAR Committee did not grant any SAR Units to the named
executive officers for the fiscal year-ended December 31, 1995. In lieu
thereof and in contemplation of the adoption of a stock option plan in 1996,
certain cash amounts have been awarded and paid to the named executive
officers, except for Mr. Finger, based upon the number of SAR units that
otherwise would have been granted as of January 1, 1995 and which would have
vested as of January 1, 1996.
1995 SAR EXERCISES AND YEAR-END SAR VALUES. None of the SARs which have been
granted to the named executive officers pursuant to the 1991 Charter
Bancshares, Inc. Stock Appreciation Rights Plan have been exercised. Upon
exercise of any vested SAR Units, participants are only entitled to receive a
cash settlement based upon the fair value of Charter's Common Stock as
determined by the SAR Committee at the time of exercise and are not entitled to
receive shares of Charter Common Stock or other securities. The following
table provides information on the value of unexercised in-the-money SAR Units
at December 31, 1995, for those SAR Units which have been granted to the named
executive officers pursuant to the SAR Plan (See the succeeding section
entitled "Executive Compensation--SAR Plan" for a description of the SAR Plan).
The in-the-money values for the SAR Units which were granted to the named
executive officers in 1991 and 1992 were determined based upon the difference
between (i) the exercise prices for such SAR Units of $5.57 and $6.67,
respectively (except for an exercise price of $7.04 for the SAR Units which
were granted to Mr. Dafferner in 1993), and (ii) the fully diluted book value
per share of $9.69 for Charter's Common Stock as of December 31, 1995.
SAR EXERCISES IN LAST FISCAL YEAR AND FY-END SAR VALUES
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
NUMBER OF VALUE OF UNEXERCISED
SECURITIES IN-THE-MONEY SARS AT
UNDERLYING FISCAL YEAR END (2)
UNEXERCISED
SARS AT FISCAL
YEAR END (1)
------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerry E. Finger(3) -0- -0- -0- -0-
----------------------------------------------------------------------------------
William S.Shropshire, Jr. 6,251 2,141 $24,225 $ 7,804
----------------------------------------------------------------------------------
Thomas C. Sooy 5,834 1,459 $24,038 $ 6,009
----------------------------------------------------------------------------------
Winston C. Davis 5,834 1,459 $24,038 $ 6,009
----------------------------------------------------------------------------------
Michael S. Dafferner 4,631 6,945 $12,271 $18,406
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
</TABLE>
(1) As of December 31, 1995, in accordance with the vesting schedules adopted
under the SAR Plan, 80% of the SAR units granted in 1991 and 60% of the SAR
Units granted in 1992 had fully vested. In accordance with the terms of the
SAR Plan, the change in control resulting from consummation of the Merger
will automatically vest all outstanding SAR Units. Under the terms of the
Merger Agreement, the SAR Plan will be terminated and, in accordance with
the terms of the SAR Plan, all participants including the named executive
officers will have an opportunity to exercise all of their SAR Units prior
to termination of the SAR Plan.
(2) Due to the limited trading volume and absence of historical price
information for Charter's Common Stock, fully diluted book value per common
share was the valuation criterion employed by Charter's SAR Committee in
fixing the exercise prices in 1991 and 1992, as well as subsequent
determinations of fair value in connection with the exercise of vested SAR
units made by participants in prior periods. Based upon the consideration
which
60
<PAGE>
NationsBank has agreed to pay for approximately 58% of Charter's
capital stock and applying the exchange ratio to be used in determining the
merger consideration to the closing price of NationsBank's Common Stock of
$74.00 on March 15, 1996, the fair market value of the Charter Common Stock
underlying the outstanding SAR Units (which will become fully exercisable
upon termination of the SAR Plan) for Messrs. Shropshire, Sooy, Davis and
Dafferner is $189,803, $167,156, $167,156 and $248,311. The determination
of the fair value of Charter's Common Stock to be paid to participants will
be made by the SAR Committee in connection with the termination of the
SAR Plan.
(3) In light of his substantial stock ownership position in Charter and his
service as an ex-officio member on the Stock Appreciation Rights Committee
of the Board of Directors, Mr. Finger is not presently eligible to receive
SAR Units.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS. Pursuant to
the terms upon which Mr. Dafferner was hired, in the event that he is
terminated prior to March 1, 1998 for any reason other than cause (which
includes death, permanent disability or fraud or dishonesty), Mr. Dafferner
is entitled to an amount equal to 12 months of his then current base salary,
provided, however, that such obligation ceases if Mr. Dafferner obtains
full-time employment during such 12 month period. In addition, if he
voluntarily resigns or is terminated other than for cause within 12 months
following a "change of control" (which term applies to the Merger), Mr.
Dafferner is entitled to a lump sum payment equal to 1.5 times his then
current annual base salary, less the value of all vested SAR Units which he
has been granted. In connection with the proposed Merger, Mr. Finger and
NationsBank of Texas, National Association, a subsidiary of NationsBank
("NationsBank Texas"), have entered into an Employment and Noncompetition
Agreement (the "Finger Employment Agreement"), which is subject to the
consummation of the Merger. Under the Finger Employment Agreement, Mr.
Finger will become an employee of NationsBank for a term of seven years,
unless terminated earlier for cause (as defined in the Finger Employment
Agreement), during which he will be paid a base salary of $455,000 per year.
Upon expiration or termination of such employment period other than for
cause, Mr. Finger will be paid an annual retirement supplement of $300,000
for the remainder of his life. Such retirement supplement will be offset by
any benefits payable to Mr. Finger under NationsBank's retirement plans and
Mr. Finger may elect to receive his retirement supplement in any actuarially
equivalent form available under NationsBank's pension plan.
Pursuant to certain agreements entered into in connection with the proposed
Merger and subject to consummation of the Merger, Messrs. Shropshire, Sooy
and Davis are each entitled to receive severance payments equal to (i) one
times his annual base salary if he receives a comparable job offer from
NationsBank Texas and elects not to accept such offer or (ii) two times his
annual base salary if he does not receive a comparable job offer from
NationsBank Texas. As a condition to receiving any such severance payments,
NationsBank or Charter may require the executive officer to remain employed
for up to thirty days after merger of Charter's subsidiary banks into
NationsBank Texas, but not to exceed 180 days after the consummation of the
Merger.
INCENTIVE PLAN. On March 21, 1991, the Board of Directors of Charter adopted
the Incentive Plan to assist Charter and its subsidiary banks in attracting,
rewarding and retaining well-qualified and productive executive, management and
administrative officers. The Incentive Plan reflects the intentions of
Charter's Board of Directors to more closely align the compensation of
Charter's executive, management and administrative officers to Charter's
financial performance and to recognize their contributions to increases in
shareholder value. The Incentive Plan is administered by the MICP Committee,
the members of which are not eligible to receive awards under the Incentive
Plan. The MICP Committee annually determines the employees who are eligible to
participate in the Incentive Plan and the amount of the incentive awards, if
any, to be made to eligible participants under the Incentive Plan. Under the
terms of the Incentive Plan, no incentive awards may be made with respect to
any fiscal year in which either (i) the return on Charter's common
shareholders' equity is less than ten percent (10%) or (ii) Charter's
consolidated net earnings are less than seventy-five percent (75%) of the
consolidated net earnings reflected in the annual consolidated budget approved
by the Board of Directors of Charter. Assuming each of these conditions is
met for a particular fiscal year, the size of the incentive pool will be
determined pursuant to a graduated schedule approved annually by the MICP
Committee and the disinterested members of the Board of Directors, which
schedule varies the PRO FORMA amount of each participant's base salary
allocated to the incentive pool (the "Incentive Pool Schedule"). The MICP
Committee may increase the incentive pool in excess of the amount derived from
the Incentive Pool Schedule, subject to approval by the disinterested members
of the Board of Directors. Pursuant to the Incentive Pool Schedule approved by
the MICP Committee for 1995 and the 20.2% return on Charter's common
shareholder's equity (which for purposes of the Incentive Plan means
consolidated net earnings for 1994, less dividends paid on the Preferred Stock
in 1994), divided by Charter's common shareholder's equity as of December 31,
1994), the aggregate amount of the incentive pool created and awards made under
the terms of the Incentive Plan for 1995 was approximately $650,000.
61
<PAGE>
SAR PLAN. During 1991, the SAR Plan was adopted and approved by the Board of
Directors and shareholders of Charter. The SAR Plan authorizes the issuance
of up to 455,813 SAR Units as adjusted in accordance with the terms of the SAR
Plan for four 5% stock dividends paid on Charter's Common Stock since adoption
of the SAR Plan. The Board of Directors believes that the SAR Plan offers a
continuing long-term incentive to key executive officers and managers of
Charter and its subsidiaries, more closely correlates executive compensation
with increases in shareholder value, and should enable Charter to maintain a
competitive position to attract and retain key executive and management
personnel. The SAR Plan is administered by the SAR Committee, the
responsibilities of which include determining the eligible participants under
the SAR Plan and the quantity, duration and other terms and conditions of the
SAR Units, as well as the value of the Common Stock underlying the SAR Units
both at the date of grant and the date of exercise. On May 16, 1991 and
October 1, 1992, respectively, 78,000 SAR Units (the "1991 Units") and 47,500
SAR Units (the "1992 Units") were awarded to eligible participants under the
SAR Plan. In addition, 10,000 SAR Units (the "1993 Units") were awarded to Mr.
Dafferner in February, 1993 in connection with his hiring. The fair value of
the outstanding SAR Units has been fixed by the SAR Committee for each of the
respective grants at $5.57 for the 1991 Units, $6.67 for the 1992 Units, and
$7.04 for the 1993 Units, such amounts representing the fully diluted book
value per share of Charter's Common Stock as of the month end preceding the
respective dates of grant. All of the outstanding SAR Units are subject to a
five-year vesting schedule with twenty percent vesting on January 1st of each
year. The SAR Units are subject to (i) automatic vesting upon the occurrence
of certain events, including death, disability, a permitted termination of
employment, a change in control event, and liquidation of Charter, and (ii)
forfeiture upon the occurrence of certain events, including an unpermitted
termination of employment. At December 31, 1995, after giving effect to
forfeitures of SAR Units under the terms of the SAR Plan and as a result of the
stock dividend adjustments described above, there were (i) 56,617 1991 Units
outstanding, of which approximately 45,293 1991 Units had fully vested, (ii)
22,574 1992 Units outstanding, of which 13,544 1992 Units had fully vested, and
(iii) 11,576 1993 Units outstanding, of which 4,631 1993 Units had fully
vested. At December 31, 1995, 17,036 1991 Units, 18,281 1992 Units and no 1993
Units had been exercised by certain participants who terminated their
employment with Charter. At December 31, 1995, 26,957 1991 Units, 14,637 1992
Units and no 1993 Units had been forfeited as a result of an unpermitted event
of termination or a permitted event of termination prior to fully vesting. In
accordance with generally accepted accounting principles, Charter has
recognized a charge to earnings for the fiscal year ended December 31, 1995
with respect to the outstanding SAR Units, based upon the adjusted book value
per share of Charter's Common Stock as of December 31, 1995. Charter will
continue to reflect charges and credits to earnings for fluctuations in the
fair value of Charter's Common Stock subsequent to December 31, 1995.
PROFIT-SHARING PLAN. Charter and its subsidiary banks participate in a Pro
fit-Sharing Plan ("Plan") that covers all full-time employees, provided that
they first must become eligible to participate by serving 1,000 hours of
employment within a calendar year. Each subsidiary bank may make contributions
based upon net earnings, which amount is allocated among employees based upon
salary level and length of service. Vesting begins after three years of
employment, with full vesting occurring after seven years or upon death,
retirement, or total and permanent disability. Pursuant to an amendment of the
Plan during 1987, the foregoing vesting schedule supersedes the prior schedule
that provided vesting began after four years, with full vesting to occur after
eleven years. Outside directors do not participate in the Plan. For the
fiscal year ended December 31, 1995, a contribution of $538,000 was made to
the Plan, as compared to $363,000 for the fiscal year ended December 31, 1994.
During 1987, Charter adopted and incorporated into the Plan a thrift plan
qualified pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended. Under the thrift plan an employee, after specified periods of
service, may contribute up to 10% of his or her base compensation to the thrift
plan, with up to 6% of any salary reduction contribution by the employee then
being matched a minimum of 15% by Charter or such greater amount as the Board
of Directors may, in its discretion, determine. Amounts needed to fund this
matching contribution, which as of January 1, 1988 was set at 25% of the
employee's contribution, are drawn first from amounts retained in the plan due
to employee forfeitures. Accordingly, $25,000 of approximately $129,000 in
matching contributions during 1995 were funded from forfeitures with the
remaining $104,000 being charged as an expense by Charter or the appropriate
subsidiary bank. At December 31, 1995, 261 of 341 full-time employees
were participating in the thrift plan.
62
<PAGE>
EXECUTIVE DEFERRED COMPENSATION PLAN. Effective January 1, 1982, the Board of
Directors of Charter established a deferred compensation plan for members of
its executive management and selected members of senior management of its
subsidiary banks. Contributions were made to the Deferred Plan in the 1982 and
1983 plan years. Since Mr. Finger does not participate in the SAR Plan and his
ability to make contributions to the 401(k) thrift plan are limited by
applicable law, in order to bring Mr. Finger's total compensation to a level
commensurate with his position and performance, the Compensation Committee has
authorized three contributions to Mr. Finger's Deferred Plan account of
$15,475 as of January 1, 1995, and $14,324 as of January 1, 1993 and January
1, 1994, respectively, which amounts represented five percent of Mr. Finger's
1995, 1994 and 1993 base salaries. Employer contributions which were made
under the Deferred Plan in 1982 have been vested over a five-year period.
Contributions under the Deferred Plan for the 1983 plan year have been vested
over a four-year period beginning January 1, 1984, with increases in the
amounts contributed to be equivalent to the rate of increase in the book value
of Charter's Common Stock over such period. Similarly, the contribution to Mr.
Finger's Deferred Plan account for the 1993, 1994 and 1995 plan years will be
vested over a three-year period beginning January 1, 1994, January 1, 1995 and
January 1, 1996, respectively, with increases in the amounts contributed to be
equivalent to the rate of increase in the book value of Charter's Common Stock
over such period. In the event there is no increase in the book value of
Charter's Common Stock over the applicable period, the undistributed balance
held under the Deferred Plan earns interest at a rate equal to Charter's
current federal funds borrowing rate. Unless deferred further by an eligible
employee, the 1982 Deferred Plan amounts were paid to eligible employees in a
lump sum payment in 1988 and were deductible by Charter at that time. As of
December 31, 1995, the contributions to the Deferred Plan for plan years 1982
and 1983 and earnings thereon have fully vested and have been distributed to
all employee participants, except for Mr. Finger who has elected to defer
distribution of his account balance and earnings thereon through termination of
such plan as required by the Merger Agreement. At December 31, 1995, Mr.
Finger had an account balance of approximately $259,000, which includes
accrued earnings of approximately $52,000 for 1995.
DIRECTOR COMPENSATION. Each director who is not also an officer of Charter or
NationsBank, or who has been designated by NationsBank as a nominee for
election to the Board of Directors, receives compensation for his services as a
director in the amount of $850 for each meeting of the board and $400 for any
committee of the board which he attends. Mr. Gentry is reimbursed by Charter
for his actual out-of-pocket expenses incurred in attending Charter's board
meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Except for Mr.
Finger who is an ex-officio member of the Compensation Committee (as well as
the SAR Committee), no member of the Compensation Committee (or the SAR
Committee or MICP Committee) was an officer or employee of Charter or any of
its subsidiaries during 1995, or was formerly an officer of Charter or any of
its subsidiaries or had any relationship requiring disclosure by Charter
pursuant to applicable SEC rules. Mr. Finger's ex-officio status on the
Compensation Committee (and the SAR Committee) does not entitle him to vote on
matters submitted to a vote of such committees but enables him to provide
advice and consultation on compensation matters affecting Charter and its
officers and employees.
During 1995, no executive officer of Charter or any subsidiary served as (i) a
member of the compensation committee (or other board committee performing
equivalent functions) of another entity, one of whose executive officers served
on Charter's Compensation Committee, (ii) a director of another entity, one of
whose executive officers served on Charter's Compensation Committee, or (iii) a
member of the compensation committee (or other board committee performing
equivalent functions) of another entity, one of whose executive officers served
as a director of Charter.
63
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 15, 1996, there were outstanding 14,201 shares of Preferred Stock,
6,061,625 shares of Common Stock (which amount excludes 178,788 shares of
treasury stock acquired and held by the Company in partial satisfaction of
debts previously contracted for), and 269,236 shares of Special Common Stock.
PRINCIPAL SHAREHOLDERS
The following table identifies those persons known to management to be the
beneficial owners as of March 15, 1996 of more than 5% of any class of
Charter's capital stock. In addition to Charter's Common Stock and Preferred
Stock, as of March 15, 1996, shares of Special Common Stock have been issued by
Charter in two series, designated as Class B Special Common Stock and Series C
Special Common Stock, respectively.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS
- -------------- ------------------------------------ ----------------- ----------------
<S> <C> <C> <C>
Common Stock Jerry E. Finger 1,634,436(2)(3)(4) 26.96%
Managing General Partner
Finger Interests Number One, Ltd.
2600 Citadel Plaza Drive
Houston, Texas 77008
NationsBank Corporation 2,659,249(5) 43.87%
100 N. Tryon Street
Charlotte, North Carolina 28255
Special Common Jerry E. Finger 268,475(4)(6) 99.72%
Stock Managing General Partner
Finger Interests Number One, Ltd.
2600 Citadel Plaza Drive
Houston, Texas 77008
Preferred Stock Trust for the benefit of the 1,782 12.55%
children of Jerry E. Finger
c/o Charter National Bank-Houston
P.O. Box 4525
Houston, Texas 77210-4525
Jerry E. Finger 770(4)(7) 5.42%
2600 Citadel Plaza Drive
Houston, Texas 77008
Robert L. Hilsher 732 5.15%
1105 Martin
Houston, Texas 77018
</TABLE>
____________
(1) Except as indicated by footnote, these shares are held of record with sole
voting and investment power.
(2) For long-term estate planning purposes and pursuant to an agreement of
limited partnership executed as of March 9, 1992, all of the shares of
Common Stock and Special Common Stock owned by the following persons and
entities were contributed to Finger Interests Number One, Ltd. (the "Finger
Family Partnership"): (i) Jerry E. Finger, except for 4,920 shares which he
owns directly, (ii) his spouse, (iii) various trusts created for the benefit
of Mr. Finger's children (the "Finger Children's Trusts"), except for 1,935
shares of Common Stock and 247 shares of Special Common Stock acquired by
the Finger Children's Trusts subsequent to formation of the Finger Family
Partnership, (iv) a partnership comprised of Mr. Finger and three other
trusts created for the benefit of Mr. Finger's children ("JEF Partnership"),
(v) one of Mr. Finger's sons, and (vi) 17,640 shares of Common Stock owned
by L.R. Jalenak, Jr., an advisory director to the Company's board of
directors (collectively, the "FFP Partners"). All such shares were
transferred to the Finger Family Partnership on September 27, 1993, after
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") approved the application of the Finger Family Partnership to become
a bank holding company under the Bank Holding Company Act of 1956, as
amended. Pursuant to the terms of the Finger Family Partnership's limited
partnership agreement, Mr. Finger in his capacity as managing general
partner has sole voting and dispositive power over all of the shares of
Common Stock and Special Common Stock which are owned by the Finger Family
Partnership. Under the terms of such limited partnership agreement, Mr.
Finger may resign but cannot be removed as managing general partner.
Accordingly, Mr. Finger will make all voting and disposition decisions with
respect to the shares of Common Stock and Special Common Stock owned by the
Finger Family Partnership, including the voting of such shares at the
special meeting of shareholders at which the proposed Merger will be
submitted to a vote.
64
<PAGE>
(3) Excludes (i) 4,920 shares of Common Stock which Mr. Finger owns directly and
(ii) 3,642 shares of Common Stock which Mr. Finger owns indirectly as co-
trustee of two trusts created for the benefit of his nephews, as to which
he has shared voting power (collectively referred to herein as the "Non-
Partnership Shares"). Also excludes 4,935 shares of Common Stock owned
directly by the Finger Children's Trusts which were acquired subsequent to
formation of the Finger Family Partnership; the percent of such class of
Mr. Finger including such excluded shares would be 27.19%.
(4) As (i) the managing general partner of the Finger Family Partnership and
(ii) the direct beneficial owner of (A) the Non-Partnership Shares and (B)
770 shares of Preferred Stock, initial series, as more fully described in
footnote (7) below, Mr. Finger is the holder of record as of March 15, 1996
of shares representing 5,402,418 votes, or 54.87% of the total votes
attributable to shares of Charter's capital stock; the percent of the votes
of Mr. Finger including votes attributable to the shares of Common Stock,
Special Common Stock and Preferred Stock of which the Finger Children's
Trusts are the holders of record as of March 15, 1996, is 54.98%.
(5) NationsBank owns shares of Common Stock representing in the aggregate
27.01% of the total votes attributable to shares of Charter's capital
stock. NationsBank operates full-service banks throughout the eastern,
southeastern and southwestern regions of the United States and maintains
various offices throughout the world.
(6) Excludes 247 shares of Special Common Stock owned directly by the Finger
Children's Trusts which were acquired subsequent to formation of the Finger
Family Partnership; the percent of such class of Mr. Finger including such
excluded shares would be 99.77%.
(7) Includes 298 shares of Preferred Stock owned by a corporation of which Mr.
Finger is the controlling shareholder and sole director, but excludes 1,782
shares of Preferred Stock owned by the Finger Children's Trusts; the percent
of such class of Mr. Finger including such excluded shares would be 17.97%.
65
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT
The following table indicates the number of shares of Common Stock, Special
Common Stock and Preferred Stock held of record as of March 15, 1996, by
Charter's directors and by its directors and officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
----------------------------------------------------------------------------------------------
PERCENT SPECIAL PERCENT PERCENT
COMMON STOCK OF CLASS COMMON STOCK OF CLASS PREFERRED STOCK (2) OF CLASS
------------ -------- ------------ -------- ------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Andrew M. Alexander 2,050 Less than - - - -
1%
Donald R. Collins, Ph.D. 1,798(3) Less than - - 20 Less than
1% 1%
Winston C. Davis 53,875 Less than - - 647 4.55%
1%
Jerry E. Finger 1,642,998(1)(3)(4)(5) 27.11% 268,475(5)(6) 99.72% 770(3)(5)(7) 5.42%
Frank L. Gentry (8) (8) (8) (8) (8) (8)
William M. Hatten 22,155(3) Less than - - 168(3) 1.18%
1%
R. Steve Letbetter - - - - - -
Herschel G. Maltz 26,927(9) Less than - - 353(9) 2.49%
1%
W. J. Smith, Jr. - - - - - -
All director nominees,
advisory directors and
officers as a group
(17 persons)(10)(11) 1,764,819 29.11% 268,722 99.81% 3,793 26.38%
</TABLE>
________
(1) Except for 3,642 shares of Common Stock which Mr. Finger holds as
co-trustee of trusts created for the benefit of his nephews, these
shares are held of record with sole voting and investing power.
(2) In accordance with the terms of the Merger Agreement and the Restated
Articles of Incorporation of Charter, all 14,201 shares of Preferred
Stock, initial series, will be redeemed as of March 31, 1996, at a
redemption price of $50.00 per share, plus accrued and unpaid dividends as
of such date of $2.00 per share.
(3) Does not include the following shares owned by the spouses or children of
the following directors and with respect to which such directors disclaim
beneficial ownership: (i) Dr. Collins: 44 shares of Common Stock; (ii)
Mr. Finger: 4,935 shares of Common Stock, 247 shares of Special Common
Stock and 1,829 shares of Preferred Stock; and (iii) Judge Hatten: 1,937
shares of Common Stock and 16 shares of Preferred Stock.
(4) Represents shares of Common Stock of which Mr. Finger, individually or as
co-trustee, and the Finger Family Partnership are the record holders as of
March 15, 1996. See the preceding section entitled "Voting Stock and
Principal Holders" for information regarding ownership of shares by the
Finger Family Partnership and Mr. Finger's power to vote such shares as
managing general partner of the Finger Family Partnership.
66
<PAGE>
(5) Does not include the following shares: (i) 4,935 shares of Common Stock
owned by the Finger Children's Trusts; the percent of class of Mr. Finger
including such shares would be 27.19%: (ii) 236 shares of Special Common
Stock owned by the Finger Children's Trusts; the percent of class of Mr.
Finger including such shares would be 99.80%; and (iii) 1,782 shares of
Preferred Stock owned by the Finger Children's Trusts; the percent of
series of Mr. Finger including such shares would be 17.97%. Mr. Finger
beneficially owns shares representing 5,402,418 votes, or 54.87% of the
total votes attributable to shares of Charter's capital stock; the percent
of the votes of Mr. Finger including 10,175 votes attributable to the
shares of Common Stock, Special Common Stock and Preferred Stock of which
the Finger Children's Trusts are the holders of record as of March 15,
1996, is 54.98%. See the preceding section entitled "Voting Stock and
Principal Holders" for information regarding the ownership of shares of
Common Stock by the Finger Family Partnership and Mr. Finger's power to
vote such shares as managing general partner of the Finger Family
Partnership.
(6) Represents shares of Special Common Stock of which the Finger Family
Partnership is the record holder as of March 15, 1996. See the preceding
section entitled "Voting Stock and Principal Holders" for information
regarding the ownership of shares of Special Common Stock by the Finger
Family Partnership and Mr. Finger's power to vote such shares as managing
general partner of the Finger Family Partnership.
(7) Includes 298 shares of Preferred Stock owned by a corporation of which Mr.
Finger is the controlling shareholder and sole director.
(8) Mr. Gentry does not own any shares with sole voting and investment power.
Mr. Gentry, however, is employed by NationsBank and has been designated
annually by NationsBank as its selection for nomination for election to
the Board of Directors of Charter. NationsBank's ownership of Charter
capital stock is described in the table and accompanying footnotes
included in the preceding section entitled "Voting Stock and Principal
Holders."
(9) Excludes 1,950 shares of Common Stock and 17 shares of Preferred Stock,
which Mr. Maltz holds as custodian under the Uniform Gift to Minors Act,
with respect to which Mr. Maltz disclaims beneficial ownership.
(10) The total shares of Common Stock, Special Common Stock and Preferred Stock
beneficially owned by all officers and directors as a group represent
56.17% of the total votes attributable to shares of Charter's capital
stock.
(11) Footnotes 2 through 9 above are applicable to the indicated group
ownership totals.
CHANGES IN CONTROL
Pursuant to the Merger Agreement, Charter will merge with and into NB Holdings
Corporation, a Delaware corporation and wholly owned subsidiary of NationsBank
(the "Merger Subsidiary"), with the Merger Subsidiary as the surviving
corporation. Upon consummation of the Merger, each share of Charter Common
Stock and Special Common Stock will be converted into the right to receive
0.385 shares of NationsBank Common Stock. Consummation of the transactions
contemplated by the Merger Agreement is subject to numerous conditions,
including approval by the shareholders of Charter and by applicable regulatory
authorities. In connection with the execution of the Merger Agreement, Mr.
Finger and NationsBank have entered into an agreement pursuant to which Mr.
Finger has agreed to vote on behalf of himself and as managing general partner
of the Finger Family Partnership, all of the shares of Charter Common Stock and
Special Common Stock owned by him or the Finger Family Partnership in favor of
the Merger. Consummation of the Merger will result in a change of control of
Charter. It is presently anticipated that, subject to satisfaction of all
conditions, the Merger will occur prior to June 30, 1996, although no
assurances can be made as to whether and when the Merger will occur.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of the officers and directors of Charter and their affiliates are
customers of its subsidiary banks, Investor Services and Charter-Venture. Such
directors and officers have had transactions in the ordinary course of business
with certain of these institutions, including borrowings, all of which were on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing from time to time for comparable transactions
with unaffiliated persons and did not involve more than the normal risk of
collectibility or features unfavorable to Charter's subsidiaries. Charter
expects to continue to enter into such transactions on similar terms and
conditions in the future.
67
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(A) List of documents filed as part of this report
(A)(1) Independent Auditors' Report
Charter Bancshares, Inc. and Subsidiaries Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Earnings - Years Ended December 31, 1995, 1994 and
1993
Consolidated Statements of Changes in Shareholders' Equity - Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years Ended December 31, 1995, 1994 and
1993
Notes to Consolidated Financial Statements
(A)(2) No financial statement schedules are required to be filed as a part of
this report
PAGE NUMBER OR INCORPORATION BY REFERENCE TO
- --------------------------------------------
<TABLE>
<C> <S> <C>
(A)(3)(i) Restated Articles of Incorporation Exhibit 3(a) to report on Form 10-K for
(with Amendment) fiscal year ended December 31, 1992,
file no. 0-13496
(ii) Restated Bylaws Exhibit 3(b) to report on Form 10 for
fiscal year ended December 31, 1984,
file no. 0-13496
(A)(4) Instruments defining the rights
of security holders:
4(a) Specimen stock certificate, Common Exhibits 4(a), 4(b) and 4(c) to report on
Stock, par value $1.00 Form 10 for fiscal year ended December 31,
1984, file no. 0-13496
4(b) Specimen stock certificate, Class B
Special Common Stock, par value $1.00
4(c) Specimen stock certificate, Preferred
Stock, initial series, par value $50.00
4(d) Investment Agreement by and between Exhibit 4(a) to report on Form 8-K dated
Charter and NCNB Corporation ("NCNB") December 17, 1986, file no. 0-13496
dated as of December 17, 1986
4(e) Registration Rights Agreement between Exhibit 4(c) to report on Form 8-K dated
Charter and NCNB dated as of December December 17, 1986, file no. 0-13496
17, 1986
4(f) Investment Agreement by and between Exhibit 4(a) to report on Form 10-Q for the
Charter and NCNB dated as of November quarter ended September 30, 1987, file no. 0-13496
6, 1987
4(g) Registration Rights Agreement between Exhibit 4(b) to report on Form 10-Q for the
Charter and NCNB dated as of November quarter ended September 30, 1987, file no. 0-13496
6, 1987
4(h) Letter Agreement between Charter and Exhibit 4(h) to report on Form 10-K for fiscal
NationsBank Corporation dated May 15, year ended December 31, 1993, File No. 0-13496
1992.
4(i) $7.5 million Subordinated Debenture Exhibit 4(i) to report on Form 10-K for fiscal
Due April 19, 2005 year ended December 31, 1993, File No. 0-13496
4(j) $2.5 million Subordinated Debenture Exhibit 4(j) to report on Form 10K for fiscal
Due April 8, 2006 year ended December 31, 1995 File No. 0-13496
</TABLE>
68
<PAGE>
<TABLE>
<C> <S> <C>
(A)(10) Material Contracts
10(a) Profit-Sharing Plan Exhibit 10(a) to report on Form 10-K for fiscal
year ended December 31, 1987, file no. 0-13496
10(b) 1991 Charter Bancshares, Inc. Stock Exhibit 10(b) to report on Form 10-K for fiscal
Appreciation Rights Plan year ended December 31, 1990, file no.0-13496
10(c) Management Incentive Compensation Plan Exhibit 10(c) to report on Form 10-K for fiscal
year ended December 31, 1990, file no.0-13496
10(d) Agreement and Plan of Merger dated Exhibit 10(d) (attached)
January 26, 1996
(A)(21) Subsidiaries of Registrant Page E-1
</TABLE>
(B) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1995. A Form 8-K was filed January 25, 1996 to announce the pending merger
with Charter by NationsBank.
69
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CHARTER BANCSHARES, INC.
Date: March 28, 1996 By /s/ Jerry E. Finger
-------------------------- ----------------------------------
Jerry E. Finger
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
CAPACITY
--------------------------------
<C> <S> <C>
Date: March 28, 1996 By /s/ Andrew M. Alexander
-------------------------- ---------------------------------- Director
Andrew M. Alexander
Date: March 28, 1996 By /s/ Donald R. Collins
-------------------------- ---------------------------------- Director
Donald R. Collins
Date: March 28, 1996 By /s/ Winston C. Davis
-------------------------- ---------------------------------- Senior Vice President
Winston C. Davis and Director
Date: March 28, 1996 By /s/ Jerry E. Finger
-------------------------- ---------------------------------- President, Chairman and Director
Jerry E. Finger (Principal Executive Officer)
Date: March 28, 1996 By /s/ Frank L. Gentry
-------------------------- ---------------------------------- Director
Frank L. Gentry
Date: March 28, 1996 By /s/ William M. Hatten
-------------------------- ---------------------------------- Director
William M. Hatten
Date: March 28, 1996 By /s/ R. Steve Letbetter
-------------------------- ---------------------------------- Director
R. Steve Letbetter
Date: March 28, 1996 By /s/ Herschel G. Maltz
-------------------------- ---------------------------------- Director
Herschel G. Maltz
Date: March 28, 1996 By /s/ William S. Shropshire, Jr.
-------------------------- ---------------------------------- Senior Vice President,Chief Financial
William S. Shropshire, Jr. Officer and Treasurer (Principal
Financial and Accounting Officer)
Date: March 28, 1996 By /s/ W. J. Smith, Jr.
-------------------------- ---------------------------------- Director
W. J. Smith, Jr.
</TABLE>
70
<PAGE>
EXHIBIT 10(d)
AGREEMENT AND PLAN OF MERGER
BETWEEN
NATIONSBANK CORPORATION
AND
CHARTER BANCSHARES, INC.
JANUARY 25, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
CERTAIN DEFINITIONS
1.01 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
THE MERGER AND RELATED TRANSACTIONS
2.01 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.02 Time and Place of Closing. . . . . . . . . . . . . . . . . . . . . . 7
2.03 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.04 Reservation of Right to Revise Transaction . . . . . . . . . . . . . 8
ARTICLE III
MANNER OF CONVERTING SHARES
3.01 Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.02 Anti-Dilution Provisions . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
EXCHANGE OF SHARES
4.01 Exchange Procedures. . . . . . . . . . . . . . . . . . . . . . . . .10
4.02 Voting and Dividends . . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CHARTER
5.01 Organization, Standing, and Authority. . . . . . . . . . . . . . . .11
5.02 Charter Capital Stock. . . . . . . . . . . . . . . . . . . . . . . .11
5.03 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.04 Authorization of Merger and Related Transactions . . . . . . . . . .13
5.05 Securities Reporting Documents and Financial Statements . . . . . .14
5.06 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . .14
5.07 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
5.08 Allowance for Credit Losses. . . . . . . . . . . . . . . . . . . . .15
5.09 Other Tax and Regulatory Matters . . . . . . . . . . . . . . . . . .15
5.10 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
5.11 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . .17
5.13 Commitments and Contracts. . . . . . . . . . . . . . . . . . . . . .18
5.14 Material Contract Defaults . . . . . . . . . . . . . . . . . . . . .19
5.15 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .19
5.16 Absence of Certain Changes or Events . . . . . . . . . . . . . . . .19
5.17 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
5.18 Statements True and Correct. . . . . . . . . . . . . . . . . . . . .20
5.19 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
5.20 Labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
5.21 Material Interests of Certain Persons. . . . . . . . . . . . . . . .21
5.22 Registration Obligations . . . . . . . . . . . . . . . . . . . . . .21
5.23 Brokers and Finders. . . . . . . . . . . . . . . . . . . . . . . . .21
5.24 State Takeover Laws. . . . . . . . . . . . . . . . . . . . . . . . .21
5.25 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . .21
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NATIONSBANK
6.01 Organization, Standing and Authority . . . . . . . . . . . . . . . .22
6.02 NationsBank Capital Stock. . . . . . . . . . . . . . . . . . . . . .22
6.03 Authorization of Merger and Related Transactions . . . . . . . . . .23
6.04 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .23
6.05 NationsBank SEC Reports. . . . . . . . . . . . . . . . . . . . . . .24
6.06 Statements True and Correct. . . . . . . . . . . . . . . . . . . . .24
6.07 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
6.08 Tax and Regulatory Matters . . . . . . . . . . . . . . . . . . . . .24
6.09 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
6.10 Brokers and Finders. . . . . . . . . . . . . . . . . . . . . . . . .24
ARTICLE VII
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
7.01 Conduct of Business Prior to the Effective Time. . . . . . . . . . .25
7.02 Forbearances . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
7.03 Plan Termination . . . . . . . . . . . . . . . . . . . . . . . . . .27
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.01 Access and Information . . . . . . . . . . . . . . . . . . . . . . .27
8.02 Registration Statement; Regulatory Matters . . . . . . . . . . . . .28
8.03 Stockholders' Approval . . . . . . . . . . . . . . . . . . . . . . .29
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
8.04 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . .29
8.05 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . .29
8.06 Miscellaneous Agreements and Consents; Affiliates Agreements . . . .29
8.07 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . .30
8.08 SAR Plan; Restricted Stock . . . . . . . . . . . . . . . . . . . . .31
8.09 Certain Change of Control Matters. . . . . . . . . . . . . . . . . .31
8.10 Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . .32
8.11 Declaration of Dividends . . . . . . . . . . . . . . . . . . . . . .32
8.12 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . .32
8.13 Certain Actions. . . . . . . . . . . . . . . . . . . . . . . . . . .32
8.14 Acquisition Proposals. . . . . . . . . . . . . . . . . . . . . . . .33
8.15 Termination Fee. . . . . . . . . . . . . . . . . . . . . . . . . . .33
8.16 Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
8.17 Post-Closing Actions . . . . . . . . . . . . . . . . . . . . . . . .34
8.18 Prepayment of Indebtedness . . . . . . . . . . . . . . . . . . . . .34
8.19 Waiver of Restrictions in Investment Agreements . . . . . . . . . .34
ARTICLE IX
CONDITIONS
9.01 Conditions to Each Party's Obligation to Effect the Merger . . . . .34
9.02 Conditions to Obligations of Charter to Effect the Merger . . . . .35
9.03 Conditions to Obligations of NationsBank to Effect the Merger. . . .35
ARTICLE X
TERMINATION
10.01 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.02 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . .39
10.03 Non-Survival of Representations, Warranties and Covenants
Following the Effective Time . . . . . . . . . . . . . . . . . . . .39
ARTICLE XI
GENERAL PROVISIONS
11.01 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
11.02 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .39
11.03 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
11.04 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
11.05 No Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . .40
11.06 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
11.07 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . .41
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
11.08 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .41
11.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
11.10 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
11.11 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . .41
</TABLE>
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of
January 25, 1996, between NATIONSBANK CORPORATION ("NationsBank"), a North
Carolina corporation and a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and CHARTER BANCSHARES,
INC., a Texas corporation and a registered bank holding company under the BHCA
("Charter"). Capitalized terms not otherwise defined herein shall have the
meanings ascribed in Article I.
W I T N E S S E T H:
WHEREAS, pursuant to the terms and subject to the conditions of this
Agreement, NationsBank will acquire Charter through the merger of Charter with
and into NB Holdings Corporation, a Delaware corporation and a wholly owned
subsidiary of NationsBank ("Holdings") or a newly formed direct wholly owned
subsidiary of NationsBank (Holdings or such new subsidiary being referred to
herein as the "Merger Subsidiary"), or by such other means as provided for
herein (the "Merger"); and
WHEREAS, the Merger is intended to qualify as a tax-free
reorganization pursuant to Section 368 of the Code; and
WHEREAS, the respective Boards of Directors of NationsBank and Charter
have resolved that the transactions described herein are in the best interests
of the parties and their respective stockholders and have approved the
transactions described herein; and
WHEREAS, NationsBank and Charter desire to provide for certain
undertakings, conditions, representations, warranties and covenants in
connection with the transactions contemplated by this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "ACQUISITION PROPOSAL" shall have the meaning set forth in
Section 8.14.
(b) "ACQUISITION TRANSACTION" shall have the meaning set forth
in Section 8.14.
<PAGE>
(c) "AFFILIATE" shall mean, with respect to any Person, any
Person that, directly or indirectly, controls or is controlled by or
is under common control with such Person.
(d) "AGREEMENT" shall have the meaning set forth in the
introduction to this Agreement.
(e) "ALLOWANCE" shall have the meaning set forth in Section
5.08.
(f) "APPROVALS" shall mean any and all permits, consents,
authorizations and approvals of any governmental or regulatory
authority or of any other third person necessary to give effect to the
arrangement contemplated by this Agreement or necessary to consummate
the Merger.
(g) "AUTHORIZATIONS" shall have the meaning set forth in Section
5.01.
(h) "BHCA" shall have the meaning set forth in the introduction
to this Agreement.
(i) "CHARTER" shall have the meaning set forth in the
introduction to this Agreement.
(j) "CHARTER BENEFIT PLANS" shall have the meaning set forth in
Section 5.12(a).
(k) "CHARTER BOARD" shall mean the Board of Directors of
Charter.
(l) "CHARTER CAPITAL STOCK" shall mean collectively the Charter
Common Stock, Charter Special Common Stock and Charter Preferred
Stock.
(m) "CHARTER COMMON STOCK" shall mean the common stock, par
value $1.00 per share, of Charter.
(n) "CHARTER DISCLOSURE SCHEDULE" shall mean that document
containing the written detailed information prepared by Charter and
delivered by Charter to NationsBank.
(o) "CHARTER ERISA PLAN" shall have the meaning set forth in
Section 5.12(a).
(p) "CHARTER FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 5.05.
(q) "CHARTER PREFERRED STOCK" shall mean the Preferred Stock,
$50.00 par value, of Charter.
(r) "CHARTER SPECIAL COMMON STOCK" shall mean the Class B
Special Common Stock, par value $1.00 per share, and the Class C
Special Common Stock, par value $1.00 per share, of Charter.
(s) "CHARTER STOCK PLAN" shall have the meaning set forth in
Section 5.12.
2
<PAGE>
(t) "CLOSING" shall have the meaning set forth in Section 2.02.
(u) "CODE" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder.
(v) "COMMISSIONER" shall mean the Commissioner of the Texas
Savings and Loan Department and, if its approval of the transactions
described herein is required by law, the Texas Banking Commissioner.
(w) "CONDITION" shall have the meaning set forth in Section
5.01.
(x) "DGCL" shall mean the Delaware General Corporation Law.
(y) "DEPARTMENT" shall mean the Texas Savings and Loan
Department and, if its approval of the transactions described herein
is required by law, the Texas Department of Banking.
(z) "DISSENTING SHARES" shall have the meaning set forth in
Section 3.01.
(aa) "EFFECTIVE TIME" shall have the meaning set forth in Section
2.03.
(ab) "EMPLOYEE" shall mean any current or former employee,
officer or director, independent contractor or retiree of Charter or
its Subsidiaries and any dependent or spouse thereof.
(ac) "ENVIRONMENTAL LAW" shall have the meaning set forth in
Section 5.25.
(ad) "ERISA" shall have the meaning set forth in Section 5.12.
(ae) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(af) "EXCHANGE AGENT" shall have the meaning set forth in Section
3.01(e).
(ag) "EXCHANGE RATIO" shall mean 0.385 shares of NationsBank
Common Stock for each share of Charter Common Stock or Charter Special
Common Stock.
(ah) "EXPENSES" shall have the meaning set forth in Section 8.15.
(ai) "FDIC" shall mean the Federal Deposit Insurance Corporation.
(aj) "FEDERAL RESERVE BOARD" shall mean the Board of Governors of
the Federal Reserve System and any Federal Reserve Bank.
(ak) "GAAP" shall mean generally accepted accounting principles
in the United States.
(al) "HOLDINGS" shall have the meaning set forth in the recitals
to this Agreement.
3
<PAGE>
(am) "INDEMNIFIED PARTY" shall have the meaning set forth in
Section 8.07.
(an) "LIENS" shall have the meaning set forth in Section 5.03.
(ao) "MATERIAL ADVERSE EFFECT" shall have the meaning set forth
in Section 5.01.
(ap) "MAXIMUM AMOUNT" shall have the meaning set forth in
Section 8.07.
(aq) "MERGER" shall have the meaning set forth in the recitals to
this Agreement.
(ar) "MERGER CONSIDERATION" shall mean the combination of (i)
NationsBank Common Stock and (ii) cash in lieu of fractional shares to
be issued by NationsBank in the Merger.
(as) "MERGER SUBSIDIARY" shall have the meaning set forth in the
recitals of this Agreement.
(at) "NASD" shall mean the National Association of Securities
Dealers, Inc.
(au) "NATIONSBANK" shall have the meaning set forth in the
introduction to this Agreement.
(av) "NATIONSBANK COMMON STOCK" shall mean the common stock of
NationsBank.
(aw) "NATIONSBANK FINANCIAL STATEMENTS" shall have the meaning
set forth in Section 6.04.
(ax) "NATIONSBANK SEC DOCUMENTS" shall have the meaning set forth
in Section 6.04.
(ay) "NYSE" shall mean the New York Stock Exchange, Inc.
(az) "OCC" shall mean the Office of the Comptroller of the
Currency.
(ba) "OTS" shall mean the Office of Thrift Supervision.
(bb) "PERMITTED LIENS" are (i) Liens for current taxes not yet
due and payable and incurred in the ordinary course of business, (ii)
with respect to a lease, the interest of the lessor thereunder,
including any Liens on the interest of such lessor, and (iii) such
imperfections of title, Liens, restrictions and easements that do not
materially impair the use or value of the properties or assets or
otherwise materially impair the current operations relating to the
business of Charter or its Subsidiaries.
(bc) "PERSON" or "person" shall mean any individual, corporation,
association, partnership, group (as defined in Section 13(d)(3) of the
Exchange Act), joint venture, trust or unincorporated organization, or
a government or any agency or political subdivision thereof.
4
<PAGE>
(bd) "PROXY STATEMENT" shall have the meaning set forth in
Section 5.18.
(be) "REDEMPTION" shall have the meaning set forth in Section
3.01.
(bf) "REGISTRATION STATEMENT" shall have the meaning set forth in
Section 5.18.
(bg) "REGULATORY AGREEMENT" shall have the meaning set forth in
Section 5.11(b).
(bh) "REGULATORY AUTHORITIES" shall have the meaning set forth in
Section 5.11(b).
(bi) "REMEDIES EXCEPTION" shall mean any bankruptcy,
reorganization, insolvency, fraudulent conveyance or transfer,
moratorium or similar laws affecting creditors' rights generally and
general principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity).
(bj) "REPORTS" shall have the meaning set forth in Section 5.17.
(bk) "RESTRICTED STOCK" shall have the meaning set forth in
Section 8.08.
(bl) "SAR PLAN" shall mean the 1991 Charter Bancshares, Inc.
Stock Appreciation Rights Plan.
(bm) "SEC" shall mean the Securities and Exchange Commission.
(bn) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(bo) "SECURITIES LAWS" shall have the meaning set forth in
Section 5.04(c).
(bp) "SECURITIES REPORTING DOCUMENTS" shall have the meaning set
forth in Section 5.05.
(bq) "STATE REGULATORY COMMISSIONERS" shall have the meaning set
forth in Section 5.04(c).
(br) "STOCKHOLDERS' MEETING" shall have the meaning set forth in
Section 5.18.
(bs) "SUBSIDIARY" shall mean, in the case of either NationsBank
or Charter, any corporation, association or other entity in which it
owns or controls, directly or indirectly, 25% or more of the
outstanding voting securities or 25% or more of the total equity
interest; PROVIDED, HOWEVER, that (i) the term shall not include any
such entity in which such voting securities or equity interest is
owned or controlled in a fiduciary capacity, without sole voting
power, or was acquired in securing or collecting a debt previously
contracted in good faith and (ii) in the case of NationsBank, the term
shall not include Charter.
(bt) "SUBSIDIARY BANK MERGER(S)" shall have the meaning set forth
in Section 2.04.
(bu) "SURVIVING CORPORATION" shall have the meaning set forth in
Section 2.01.
5
<PAGE>
(bv) "TAX" OR "TAXES" shall mean all federal, state, local and
foreign taxes, charges, fees, levies, imposts, duties or other
assessments, including, without limitation, income, gross receipts,
excise, employment, sales, use, transfer, license, payroll, franchise,
severance, stamp, occupation, windfall profits, environmental, federal
highway use, commercial rent, customs duties, capital stock, paid up
capital, profits, withholding, Social Security, single business and
unemployment, disability, real property, personal property,
registration, ad valorem, value added, alternative or add-on minimum,
estimated, or other tax or governmental fee of any kind whatsoever,
imposed or required to be withheld by the United States or any state,
local, foreign government or subdivision or agency thereof, including,
without limitation, any interest, penalties or additions thereto.
(bw) "TAXABLE PERIOD" shall mean any period prescribed by any
governmental authority, including, but not limited to, the United
States or any state, local, foreign government or subdivision or
agency thereof for which a Tax Return is required to be filed or Tax
is required to be paid.
(bx) "TAX RETURN" shall mean any report, return, information
return or other information required to be supplied to a taxing
authority in connection with Taxes, including, without limitation, any
return of an affiliated or combined or unitary group that includes
Charter or any of its Subsidiaries.
(by) "TBCA" shall mean the Texas Business Corporation Act, as
amended.
(bz) "TERMINATION FEE" shall have the meaning set forth in
Section 8.15.
(ca) "VOTING POWER" shall mean the right to vote generally in the
election of Directors of Charter through the beneficial ownership of
Charter Capital Stock or other securities entitled to vote generally
in the election of directors of Charter.
ARTICLE II
THE MERGER AND RELATED TRANSACTIONS
2.01 MERGER.
(a) Upon the terms and subject to the conditions set forth in
this Agreement and in accordance with the DGCL and the TBCA, at the
Effective Time, Charter shall be merged with and into Merger
Subsidiary. As a result of the Merger, the separate existence of
Charter shall thereupon cease, and Merger Subsidiary shall continue as
the surviving corporation of the Merger (the "Surviving Corporation").
NationsBank shall cause the Board of Directors of Merger Subsidiary
(i) to approve this Agreement and the transactions contemplated
hereunder and (ii) to authorize and direct an officer of Merger
Subsidiary to execute and deliver a counterpart of this Agreement.
(b) The certificate of incorporation of Merger Subsidiary as in
effect on the Effective Time (a copy of which at the date of this
Agreement is set forth as Exhibit A hereto) shall be the certificate
of incorporation of the Surviving Corporation.
6
<PAGE>
(c) The bylaws of Merger Subsidiary as in effect on the
Effective Time shall be the bylaws of the Surviving Corporation.
(d) The directors of Merger Subsidiary immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and
the officers of Merger Subsidiary immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, in each case
until their respective successors are duly elected and qualified.
(e) The Merger shall have the effects set forth in Sections 259
and 261 of the DGCL and Section 5.06 of the TBCA.
2.02 TIME AND PLACE OF CLOSING. The closing of the transactions
contemplated hereby (the "Closing") will take place at the offices of counsel to
Charter in Houston, Texas at 10:00 A.M. on the date that the Effective Time
occurs, or at such other time, and at such place, as may be mutually agreed upon
by NationsBank and Charter.
2.03 EFFECTIVE TIME. On the business day selected by NationsBank
occurring within 10 business days following the date on which the expiration of
all applicable waiting periods in connection with approvals of governmental
authorities necessary to effectuate the Merger occurs and all conditions to the
consummation of this Agreement are satisfied or waived, unless an earlier or
later date has been agreed by the parties, appropriate articles of merger or
certificates of merger shall be executed in accordance with all appropriate
legal requirements and shall be filed as required by law, and the Merger
provided for herein shall become effective upon such filing or at such time as
may be specified in such articles or certificates of merger. The time of such
filing or such later effective time is herein called the "Effective Time."
2.04 RESERVATION OF RIGHT TO REVISE TRANSACTION; FURTHER ACTIONS.
(a) NationsBank may at any time change the method of effecting the acquisition
of Charter by NationsBank (including, without limitation, the provisions as set
forth in Article III) if and to the extent that it deems such a change to be
desirable; provided, however, that no such change shall (A) alter or change the
amount or the kind of the consideration to be received by the holders of Charter
Common Stock or Charter Special Common Stock as provided for in this Agreement;
(B) adversely affect the tax treatment to Charter stockholders as a result of
receiving the Merger Consideration (in the opinion of Charter's tax counsel);
(C) take the form of an asset purchase agreement; or (D) adversely affect the
timing of the transaction described herein.
(b) To facilitate the Merger and the acquisition, each of the parties
will execute such additional agreements and documents and take such other
actions as NationsBank determines necessary or appropriate, including, without
limitation, if NationsBank so elects, entering into agreements to facilitate the
merger(s) of Charter's banking Subsidiaries with and into each other or
NationsBank of Texas, National Association, simultaneously with, or promptly
following, the consummation of the Merger (the "Subsidiary Bank Merger(s)").
7
<PAGE>
ARTICLE III
MANNER OF CONVERTING SHARES
3.01 CONVERSION.
(a) Subject to the provisions of this Article III, at the
Effective Time, by virtue of the Merger and without any action on the
part of the holders thereof, the shares of the constituent
corporations shall be converted as follows:
(i) Each of the shares of common stock of Merger
Subsidiary issued and outstanding immediately prior to the
Effective Time shall remain outstanding as one share of common
stock of the Surviving Corporation; and
(ii) Except as provided in Section 3.01(c), each
share of Charter Common Stock and Charter Special Common Stock
issued and outstanding immediately prior to the Effective Time
shall be converted into and become the right to receive a
fractional number of shares of NationsBank Common Stock equal
to the Exchange Ratio.
(b) Each share of Charter Preferred Stock issued and
outstanding at the date of this Agreement shall be redeemed prior
to the Effective Time at the $50.00 plus accrued unpaid dividend
per share price and in the manner provided in the Charter Restated
Articles of Incorporation, as amended (the "Redemption").
(c) Each of the shares of Charter Capital Stock held by
NationsBank or any of its wholly owned Subsidiaries or by Charter or
its wholly owned Subsidiaries, other than shares held by NationsBank
or any of its wholly owned Subsidiaries or Charter or its wholly owned
Subsidiaries in a fiduciary capacity or as a result of debts
previously contracted, shall be canceled and retired at the Effective
Time and no consideration shall be issued in exchange therefor.
(d) Notwithstanding any other provision of this Agreement, each
holder of shares of Charter Common Stock or Charter Special Common
Stock exchanged pursuant to the Merger, who would otherwise have been
entitled to receive or purchase a fraction of a share of NationsBank
Common Stock (after taking into account all certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest)
in an amount equal to such fractional part of a share of NationsBank
Common Stock multiplied by the closing price for such share reported
by THE WALL STREET JOURNAL on the last business day prior to the
Closing Date. No such holder will be entitled to dividends, voting
rights or any other rights as a stockholder in respect of any
fractional share.
(e) At the Effective Time, the stock transfer books of Charter
shall be closed as to holders of Charter Common Stock and Charter
Special Common Stock immediately prior to the Effective Time and no
transfer of Charter Common Stock and Charter Special Common Stock by
any such holder shall thereafter be made or recognized. If, after the
Effective Time, certificates are properly presented in accordance with
Article IV of this
8
<PAGE>
Agreement to the exchange agent, which shall be selected by
NationsBank (the "Exchange Agent"), such certificates shall be
canceled and exchanged for certificates representing the
number of whole shares of NationsBank Common Stock and a check
representing the amount of cash in lieu of fractional shares, if any,
into which the Charter Common Stock or Charter Special Common Stock
represented thereby was converted in the Merger. Any other provision
of this Agreement notwithstanding, neither NationsBank, the Surviving
Corporation nor the Exchange Agent shall be liable to a holder of
Charter Capital Stock for any amount paid or property delivered in
good faith to a public official pursuant to any applicable abandoned
property, escheat, or similar law.
(f) Shares held by each holder of Charter Common Stock or
Charter Special Common Stock who has not voted such shares in favor of
the Merger and with respect to which payment for such shares shall
have been duly demanded in accordance with Section 5.12 of the TBCA
("Dissenting Shares") shall not be converted into and represent the
right to receive Merger Consideration; provided, however, that if any
such stockholder shall withdraw his or her demand for payment or shall
fail to perfect his or her dissenter's rights in accordance with the
TBCA, then such holder's Dissenting Shares shall cease to be
Dissenting Shares and shall, subject to the terms of this Agreement,
be converted into and represent the right to receive the Merger
Consideration.
3.02 ANTI-DILUTION PROVISIONS. The Exchange Ratio shall be adjusted
appropriately to reflect any stock dividends, splits, recapitalizations or other
similar transactions with respect to the NationsBank Common Stock where the
record date occurs prior to the Effective Time.
ARTICLE IV
EXCHANGE OF SHARES
4.01 EXCHANGE PROCEDURES. Before or promptly after the Effective
Time, NationsBank and Charter shall cause the Exchange Agent to mail appropriate
transmittal materials (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing shares of
Charter Common Stock or Charter Special Common Stock shall pass, only upon
proper delivery of such certificates to the Exchange Agent) to the former
stockholders of Charter. After the Effective Time, each holder of shares of
Charter Common Stock or Charter Special Common Stock issued and outstanding at
the Effective Time (other than shares to be canceled pursuant to Section
3.01(b)) shall surrender the certificate or certificates theretofore
representing such shares, together with such transmittal materials properly
executed, to the Exchange Agent and promptly upon surrender shall receive in
exchange therefor the consideration provided in Section 3.01 of this Agreement,
together with all declared but unpaid dividends in respect of such shares. The
certificate or certificates for Charter Common Stock or Charter Special Common
Stock so surrendered shall be duly endorsed as the Exchange Agent may require.
To the extent provided by Section 3.01(c), each holder of shares of Charter
Common Stock or Charter Special Common Stock issued and outstanding at the
Effective Time also shall receive, upon surrender of the certificate or
certificates representing such shares, cash in lieu of any fractional shares of
NationsBank Common Stock to which such holder would otherwise be entitled.
NationsBank shall not be obligated to deliver the consideration to which any
former holder of Charter Common Stock or Charter Special Common Stock is
entitled as a result of the Merger until
9
<PAGE>
such holder surrenders his certificate or certificates representing shares of
Charter Common Stock or Charter Special Common Stock for exchange as provided
in this Article IV. In addition, certificates surrendered for exchange by
any person constituting an "affiliate" of Charter for purposes of Rule 145(c)
under the Securities Act shall not be exchanged for certificates representing
whole shares of NationsBank Common Stock until NationsBank has received a
written agreement from such person as provided in Section 8.06. If any
certificate for shares of NationsBank Common Stock, or any check representing
cash or declared but unpaid dividends, is to be issued in a name other than
that in which a certificate surrendered for exchange is issued, the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and the person requesting such exchange shall affix any
requisite stock transfer tax stamps to the certificate surrendered or provide
funds for their purchase or establish to the satisfaction of the Exchange
Agent that such taxes are not payable.
4.02 VOTING AND DIVIDENDS. Former stockholders of record of Charter
shall be entitled to vote after the Effective Time at any meeting of NationsBank
stockholders the number of whole shares of NationsBank Common Stock into which
their respective shares of Charter Capital Stock are converted, regardless of
whether such holders have exchanged their certificates representing Charter
Capital Stock for certificates representing NationsBank Common Stock in
accordance with the provisions of this Agreement. Until surrendered for
exchange in accordance with the provisions of Section 4.01, each certificate
theretofore representing shares of Charter Capital Stock (other than shares to
be canceled pursuant to Section 3.01) shall from and after the Effective Time
represent for all purposes only the right to receive shares of NationsBank
Common Stock and cash, as set forth in this Agreement. No dividend or other
distribution payable to the holders of record of NationsBank Common Stock, at or
as of any time after the Effective Time, shall be paid to the holder of any
certificate representing shares of Charter Capital Stock issued and outstanding
at the Effective Time until such holder physically surrenders such certificate
for exchange as provided in Section 4.01, promptly after which time all such
dividends or distributions shall be paid (without interest).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CHARTER
Charter represents and warrants to NationsBank, subject to such
exceptions and limitations as are set forth below or in the Charter Disclosure
Schedule, as follows:
5.01 ORGANIZATION, STANDING, AND AUTHORITY. Charter is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas. Charter is duly qualified to do business and in good standing
in all jurisdictions (whether federal, state, local or foreign) where its
ownership or leasing of property or the conduct of its business requires it to
be so qualified and in which the failure to be duly qualified would have a
material adverse effect on the financial condition, results of operations or
business (the "Condition") of Charter and its Subsidiaries on a consolidated
basis or on the ability of Charter or its Subsidiaries to consummate the
transactions contemplated hereby (a "Material Adverse Effect"). Charter has all
requisite corporate power and authority to carry on its business as now
conducted and to own, lease and operate its assets, properties and business,
except where the failure to have such power and authority would not have a
Material Adverse Effect, and to execute and deliver this Agreement and perform
the terms of this
10
<PAGE>
Agreement. Charter is duly registered as a bank holding company under the
BHCA. Charter has in effect all federal, state, local and foreign
governmental, regulatory and other authorizations, permits and licenses
(collectively, "Authorizations") necessary for it to own or lease its
properties and assets and to carry on its business as now conducted, the
absence of which, either individually or in the aggregate, would have a
Material Adverse Effect.
5.02 CHARTER CAPITAL STOCK.
(a) At December 31, 1995, the authorized and the issued and
outstanding Charter Capital Stock consisted of the following:
<TABLE>
<CAPTION>
ISSUED AND
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Charter Common Stock: 12,000,000 6,061,627
Charter Special Common Stock:
Class B 250,000 219,718
Series C 50,000 49,518
Additional (undesignated) 2,700,000 0
Charter Preferred Stock 400,000 14,201
</TABLE>
Since December 31, 1995, Charter has issued no additional Charter
Capital Stock and has no commitments, options or agreements to issue
any additional shares. At the same date, Charter had outstanding
shares with a par value of $7,220,000, capital surplus of $41,107,000
and undivided profits of approximately $13,480,000. All of the issued
and outstanding shares of Charter Capital Stock are duly and validly
issued and outstanding and are fully paid and nonassessable. None of
the outstanding shares of the Charter Capital Stock has been issued in
the violation of any preemptive rights or any provision of Charter's
Restated Articles of Incorporation, as amended. As of the date of
this Agreement, no shares of Charter Capital Stock have been reserved
for any purpose.
(b) Except as set forth above or in Section 5.02 of the Charter
Disclosure Schedule, there are no shares of Charter Capital Stock, or
other equity securities of Charter outstanding and no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of
Charter or contracts, commitments, understandings or arrangements by
which Charter is or may be bound to issue additional shares of its
capital stock or options, warrants or rights to purchase or acquire
any additional shares of its capital stock. There are no contracts,
commitments, understandings or arrangements by which Charter or any of
its Subsidiaries is or may be bound to transfer any shares of the
capital stock of any Subsidiary of Charter, except for a transfer to
Charter or any of its wholly owned Subsidiaries and except as set
forth in the Charter Disclosure Schedule, and there are no agreements,
understandings or commitments relating to the right of Charter to vote
or to dispose of such shares, other than such as are held in a
fiduciary capacity.
11
<PAGE>
(c) The Charter Board has duly authorized and approved the
Redemption.
(d) Except as set forth in Section 5.02(d) of the Charter
Disclosure Schedule, there are no securities required to be issued by
Charter under any Charter Stock Plan, dividend reinvestment or similar
plan.
5.03 SUBSIDIARIES. Section 5.03 of the Charter Disclosure Schedule
contains a complete list of Charter's Subsidiaries. Except as provided in the
Charter Disclosure Schedule, all of the outstanding shares of each Subsidiary
are owned by Charter and no equity securities are or may become required to be
issued by reason of any options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any Subsidiary, and there are no
contracts, commitments, understandings or arrangements by which any Subsidiary
is bound to issue additional shares of its capital stock or options, warrants or
rights to purchase or acquire any additional shares of its capital stock. All
of the shares of capital stock of each Subsidiary are fully paid and
nonassessable and are owned free and clear of any claim, lien, pledge or
encumbrance of whatsoever kind ("Liens"). Each Subsidiary (i) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated or organized, (ii) is duly qualified to
do business and in good standing in all jurisdictions (whether federal, state,
local or foreign) where its ownership or leasing of property or the conduct of
its business requires it to be so qualified and in which the failure to be so
qualified would have a Material Adverse Effect, (iii) has all requisite
corporate power and authority to own or lease its properties and assets and to
carry on its business as now conducted and (iv) has in effect all Authorizations
necessary for it to own or lease its properties and assets and to carry on its
business as now conducted, the absence of which Authorizations, individually or
in the aggregate, would have a Material Adverse Effect.
5.04 AUTHORIZATION OF MERGER AND RELATED TRANSACTIONS.
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby (including,
without limitation, the consummation of the Merger, if any) have been
duly and validly authorized by all necessary corporate action in
respect thereof on the part of Charter, including (i) waiver by the
Charter Board of all restrictions upon ownership by NationsBank of
Charter Capital Stock contained in any agreement between the parties
hereto and (ii) approval of the Merger by the Charter Board, subject
to the approval of the Merger by the stockholders of Charter to the
extent required by the applicable law. The only stockholder approval
required for the approval of the Merger is the approval of two-thirds
of the outstanding shares of Charter Capital Stock voting together as
if a single class (and in which voting, each share of Charter Special
Common Stock shall be entitled to 14 votes). This Agreement, subject
to any requisite stockholder approval hereof with respect to the
Merger, represents a valid and legally binding obligation of Charter,
enforceable against Charter in accordance with its terms, except as
such enforcement may be limited by the Remedies Exception.
(b) Except as set forth in Section 5.04 of the Charter
Disclosure Schedule, neither the execution and delivery of this
Agreement by Charter, nor the consummation by Charter of the
transactions contemplated hereby or thereby nor compliance by Charter
with any of the provisions hereof or thereof will (i) conflict with or
result in a breach of any provision
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of Charter's Restated Articles of Incorporation, as amended, or
amended and restated bylaws or (ii) constitute or result in a breach
of any term, condition or provision of, or constitute a default (or
an event which with notice or lapse of time or both would become a
default) under, or give rise to any right of termination, cancellation
or acceleration with respect to, or result in the creation of any Lien
upon, any property or assets of any of Charter or its Subsidiaries
pursuant to any note, bond, mortgage, indenture, license, agreement,
lease or other instrument or obligation to which any of them is a
party or by which any of them or any of their properties or assets
may be subject and that would have in any such event, a Material
Adverse Effect, or (iii) subject to receipt of the requisite approvals
referred to in Sections 9.01(a) and 9.01(b) of this Agreement,
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Charter or its Subsidiaries or any of
their properties or assets.
(c) Other than (i) in connection or compliance with the
provisions of applicable state corporate and securities laws, the
Securities Act, the Exchange Act, and the rules and regulations of the
SEC promulgated thereunder (the "Securities Laws"), and (ii) consents,
authorizations, approvals or exemptions required from the Commissioner
and necessary state insurance commissioners (collectively, the "State
Regulatory Commissioners"), the OCC, the OTS, or the Federal Reserve
Board, no notice to, filing with, authorization of, exemption by, or
consent or approval of any public body or authority is necessary for
the consummation by Charter of the Merger and the other transactions
contemplated in this Agreement.
5.05 SECURITIES REPORTING DOCUMENTS AND FINANCIAL STATEMENTS.
Charter (i) has delivered to NationsBank copies of the consolidated balance
sheets and the related consolidated statements of earnings, changes in
shareholders' equity and cash flows (including related notes and schedules) of
Charter and its consolidated Subsidiaries as of and for the periods ended
September 30, 1995 and December 31, 1994 included in a quarterly report on Form
10-Q or an annual report on Form 10-K, as the case may be, filed by Charter
pursuant to the Securities Laws, and (ii) has furnished NationsBank with a true
and complete copy of each material report, schedule, registration statement and
definitive proxy statement filed by Charter with the SEC from and after January
1, 1993 (each a "Securities Reporting Document"), which are all the material
documents (other than preliminary material) that Charter was required to file
with the SEC since such date and all of which complied when filed in all
material respects with all applicable laws and regulations (clauses (i) and
(ii), and the financial statements and related notes and schedules included in
the Securities Reporting Documents, collectively, the "Charter Financial
Statements"). The Charter Financial Statements (as of the dates thereof and for
the periods covered thereby) (A) are or will be in accordance with the books and
records of Charter and its Subsidiaries, which are or will be complete and
accurate in all material respects and which have been or will have been
maintained in accordance with good business practices, and (B) present or will
present fairly the consolidated financial position and the consolidated results
of operations, changes in stockholders' equity and cash flows of Charter and its
Subsidiaries as of the dates and for the periods indicated, in accordance with
GAAP consistently applied except as disclosed, subject in the case of interim
financial statements to normal recurring year-end adjustments and except for the
absence of certain footnote information in the unaudited statements. Charter
has delivered to NationsBank (i) copies of all management letters prepared by
Deloitte & Touche LLP (and any predecessor thereto) delivered to Charter since
January 1, 1993 and (ii) copies of audited balance sheets and related statements
of income, changes in stockholders'
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equity and cash flows for any Subsidiary of Charter since January 1, 1993 for
which a separate audit has been performed.
5.06 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
Charter Disclosure Schedule, neither Charter nor any of its Subsidiaries has any
obligations or liabilities (contingent or otherwise) in the amount of $500,000
in the aggregate, except obligations and liabilities (i) which are fully accrued
or reserved against in the consolidated balance sheet of Charter and its
Subsidiaries as of September 30, 1995 included in the Charter Financial
Statements or reflected in the notes thereto, or (ii) which were incurred after
September 30, 1995 in the ordinary course of business consistent with past
practice. Except as set forth in the Charter Disclosure Schedule, since
September 30, 1995, neither Charter nor any of its Subsidiaries has incurred or
paid any obligation or liability which would have a Material Adverse Effect.
5.07 TAX MATTERS. Except as set forth in Section 5.07 of the Charter
Disclosure Schedule:
(a) All Tax Returns required to be filed by or on behalf of
Charter or any of its Subsidiaries have been timely filed, or requests
for extensions have been timely filed, granted and have not expired,
for periods ending on or before December 31, 1995, and all such
returns filed are complete and accurate in all material respects.
(b) There is no audit examination, deficiency or refund
litigation or matter in controversy with respect to any Taxes that
might reasonably be expected to result in a determination the effect
of which would have a Material Adverse Effect. All Taxes due with
respect to completed and settled examinations or concluded litigation
have been paid or adequately reserved for.
(c) Neither Charter nor any of its Subsidiaries has executed an
extension or waiver of any statute of limitations on the assessment or
collection of any Tax due that is currently in effect.
(d) Adequate provision for any Taxes due or to become due for
Charter and any of its Subsidiaries for any period or periods through
and including September 30, 1995, has been made and is reflected on
the September 30, 1995 financial statements included in the Charter
Financial Statements. Deferred Taxes of Charter and its Subsidiaries
have been provided for in the Charter Financial Statements in
accordance with GAAP, applied on a consistent basis.
(e) Charter and its Subsidiaries have collected and withheld
all Taxes which they have been required to collect or withhold and
have timely submitted all such collected and withheld amounts to the
appropriate authorities. Charter and its Subsidiaries are in
compliance with the back-up withholding and information reporting
requirements under (1) the Code, and (2) any state, local or foreign
laws, and the rules and regulations, thereunder.
(f) Neither Charter nor any of its Subsidiaries has made any
payments, is obligated to make any payments, or is a party to any
contract, agreement or other arrangement that could obligate it to
make any payments that would not be deductible under Section 280G of
the Code.
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5.08 ALLOWANCE FOR CREDIT LOSSES. The allowance for credit losses
(the "Allowance") shown on the consolidated statement of condition of Charter
and its Subsidiaries as of September 30, 1995 included in the Charter Financial
Statements and the Allowance shown on the consolidated statement of condition of
Charter and its Subsidiaries, as of such date comply in all material respects
with OCC Banking Circular 201 (and comparable regulations applicable to Charter
Bank, S.S.B.).
5.09 OTHER TAX AND REGULATORY MATTERS. Neither Charter nor any of
its Subsidiaries has taken or agreed to take any action or has any knowledge of
any fact or circumstance that would (i) prevent the transactions contemplated
hereby, including the Merger, from qualifying as a reorganization within the
meaning of Section 368 of the Code, or (ii) materially impede or delay receipt
of any approval referred to in Section 9.01(b).
5.10 PROPERTIES. Except as disclosed in any Securities Reporting
Document filed since December 31, 1994 and prior to the date hereof and except
for Permitted Liens and Liens arising in the ordinary course of business after
the date hereof, Charter and its Subsidiaries have good and marketable title,
free and clear of all Liens that are material to the Condition of Charter and
its Subsidiaries on a consolidated basis, to all their material properties and
assets whether tangible or intangible, real, personal or mixed, reflected in the
Charter Financial Statements as being owned by Charter and its Subsidiaries as
of the date hereof. All buildings, and all fixtures, equipment and other
property and assets which are material to its business on a consolidated basis,
held under leases or subleases by any of Charter or its Subsidiaries are held
under valid instruments enforceable in accordance with their respective terms,
subject to the Remedies Exception. Except where a failure to maintain would not
have a Material Adverse Effect, substantially all of Charter's and Charter's
Subsidiaries' equipment in regular use has been well maintained and is in good
serviceable condition, reasonable wear and tear excepted.
5.11 COMPLIANCE WITH LAWS.
(a) Except as set forth in Section 5.11 of the Charter
Disclosure Schedule, to the best knowledge of Charter, each of Charter
and its Subsidiaries is in compliance with all laws, rules,
regulations, policies, guidelines, reporting and licensing
requirements and orders applicable to its business or to its employees
conducting its business, and with its internal policies and procedures
except for failures to comply which will not result in a Material
Adverse Effect.
(b) Except as set forth in Section 5.11 of the Charter
Disclosure Schedule, neither Charter nor any of its Subsidiaries has
received any notification or communication from any agency or
department of any federal, state or local government, including the
Federal Reserve Board, or the OCC, the OTS, the FDIC, the State
Regulatory Commissioners, the SEC and the NASD and the staffs thereof
(collectively, the "Regulatory Authorities") (i) asserting that since
January 1, 1993, any of Charter or its Subsidiaries is not in
substantial compliance with any of the statutes, regulations, or
ordinances which such agency, department or Regulatory Authority
enforces, or the internal policies and procedures of such company,
(ii) threatening to revoke any license, franchise, permit or
governmental authorization which is material to the Condition of
Charter and its Subsidiaries on a consolidated basis, (iii) requiring
or threatening to require Charter or any of its Subsidiaries, or
indicating that Charter or any of its Subsidiaries may be required to
enter into a cease and
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desist order, agreement or memorandum of understanding or any other
agreement restricting or limiting or purporting to restrict or limit
in any manner the operations of Charter or any of its Subsidiaries,
including, without limitation, any restriction on the payment of
dividends, or (iv) directing, restricting or limiting, or purporting
to direct, restrict or limit in any manner the operations of Charter
or any of its Subsidiaries, including, without limitation, any
restriction on the payment of dividends (any such notice,
communication, memorandum, agreement or order described in this
sentence herein referred to as a "Regulatory Agreement").
(c) Except as set forth in Section 5.11 of the Charter
Disclosure Schedule, since January 1, 1993, neither Charter nor any
of its Subsidiaries has been a party to any effective Regulatory
Agreement or memorandum of understanding.
(d) Neither Charter nor any of its Subsidiaries is required by
Section 32 of 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.
5.12 EMPLOYEE BENEFIT PLANS.
(a) Charter has delivered or made available to NationsBank
prior to the execution of this Agreement true and complete copies (or,
in the case of bonus or other incentive plans, summaries thereof and
financial data with respect thereto) of all material pension,
retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus or other
material incentive plans, all other material employee programs,
arrangements or agreements, whether arrived at through collective
bargaining or otherwise, all material medical, vision, dental or other
health plans, all life insurance plans and all other material employee
benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), currently adopted by, maintained by, sponsored in whole or
in part by, or contributed to by Charter or any of its Subsidiaries or
any affiliate thereof for the benefit of any Employee or under which
any Employee is eligible to participate and under which Charter or any
of its Subsidiaries could have any liability contingent or otherwise
(collectively, the "Charter Benefit Plans"). Any of the Charter
Benefit Plans which is an "employee pension benefit plan," as that
term is defined in Section 3(2) of ERISA, is referred to herein as a
"Charter ERISA Plan." Any of the Charter Benefit Plans pursuant to
which Charter is or may become obligated to, or obligated to cause any
of its Subsidiaries or any other Person to, issue, deliver or sell
shares of capital stock of Charter or any of its Subsidiaries, or
grant, extend or enter into any option, warrant, call, right,
commitment or agreement to issue, deliver or sell shares, or any other
interest in respect of capital stock of Charter or any of its
Subsidiaries, is referred to herein as a "Charter Stock Plan." No
Charter Benefit Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA. Charter has set forth in Section
5.12 of the Charter Disclosure Schedule (i) a list of all of the
Charter Benefit Plans, (ii) a list of Charter Benefit Plans that are
Charter ERISA Plans, (iii) a list of Charter Benefit Plans that are
Charter Stock Plans and (iv) a list of the number of shares covered
by, exercise prices for, and holders of, all stock options granted and
available for grant under the Charter Stock Plans.
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(b) To the best knowledge of Charter, all Charter Benefit Plans
are in substantial compliance with the applicable terms of ERISA and
the Code and any other applicable laws, rules and regulations the
breach or violation of which could reasonably be expected to result
in a Material Adverse Effect.
(c) All liabilities under any Charter Benefit Plan are fully
accrued or reserved against in the Charter Financial Statements in
accordance with GAAP. No Charter ERISA Plan is a defined benefit
pension plan subject to Title IV of ERISA.
(d) Neither Charter nor any of its Subsidiaries has any
obligations for retiree health and life benefits under any Charter
Benefit Plan or otherwise, except as set forth in the Charter
Disclosure Schedule. There are no restrictions on the rights of
Charter or its Subsidiaries to amend or terminate any such Charter
Benefit Plan without incurring any material liability thereunder,
except for such restrictions as would not have a Material Adverse
Effect.
(e) Except as set forth in Section 5.12 of the Charter
Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
or thereby will (i) result in any payment (including, without
limitation, severance, golden parachute or otherwise) becoming due to
any Employees under any Charter Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any Charter Benefit Plan
or (iii) result in any acceleration of the time of payment or vesting
of any such benefits.
5.13 COMMITMENTS AND CONTRACTS. Except as set forth in Section 5.13
of the Charter Disclosure Schedule, neither Charter nor any of its Subsidiaries
is a party or subject to, or has amended or waived any rights under, any of the
following (whether written or oral, express or implied):
(a) any employment contract or understanding (including any
understandings or obligations with respect to severance or termination
pay liabilities or fringe benefits) with any Employees, including in
any such person's capacity as a consultant (other than those which
either (i) are terminable at will by Charter or such Subsidiary or
(ii) do not involve payments with a present value of more than $50,000
by Charter or such Subsidiary during the remaining term thereof
without giving effect to extensions or renewals made after the date
hereof;
(b) any labor contract or agreement with any labor union;
(c) any contract not made in the usual, regular and ordinary
course of business containing non-competition covenants which limit
the ability of Charter or any of its Subsidiaries to compete in any
line of business or which involve any restriction of the geographical
area in which Charter or its Subsidiaries may carry on its business
(other than as may be required by law or applicable Regulatory
Authorities);
(d) any other contract or agreement which would be required to
be disclosed as an exhibit to Charter's annual report on Form 10-K and
which has not been so disclosed;
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(e) any real property lease with annual rental payments
aggregating $25,000 or more;
(f) any employment or other contract requiring the payment of
additional amounts as "change of control" payments as a result of
transactions contemplated by this Agreement;
(g) any agreement with respect to (i) the acquisition of the
bank branches or other assets or stock of another financial
institution or (ii) the sale of one or more bank branches which would
require additional payments by Charter after the date of this
Agreement; or
(h) any outstanding interest rate exchange or other derivative
contracts.
5.14 MATERIAL CONTRACT DEFAULTS. Except as set forth in Section 5.14
of the Charter Disclosure Schedule, neither Charter nor any of its Subsidiaries
is, or has received any notice or has any knowledge that any party is, in
default in any respect under any contract, agreement, commitment, arrangement,
lease, insurance policy or other instrument to which Charter or any of its
Subsidiaries is a party or by which Charter or any of its Subsidiaries or the
assets, business or operations thereof may be bound or affected or under which
it or its respective assets, business or operations receives benefits, except
for those defaults which would not have, 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 of both would constitute such a default.
5.15 LEGAL PROCEEDINGS. Except as set forth in Section 5.15 of the
Charter Disclosure Schedule, there are no claims or charges filed with, or
proceedings or investigations by, Regulatory Authorities or actions or suits
instituted or pending or, to the best knowledge of Charter's management,
threatened against Charter or any of its Subsidiaries, or against any property,
asset, interest or right of any of them, that might reasonably be expected to
result in a judgment in excess of $100,000 or that might reasonably be expected
to threaten or impede the consummation of the transactions contemplated by this
Agreement. Neither Charter nor any of its Subsidiaries is a party to any
agreement or instrument or is subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree, rule, regulation,
code or ordinance that, individually or in the aggregate, might reasonably be
expected to have a Material Adverse Effect or, might reasonably be expected to
threaten or impede the consummation of the transactions contemplated by this
Agreement.
5.16 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1994,
except (i) as disclosed in any Securities Reporting Document filed since
December 31, 1994 and prior to the date hereof or (ii) as set forth in
Section 5.16 of the Charter Disclosure Schedule, neither Charter nor any of its
Subsidiaries has (A) incurred any liability which has had a Material Adverse
Effect, (B) suffered any change in its Condition which would have a Material
Adverse Effect, other than changes after the date hereof which affect the
banking industry as a whole, (C) failed to operate its business consistent in
all material respects with past practice or (D) changed any accounting
practices.
5.17 REPORTS. Since January 1, 1992, Charter and each of its
Subsidiaries have filed on a timely basis all reports and statements, together
with all amendments required to be made with
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respect thereto (collectively "Reports"), that they were required to file
with (i) the SEC, including, without limitation, all Forms 10-K, 10-Q and
8-K, (ii) the Federal Reserve Board, (iii) the Commissioner, (iv) any other
applicable federal, state, municipal, local or foreign government,
securities, banking, savings and loan or other governmental or regulatory
authority and (v) the NASD. No Securities Reporting Document with respect to
periods beginning on or after January 1, 1992, contained any information that
was false or misleading with respect to any material fact or omitted to state
any material fact necessary in order to make the statements therein not
misleading.
5.18 STATEMENTS TRUE AND CORRECT. None of the information supplied
or to be supplied by Charter for inclusion in the registration statement on Form
S-4, or other appropriate form, to be filed with the SEC by NationsBank under
the Securities Act in connection with the transactions contemplated by this
Agreement (the "Registration Statement"), or the proxy statement to be used by
Charter to solicit any required approval of its stockholders as contemplated by
this Agreement (the "Proxy Statement") will, in the case of the Proxy Statement,
when it is first mailed to the stockholders of Charter, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which such statements are made, not misleading, or, in the case of the
Registration Statement, when it becomes effective, be false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein not misleading, or, in the case of the
Proxy Statement or any amendment thereof or supplement thereto, at the time of
the meeting of the stockholders of Charter to be held pursuant to Section 8.03
of this Agreement, including any adjournments thereof (the "Stockholders'
Meeting"), be false or misleading with respect to any material fact or omit to
state any material fact necessary to correct any statement or remedy any
omission in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meeting. All documents that Charter is responsible
for filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable law, including applicable provisions of the Securities
Laws. The information which is deemed to be set forth in the Charter Disclosure
Schedule by Charter for the purposes of this Agreement is true and accurate in
all material respects.
5.19 INSURANCE. Charter and each of its Subsidiaries are presently
insured, and during each of the past five calendar years have been insured, for
reasonable amounts against such risks as companies engaged in a similar business
would, in accordance with good business practice, customarily be insured. The
policies of fire, theft, liability (including directors and officers liability
insurance) and other insurance maintained with respect to the assets or
businesses of Charter and its Subsidiaries provide adequate coverage against all
pending or threatened claims, and the fidelity bonds in effect as to which any
of Charter or any of its Subsidiaries is a named insured are sufficient for
their purpose, except where the failure to have such coverage would not have a
Material Adverse Effect.
5.20 LABOR. No material work stoppage involving Charter or its
Subsidiaries is pending or, to the best knowledge of Charter's management,
threatened. Neither Charter nor any of its Subsidiaries is involved in, or, to
the best knowledge of Charter's management, threatened with or affected by, any
labor or other employment-related dispute, arbitration, lawsuit or
administrative proceeding which might reasonably be expected to have a Material
Adverse Effect. Employees of Charter and its Subsidiaries are not represented
by any labor union, and, to the best knowledge of
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Charter's management, no labor union is attempting to organize employees of
Charter or any of its Subsidiaries.
5.21 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as disclosed
in Charter's Proxy Statement for its 1995 Annual Meeting of Stockholders or
as set forth in Section 5.21 of the Charter Disclosure Schedule, no executive
officer or director of Charter, or any "associate" (as such term is defined
in Rule 14a-1 under the Exchange Act) of any such executive 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
Charter or any of its Subsidiaries.
5.22 REGISTRATION OBLIGATIONS. Neither Charter nor any of its
Subsidiaries is under any obligation, contingent or otherwise, presently in
effect or which will survive the Merger by reason of any agreement to register
any of its securities under the Securities Act.
5.23 BROKERS AND FINDERS. Except as set forth in Section 5.23 of the
Charter Disclosure Schedule, neither Charter nor any of its Subsidiaries nor any
of their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for Charter or any of its Subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
5.24 STATE TAKEOVER LAWS. To the best of Charter's knowledge, the
transactions contemplated by this Agreement are exempt from any applicable state
takeover law and from any applicable charter or contractual provision containing
change of control or anti-takeover provisions.
5.25 ENVIRONMENTAL MATTERS. To Charter's best knowledge, neither
Charter, any of its Subsidiaries, nor any properties owned or operated by
Charter or any of its Subsidiaries or held as collateral by any of its
Subsidiaries has been or is in violation of or liable under any Environmental
Law (as hereinafter defined), except for such violations or liabilities that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect. There are no actions, suits or proceedings, or demands, claims,
notices or investigations (including without limitation notices, demand letters
or requests for information from any environmental agency) instituted or
pending, or to the best knowledge of Charter's management, threatened relating
to the liability of any properties owned or operated by Charter or any of its
Subsidiaries under any Environmental Law, except for liabilities or violations
that would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect.
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
Regulatory Authority relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation,
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processing, handling, labeling, production, release or disposal of any
substance presently listed, defined, designated or classified as hazardous,
toxic radioactive or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a component.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NATIONSBANK
NationsBank represents and warrants to Charter as follows:
6.01 ORGANIZATION, STANDING AND AUTHORITY.
(a) NationsBank is a corporation duly organized, validly
existing and in good standing under the laws of the State of North
Carolina. NationsBank is duly qualified to do business and in good
standing in all jurisdictions (whether federal, state, local or
foreign) where its ownership or leasing of property or the conduct of
its business requires it to be so qualified and in which the failure
to be duly qualified would have a Material Adverse Effect on the
Condition of NationsBank and its Subsidiaries taken as a whole.
NationsBank has all requisite corporate power and authority to carry
on its business as now conducted and to own, lease and operate its
assets, properties and business, and to execute and deliver this
Agreement and perform the terms of this Agreement. NationsBank is
duly registered as a bank holding company under the BHCA. NationsBank
has in effect all Authorizations necessary for it to own or lease its
properties and assets and to carry on its business as now conducted,
the absence of which, either individually or in the aggregate, would
have a material adverse effect on the Condition of NationsBank and its
Subsidiaries on a consolidated basis. At the Effective Time,
NationsBank will directly own all of the issued and outstanding shares
of Merger Subsidiary's capital stock.
(b) Holdings is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to carry on its business
as now conducted and to perform the terms of this Agreement.
6.02 NATIONSBANK CAPITAL STOCK. The authorized capital stock of
NationsBank consists of 800,000,000 shares of NationsBank Common Stock and
45,000,000 shares of Preferred Stock. At December 31, 1995, there were
outstanding approximately 274,269,000 shares of NationsBank Common Stock and
approximately 2,473,000 shares of NationsBank Preferred Stock and no other
shares of capital stock of any class. All of the issued and outstanding shares
of NationsBank Common Stock are duly and validly issued and outstanding and are
fully paid and nonassessable.
6.03 AUTHORIZATION OF MERGER AND RELATED TRANSACTIONS.
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action in respect
thereof on the part of NationsBank, to the extent required by
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applicable law. This Agreement represents a valid and legally binding
obligation of NationsBank, enforceable against NationsBank in
accordance with its terms except as such enforcement may be limited by
the Remedies Exception.
(b) Neither the execution and delivery of this Agreement by
NationsBank, nor the consummation by NationsBank of the transactions
contemplated hereby or thereby nor compliance by NationsBank with any
of the provisions hereof or thereof will (i) conflict with or result
in a breach of any provision of NationsBank's Articles of
Incorporation or bylaws or (ii) constitute or result in a breach of
any term, condition or provision of, or constitute a default (or an
event which with notice or lapse of time or both would become a
default) under, or give rise to any right of termination, cancellation
or acceleration with respect to, or result in the creation of any Lien
upon any property or assets of any of NationsBank or its Subsidiaries
pursuant to any note, bond, mortgage, indenture, license, agreement,
lease or other instrument or obligation to which any of them is a
party or by which any of them or any of their properties or assets may
be subject, and that would, in any such event, have a Material Adverse
Effect on the Condition of NationsBank and its Subsidiaries on a
consolidated basis or the transactions contemplated hereby or thereby
or (iii) subject to receipt of the requisite approvals referred to in
Section 9.01 of this Agreement, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to NationsBank or any
of its Subsidiaries or any of their properties or assets.
6.04 FINANCIAL STATEMENTS. NationsBank (i) has delivered to Charter
copies of the consolidated balance sheets and the related consolidated
statements of income, consolidated statements of changes in shareholders' equity
and consolidated statements of cash flows (including related notes and
schedules) of NationsBank and its consolidated Subsidiaries as of and for the
periods ended September 30, 1995 and December 31, 1994 included in a quarterly
report filed on Form 10-Q or an annual report filed on Form 10-K, as the case
may be, filed by NationsBank pursuant to the Securities Laws (a "NationsBank SEC
Document"), and (ii) until the Closing will deliver to Charter promptly upon the
filing thereof with the SEC copies of the consolidated balance sheets and
related consolidated statements of income, consolidated statements of changes in
shareholders' equity and consolidated statements of cash flows (including
related notes and schedules) included in any NationsBank SEC Documents filed
subsequent to the execution of this Agreement (clauses (i) and (ii)
collectively, the "NationsBank Financial Statements"). The NationsBank
Financial Statements (as of the dates thereof and for the periods covered
thereby) (A) are or will be in accordance with the books and records of
NationsBank and its Consolidated Subsidiaries, which are or will be complete and
accurate in all material respects and which have been or will have been
maintained in accordance with good business practices, and (B) present or will
present fairly the consolidated financial position and the consolidated results
of operations, changes in shareholders' equity and cash flows of NationsBank and
its Subsidiaries as of the dates and for the periods indicated, in accordance
with GAAP, subject in the case of interim financial statements to normal
recurring year-end adjustments and except for the absence of certain footnote
information in the unaudited statements.
6.05 NATIONSBANK SEC REPORTS. Since January 1, 1993, NationsBank has
filed on a timely basis all reports and statements, together with all amendments
required to be made with respect thereto that as an issuer it is required to
file with the SEC. No NationsBank SEC Document with respect to periods
beginning on or after January 1, 1993 and until the Closing contained or will
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contain any information that was false or misleading with respect to any
material fact or omitted or will omit to state any material fact necessary in
order to make the statements therein not misleading.
6.06 STATEMENTS TRUE AND CORRECT. None of the information supplied
or to be supplied by NationsBank for inclusion in the Registration Statement or
the Proxy Statement will, in the case of the Proxy Statement, when it is first
mailed to the stockholders of Charter, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which such
statements are made, not misleading or, in the case of the Registration
Statement, when it becomes effective, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not misleading, or, in the case of the Proxy Statement or any
amendment thereof or supplement thereto, at the time of the Stockholders'
Meeting, be false or misleading with respect to any material fact or omit to
state any material fact necessary to correct any statement or remedy any
omission in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meeting. All documents that NationsBank is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material respects
with the provisions of applicable law, including applicable provisions of the
Securities Laws.
6.07 COMMON STOCK. At the Effective Time, the NationsBank Common
Stock issued pursuant to the Merger will be duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights.
6.08 TAX AND REGULATORY MATTERS. Neither NationsBank nor any of its
Subsidiaries has taken or agreed to take any action or has any knowledge of any
fact or circumstance that would (i) prevent the transactions contemplated
hereby, including the Merger, from qualifying as a reorganization within the
meaning of Section 368 of the Code, or (ii) materially impede or delay receipt
of any approval referred to in Section 9.01(b).
6.09 LITIGATION. There are no judicial proceedings of any kind or
nature pending or, to the knowledge of NationsBank, threatened against
NationsBank before any court or arbitral tribunal or before or by any
governmental department, agency or instrumentality involving the validity of the
NationsBank Common Stock or the transactions contemplated by this Agreement.
6.10 BROKERS AND FINDERS. Except as previously disclosed to Charter,
neither NationsBank nor any of its Subsidiaries nor any of their respective
officers, directors or employees has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
NationsBank or any of its Subsidiaries in connection with this Agreement or the
transactions contemplated hereby.
ARTICLE VII
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
7.01 CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME. During the
period from the date of this Agreement to the Effective Time, Charter shall, and
shall cause each of its Subsidiaries to, (i) conduct its business in the usual,
regular and ordinary course consistent with past practice (other
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than transactions made pursuant to contracts in existence on the date hereof
and described in Sections 7.01 or 7.02 of the Charter Disclosure Schedule),
(ii) use its best efforts to maintain and preserve intact its business
organization, employees and advantageous business relationships and retain
the services of its officers and key Employees and (iii) in accordance with
the terms of the applicable transaction agreements, diligently proceed to
take all appropriate action to complete those pending transactions listed on
Section 5.13 of the Charter Disclosure Schedule and (iv) diligently proceed
to obtain approvals for and to complete the Redemption.
7.02 FORBEARANCES. Except as described in Section 7.02 of the
Charter Disclosure Schedule, during the period from the date of this Agreement
to the Effective Time, Charter shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of NationsBank, which consent
(in the case of subparagraphs (c), (d), (e), (h) and (p)) shall not be
unreasonably withheld (and Charter shall provide NationsBank with prompt notice
of any events referred to in this Section 7.02 occurring after the date hereof):
(a) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money (other
than short-term indebtedness incurred to refinance short-term
indebtedness and indebtedness of Charter or any of its Subsidiaries to
Charter or any of its Subsidiaries; it being understood and agreed
that incurrence of indebtedness in the ordinary course of business
shall include, without limitation, the creation of deposit
liabilities, purchases of federal funds, sales of certificates of
deposit and entering into Federal Home Loan Bank loans with a term of
six months or less or repurchase agreements), assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity, or
make any loan or advance other than in the ordinary course of business
consistent with past practice;
(b) adjust, split, combine or reclassify any capital stock;
make, declare or pay any dividend (other than regular quarterly cash
dividends at a rate not in excess of $0.08 per share through June 30,
1996 and $0.10 per share thereafter) or make any other distribution
on, or (other than the Redemption) directly or indirectly redeem,
purchase or otherwise acquire, any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any
shares of its capital stock, or grant any stock appreciation rights or
grant any individual, corporation or other entity any right to acquire
any shares of its capital stock; or issue any additional shares of
capital stock, or any securities or obligations convertible into or
exchangeable for any shares of its capital stock;
(c) sell, transfer, mortgage, encumber or otherwise dispose of
any of its properties or assets to any individual, corporation or
other entity, or cancel, release or assign any indebtedness to any
such person or any claims held by any such person, except in the
ordinary course of business consistent with past practice or pursuant
to contracts or agreements in force at the date of this Agreement;
(d) make any material investment (other than trades in
investment securities in the ordinary course) either by purchase of
stock or securities, contributions to capital, property transfers, or
purchase of any property or assets of any other individual,
corporation or other entity;
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(e) enter into, terminate or fail to exercise any material right
under, any contract or agreement involving annual payments in excess
of $50,000 and which cannot be terminated without penalty upon 30 days
notice, or make any change in, or extension of (other than automatic
extensions), any of its leases or contracts involving annual payments
in excess of $50,000 and which cannot be terminated without penalty
upon 30 days notice;
(f) modify the terms of any Charter Benefit Plan (including any
severance pay plan) or increase or modify in any manner the
compensation or fringe benefits of any of its Employees or pay any
pension or retirement allowance not required by any existing plan or
agreement to any such Employees, or become a party to, amend or commit
itself to any pension, retirement, profit-sharing or welfare benefit
plan or agreement or employment agreement with or for the benefit of
any Employee other than routine adjustments in compensation and fringe
benefits in the ordinary course of business consistent with past
practice or accelerate the vesting of any stock options or other
stock-based compensation;
(g) take any action that would prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368 of
the Code;
(h) settle any claim, action or proceeding involving the payment
of money damages in excess of $50,000, except in the ordinary course
of business consistent with past practice;
(i) amend its Restated Articles of Incorporation, as amended, or
its amended and restated bylaws;
(j) fail to maintain its Regulatory Agreements, material
licenses and permits or to file in a timely fashion all federal,
state, local and foreign tax returns;
(k) make any capital expenditures of more than $50,000
individually or $300,000 in the aggregate;
(l) fail to maintain each Charter Benefit Plan or timely make
all contributions or accruals required thereunder in accordance with
GAAP applied on a consistent basis;
(m) issue any additional shares of Charter Capital Stock;
(n) agree to, or make any commitment to, take any of the actions
prohibited by this Section 7.02;
(o) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material
respect at any time prior to the Effective Time, or in any of the
conditions to the Merger set forth in Article IX not being satisfied
or in a violation of any provision of this Agreement, except, in every
case, as may be required by applicable law; or
(p) change any methods of accounting from those used in the
Charter Financial Statements.
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7.03 PLAN TERMINATION. Prior to the Effective Time, Charter shall
have taken all steps necessary to terminate the SAR Plan and all Charter
executive deferred compensation plans.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.01 ACCESS AND INFORMATION.
(a) During the period from the date of this Agreement through
the Effective Time:
(i) Charter shall, and shall cause its Subsidiaries to,
afford NationsBank, and its accountants, counsel and other
representatives, full access during normal business hours to the
properties, books, contracts, tax returns, commitments and
records of Charter and its Subsidiaries at any time, and from
time to time, for the purpose of conducting any review or
investigation reasonably related to the Merger, and Charter and
its Subsidiaries will cooperate fully with all such reviews and
investigations.
(ii) NationsBank shall upon reasonable notice make personnel
and copies of its SEC reports available to Charter and its
advisors for purposes of any review or report to its Board of
Directors in evaluating the Merger.
(b) During the period from the date of this Agreement through
the Effective Time, Charter shall furnish to NationsBank (i) all
Reports referred to in Section 5.17 promptly upon the filing thereof,
(ii) a copy of each Tax Return filed by it and (iii) monthly and other
interim financial statements in the form prepared by Charter for its
internal use. During this period, Charter also shall notify
NationsBank promptly of any material change in the Condition of
Charter or any of its Subsidiaries.
(c) Notwithstanding the foregoing provisions of this Section
8.01, no investigation by the parties hereto made heretofore or
hereafter shall affect the representations and warranties of the
parties (as modified by information (i) furnished to NationsBank
pursuant to the terms of any investment agreement, (ii) disclosed in
writing to NationsBank in its due diligence process or (iii) included
in the Charter Disclosure Schedule) which are contained herein and
each such representation and warranty shall survive such
investigation.
(d) NationsBank agrees that it will keep confidential any
information furnished to it in connection with the transactions
contemplated by this Agreement which is reasonably designated as
confidential at the time of delivery, except to the extent that such
information (i) was already known to NationsBank and was received from
a source other than Charter or any of its Subsidiaries, directors,
officers, employees or agents, (ii) thereafter was lawfully obtained
from another source, or (iii) is required to be disclosed to the SEC,
the NASD, the OCC, the OTS, the Federal Reserve Board, FDIC or any
other governmental agency or authority, or is otherwise required to be
disclosed by law. NationsBank agrees not to use such information, and
to implement safeguards and procedures that are reasonably designed
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to prevent such information from being used, for any purpose other
than in connection with the transactions contemplated by this
Agreement. Upon any termination of this Agreement, NationsBank will
return to Charter all documents furnished NationsBank for its review
and all copies of such documents made by NationsBank.
(e) Charter shall cooperate, and shall cause its Subsidiaries,
accountants, counsel and other representatives to cooperate, with
NationsBank and its accountants, counsel and other representatives, in
connection with the preparation by NationsBank of any applications and
documents required to obtain the Approvals which cooperation shall
include providing all information, documents and appropriate
representations as may be necessary in connection therewith and, when
requested by NationsBank, preparing and filing of regulatory
applications.
(f) From and after the date of this Agreement, each of
NationsBank and Charter shall use its reasonable best efforts to
satisfy or cause to be satisfied all conditions to their respective
obligations under this Agreement. While this Agreement is in effect,
neither NationsBank nor Charter shall take any actions, or omit to
take any actions, which would cause this Agreement to become
unenforceable in accordance with its terms.
8.02 REGISTRATION STATEMENT; REGULATORY MATTERS.
(a) NationsBank shall (i) prepare and file the Registration
Statement and the Proxy Statement with the SEC as soon as is
reasonably practicable, (ii) use its best efforts to cause the
Registration Statement to become effective and (iii) take any action
required to be taken under any applicable state blue sky or securities
laws in connection therewith. Charter and its Subsidiaries shall
furnish NationsBank with all information concerning Charter, its
Subsidiaries and the holders of Charter Capital Stock as NationsBank
may reasonably request in connection with the foregoing.
(b) NationsBank and Charter shall cooperate and use their
respective best efforts (i) to prepare all documentation, to effect
all filings and to obtain all permits, consents, approvals and
authorizations of all third parties, Regulatory Authorities and other
governmental authorities necessary to consummate the transactions
contemplated by this Agreement, including, without limitation, any
such approvals or authorizations required by the Federal Reserve, the
OCC, the OTS and the Commissioner and (ii) to cause the Merger to be
consummated as expeditiously as reasonably practicable.
8.03 STOCKHOLDERS' APPROVAL. Charter shall call a meeting of its
stockholders to be held as soon as practicable for the purpose of voting upon
the Merger and related matters. The Board of Directors of Charter shall, submit
for approval of its stockholders the matters to be voted upon at the
Stockholders' Meeting, and shall recommend approval of such matters and use its
best efforts (including, without limitation, soliciting proxies for such
approvals) to obtain such stockholder approvals. The covenants under this
Section 8.03 are subject to the exercise by the Charter Board of its fiduciary
obligations.
8.04 PRESS RELEASES. Prior to the public dissemination of any press
release or other public disclosure of information about this Agreement, the
Merger or any other transaction contemplated
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hereby, the parties to this Agreement shall mutually agree as to the form and
substance of such release or disclosure.
8.05 NOTICE OF DEFAULTS. Charter shall promptly notify NationsBank
of (i) any material change in its business, operations or prospects, (ii) any
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) of any Regulatory Authority, (iii) the institution or
the threat of material litigation involving such party, or (iv) any event or
condition that might be reasonably expected to cause any of its representations,
warranties or covenants set forth herein not to be true and correct in all
material respects as of the Effective Time. For purpose of this paragraph, the
term material litigation shall mean any claim involving $50,000 or more. Upon
any such notice, if any event or condition stated in such notice shall entitle
NationsBank to terminate this Agreement pursuant to Section 10.01(c),
NationsBank shall not be entitled to terminate this Agreement by reason thereof
unless NationsBank exercises such right on or before the later of (i) the date
ten business days after such notification or (ii) the expiration of the cure
period described in such Section 10.01(c).
8.06 MISCELLANEOUS AGREEMENTS AND CONSENTS; AFFILIATES AGREEMENTS.
Subject to the terms and conditions of this Agreement, each of the parties
hereto agrees to use its respective best efforts to take, or cause to be taken,
all action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement as expeditiously as reasonably
practicable, including, without limitation, using their respective best efforts
to lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions contemplated
hereby. NationsBank and Charter shall, and shall cause each of their respective
Subsidiaries to, use their best efforts to obtain consents of all third parties
and Regulatory Authorities necessary or, in the reasonable opinion of
NationsBank or Charter, desirable for the consummation of the transactions
contemplated by this Agreement. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of NationsBank shall be deemed to
have been granted authority in the name of Charter to take all such necessary or
desirable action.
Without limiting the foregoing, Charter will take such actions as may
be reasonably necessary to identify each of its "affiliates" for purposes of
Rule 145 under the Securities Act and to cause each person so identified to
deliver to NationsBank within 10 days after the execution of this Agreement a
written agreement in form and substance satisfactory to NationsBank providing
that such person shall not sell, pledge, transfer or otherwise dispose of any
capital stock to be received by such person as part of the Merger Consideration
except in compliance with the applicable provisions of the Securities Act. For
a period of three years after the date hereof, NationsBank will continue to file
in a timely manner all securities reports required to be filed by it pursuant to
Section 13 and Section 15(d) of the Exchange Act.
8.07 INDEMNIFICATION.
(a) NationsBank shall indemnify, defend, and hold harmless the
present and former directors, officers, employees, and agents of
Charter or its Subsidiaries (each, an "Indemnified Party") against all
losses, expenses (including reasonable attorneys' fees), claims,
damages or liabilities and amounts paid in settlement arising out of
actions or
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omissions or alleged acts or omissions occurring at or prior to the
Effective Time (including the transactions contemplated by this
Agreement) to the full extent permitted under the TBCA and by
Charter's Restated Articles of Incorporation, as amended, and
amended and restated bylaws as in effect on the date hereof,
including provisions relating to advances of expenses incurred in
the defense of any proceeding to the full extent permitted by the
TCBA upon receipt of any undertaking required by the TCBA, except
the right to indemnification shall not arise in those instances in
which the party seeking indemnification has participated in the
breach of any covenant or agreement contained herein or knowingly
caused any representation or warranty of Charter contained herein
to be false or inaccurate in any respect and the claim arises
principally from such breach or the falsity or inaccuracy of such
representation or warranty. Without limiting the foregoing, in any
case in which a determination by NationsBank is required to
effectuate any indemnification, NationsBank shall direct, at the
election of the Indemnified Party, that the determination shall be
made by independent counsel mutually agreed upon between
NationsBank and the Indemnified Party.
(b) NationsBank shall use its reasonable efforts (and Charter
shall cooperate prior to the Effective Time in these efforts) to
maintain in effect for a period of six years after the Effective Time
Charter's existing directors' and officers' liability insurance policy
(provided that NationsBank may substitute therefor (i) policies of at
least the same coverage and amounts containing terms and conditions
which are substantially no less advantageous or (ii) with the consent
of Charter given prior to the Effective Time, any other policy) with
31 respect to claims arising from facts or events which occurred prior
to the Effective Time and covering persons who are currently covered
by such insurance; provided, that NationsBank shall not be obligated
to make premium payments for such six-year period in respect of such
policy (or coverage replacing such policy) which exceed, for the
portion related to Charter's directors and officers, 200% of the
annual premium payments on Charter's current policy in effect as of
the date of this Agreement (the "Maximum Amount"). If the amount of
the premiums necessary to maintain or procure such insurance coverage
exceeds the Maximum Amount, NationsBank shall use its reasonable
efforts to maintain the most advantageous policies of directors' and
officers' liability insurance obtainable for a premium equal to the
Maximum Amount.
(c) If NationsBank or any of its successors or assigns shall
consolidate with or merge into any other person and shall not be the
continuing or surviving person of such consolidation or merger or
shall transfer all or substantially all of its assets to any person,
then and in each case, proper provision shall be made so that the
successors and assigns of NationsBank shall assume the obligations set
forth in this Section 8.07.
(d) The provisions of this Section 8.07 are intended to be for
the benefit of and shall be enforceable by, each Indemnified Party,
his or her heirs and representatives.
(e) NationsBank shall pay all expenses, including reasonable
attorneys' fees, that may be incurred by any Indemnified Party in
successfully enforcing the indemnity and other obligations provided
for in this Section 8.07 if NationsBank has been finally determined to
have acted in bad faith in refusing such indemnity. The Indemnified
Party shall pay all expenses, including reasonable attorneys' fees,
incurred by NationsBank if the indemnification or other obligations
provided in this Section 8.07 are denied by a court of
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competent jurisdiction by final and nonappealable order and such court
determines that the assertion of such claims for indemnification was
made in bad faith.
8.08 SAR PLAN; RESTRICTED STOCK.
(a) All restrictions or limitations on transfer with respect to
Charter Common Stock awarded under a Charter Stock Plan or any other
plan, program or arrangement ("Restricted Stock"), to the extent that
such restrictions or limitations shall not have already lapsed, shall
remain in full force and effect with respect to the NationsBank Common
Stock into which such Restricted Stock is converted pursuant to
Section 3.01.
(b) Except as provided herein or as otherwise agreed in writing
by the parties, the provisions of the SAR Plan and any other plan,
program or arrangement pursuant to which Charter may, or may be
required to, make payments based upon the value of the Charter Capital
Stock or issue stock or stock-based compensation, shall be terminated
by the Effective Time in accordance with the terms of the SAR Plan.
8.09 CERTAIN CHANGE OF CONTROL MATTERS. From and after the date
hereof, Charter shall take all action necessary so that the execution and
delivery of this Agreement will not increase any benefits otherwise payable
under any Charter Benefit Plan except as set forth in Sections 5.12 and 5.13 of
the Charter Disclosure Schedule or increases made with the prior written consent
of NationsBank.
8.10 STOCK EXCHANGE LISTING. NationsBank shall use its best efforts
to list, prior to the Effective Time, on the NYSE and the Pacific Stock
Exchange, upon official notice of issuance, the shares of NationsBank Common
Stock to be issued to holders of Charter Common Stock in the Merger.
8.11 DECLARATION OF DIVIDENDS. After the date of this Agreement,
Charter shall coordinate with NationsBank the declaration of any dividends in
respect of NationsBank Common Stock and Charter Common Stock and Charter Special
Common Stock and the record dates and payment dates relating thereto, it being
the intention of the parties hereto that holders of Charter Common Stock and
Charter Special Common Stock shall not receive two dividends, or fail to receive
one dividend, for any single calendar quarter with respect to their shares of
Charter Common Stock or Charter Special Common Stock.
8.12 EMPLOYEE BENEFITS. As soon as practicable following the
Effective Time, NationsBank shall provide generally to officers and employees of
Charter and its Subsidiaries employee benefits, including without limitation
pension benefits, health and welfare benefits, life insurance and vacation
arrangements, on terms and conditions which when taken as a whole are
substantially similar to those provided from time to time by NationsBank and its
Subsidiaries to their similarly situated officers and employees. In that
regard, such officers and employees of Charter shall be credited under the
employee benefit plans of NationsBank for their years of "eligibility service"
and "vesting service" earned under the Charter Benefit Plans as if such service
had been earned with NationsBank, while such officers and employees of Charter
shall be credited with "benefit service" under the employee benefit plans of
NationsBank only with respect to their period of employment with NationsBank and
its Subsidiaries after the Effective Time in accordance with the terms and
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conditions of such employee benefit plans. As of the Effective Time, the
employees and their dependents, if any, previously covered as of the Effective
Time under Charter's health insurance plan shall be covered under NationsBank's
health insurance plan and, to the extent possible under the terms of
NationsBank's then current health insurance plan, will not be subject to any
pre-existing condition limitations or exclusions, except those excluded under
NationsBank's health insurance plan. Charter's employees shall not be required
to satisfy the deductible and employee payments required by NationsBank's
comprehensive medical and/or dental plans for the calendar year of the Effective
Time to the extent of amounts previously credited during such calendar year
under comparable plans maintained by Charter.
8.13 CERTAIN ACTIONS. No party shall take any action which would
adversely affect or delay the ability of either NationsBank or Charter to obtain
any necessary approvals of any Regulatory Authority or other governmental
authority required for the transactions contemplated hereby or to perform its
covenants and agreements under this Agreement. No party shall take any action
that would prevent or impede the Merger from qualifying as a reorganization
within the meaning of Section 368 of the Code.
8.14 ACQUISITION PROPOSALS. Charter shall not, and shall use its
best efforts to cause its officers, directors and employees and any investment
banker, attorney, accountant, or other agent retained by it or its Subsidiaries
not to (i) initiate, encourage or solicit, directly or indirectly, the making of
any proposal or offer (an "Acquisition Proposal") to acquire all or any
significant part of the business and properties or capital stock of Charter or
its Subsidiaries, whether by merger, purchase of securities or assets, tender
offer or otherwise (an "Acquisition Transaction"), or initiate, directly or
indirectly, any contact with any person in an effort to or with a view towards
soliciting any Acquisition Proposal or (ii) participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, an Acquisition Proposal. Notwithstanding the foregoing, Charter may
(i) furnish or cause to be furnished information subject to an appropriate
confidentiality agreement, (ii) in response to an Acquisition Proposal, issue a
communication to its security holders of the type contemplated by Rule 14d-9(e)
under the Exchange Act, and (iii) participate in discussions and negotiations
directly and through its representatives with persons who have sought the same
if the Charter Board determines, based as to legal matters on the written advice
of outside legal counsel, that the failure to furnish such information or to
negotiate with such entity or group or to take and disclose such position would
be inconsistent with the proper exercise of the fiduciary duties of the Charter
Board. In the event Charter receives an Acquisition Proposal or such
discussions are sought to be initiated or continued with Charter, it shall
promptly inform NationsBank as to the material terms thereof.
8.15 TERMINATION FEE. To compensate NationsBank for entering into
this Agreement, taking action to consummate the transactions hereunder and
incurring the costs and expenses related thereto and other losses and expenses,
including the foregoing by NationsBank of other opportunities, Charter and
NationsBank agree as follows:
(a) Provided that NationsBank shall not be in material breach of
its obligations under this Agreement (which breach has not been cured
promptly following receipt of written notice thereof by Charter
specifying in reasonable detail the basis of such alleged breach),
Charter shall pay to NationsBank the sum of $2,000,000 (the
"Termination Fee") plus reasonable out-of-pocket expenses, not in
excess of $500,000 (including, without
31
<PAGE>
limitation, amounts paid or payable to banks and investment
bankers, fees and expenses of counsel and printing expenses) (such
expenses are hereinafter referred to as the "Expenses") incurred by
NationsBank or any of its affiliates in connection with or arising
out of transactions contemplated by this Agreement, regardless of
when those expenses are incurred, if this Agreement is terminated
by Charter under the provisions of Section 10.01(f). NationsBank
shall provide Charter with an itemization of Expenses.
(b) Any payment required by paragraph (a) of this Section shall
become payable within two business days after termination of the
Agreement.
(c) Charter acknowledges that the agreements contained in this
Section 8.15 are an integral part of the transactions contemplated in
this Agreement, and that, without these agreements, NationsBank would
not enter into this Agreement; accordingly, if Charter fails to
promptly pay the Termination Fee or Expenses when due, Charter shall
in addition thereto pay to NationsBank all costs and expenses
(including fees and disbursements of counsel) incurred in collecting
such Termination Fee or Expenses, as the case may be, together with
interest on the amount of the Termination Fee or Expenses (or any
unpaid portion thereof) from the date such payment was required to be
made until the date such payment is received by NationsBank at the
prime rate of NationsBank Texas, National Association as in effect
from time to time during such period.
8.16 ACCRUALS. Prior to the Effective Time and after consultation
with NationsBank, Charter shall, consistent with GAAP, make such changes and
modifications to its loan, accrual and reserve policies and practices (including
loan classification and allowance for credit losses levels) to bring such
policies and practices into line with those presently followed by NationsBank,
including appropriate increases in its allowance for credit losses; provided,
that all such changes or modifications shall be disregarded in determining the
truth or correctness of the representations and warranties contained herein.
8.17 POST-CLOSING ACTIONS. None of the parties shall take, or permit
any of their Subsidiaries or Affiliates to take, any action after the Closing
that would disqualify the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
8.18 PREPAYMENT OF INDEBTEDNESS. Prior to the Effective Time, Charter
shall have prepaid, or caused its Subsidiaries to prepay, all indebtedness owed
by Charter and its Subsidiaries to (i) American National Insurance Company and
(ii) First City Texas-Houston, N.A.
8.19 WAIVER OF RESTRICTIONS IN INVESTMENT AGREEMENTS. Charter hereby
waives any restrictions or limitations on the investment in or ownership of
Charter or the Charter Capital Stock contained in any agreement between the
parties including (i) the Investment Agreement by and between Charter
Bancshares, Inc. and NCNB Corporation dated as of December 17, 1986 and (ii) the
Investment Agreement by and between Charter Bancshares, Inc. and NCNB
Corporation dated as of November 6, 1987.
32
<PAGE>
ARTICLE IX
CONDITIONS
9.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each of NationsBank and Charter to effect the Merger
and the other transactions contemplated hereby shall be subject to the
fulfillment or waiver at or prior to the Effective Time of the following
conditions:
(a) Stockholders of Charter shall have approved all matters
relating to the Merger required under applicable law at the
Stockholders' Meeting.
(b) This Agreement, the Merger and the other transactions
contemplated hereby shall have been approved by the Federal Reserve
Board, the OCC, the OTS and any other Regulatory Authorities whose
approval is required for consummation of the transactions contemplated
hereby and all applicable waiting periods shall have expired. No such
approval or consent shall be conditioned or restricted in any manner
(including requirements relating to the disposition of assets) which
in the good faith judgment of NationsBank would so adversely impact
the economic or business benefits of the transactions contemplated by
this Agreement that, had such condition or restriction been known, it
would not have entered into this Agreement.
(c) The Registration Statement shall have been declared
effective and shall not be subject to a stop order or any threatened
stop order.
(d) Neither NationsBank nor Charter shall be subject to any
active litigation which seeks any order, decree or injunction of a
court or agency of competent jurisdiction to enjoin or prohibit the
consummation of the Merger.
(e) The shares of NationsBank Common Stock issuable pursuant to
the Merger shall have been authorized for listing on the NYSE upon
official notice of issuance.
(f) Each of NationsBank and Charter shall have received an
opinion of Blanchfield, Cordle and Moore, P.A., tax counsel to
NationsBank, or other counsel to NationsBank reasonably acceptable to
Charter, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code and no
gain or loss will be recognized by the stockholders of Charter to the
extent that they receive NationsBank Common Stock solely in exchange
for their Charter Common Stock and Charter Special Common Stock in the
Merger, which opinion shall be confirmed as of the date of Closing.
9.02 CONDITIONS TO OBLIGATIONS OF CHARTER TO EFFECT THE MERGER. The
obligations of Charter to effect the Merger shall be subject to the fulfillment
or waiver at or prior to the Effective Time of the following additional
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of NationsBank set forth in Article VI hereof shall be true
and correct in all material respects as of the date of this Agreement
and as of the Effective Time (as though made on and as of
33
<PAGE>
the Effective Time except to the extent such representations and
warranties are by their express provisions made as of a specified
date) and Charter shall have received a certificate signed by the
chairman and chief executive officer, executive vice president or
other duly authorized officer of NationsBank to that effect.
(b) PERFORMANCE OF OBLIGATIONS. NationsBank shall have
performed in all material respects all obligations required to be
performed by it under this Agreement prior to the Effective Time, and
Charter shall have received a certificate signed by the chairman and
chief executive officer, executive vice president or other duly
authorized officer of NationsBank to that effect and as to the absence
of litigation as described in Section 9.01(d).
9.03 CONDITIONS TO OBLIGATIONS OF NATIONSBANK TO EFFECT THE MERGER.
The obligations of NationsBank to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Charter set forth in Article V hereof shall be true and
correct in all material respects as of the date of this Agreement and
as of the Effective Time (as though made on and as of the Effective
Time except to the extent such representations and warranties are by
their express provisions made as of a specified date) and NationsBank
shall have received a certificate signed by the chairman or the chief
executive officer or other duly authorized officer of Charter to that
effect.
(b) PERFORMANCE OF OBLIGATIONS. Charter shall have performed in
all material respects all obligations required to be performed by it
under this Agreement prior to the Effective Time, and NationsBank
shall have received a certificate signed by the chairman or the chief
executive officer or other duly authorized officer of Charter to that
effect and as to the absence of litigation as described in Section
9.01(d).
(c) COMPLETION OF REDEMPTION. Charter shall have completed the
Redemption.
(d) PREPAYMENT OF INDEBTEDNESS. Charter shall have prepaid the
indebtedness described in Section 8.18.
(e) OPINION OF COUNSEL. NationsBank shall have received an
opinion of counsel for Charter addressed to NationsBank and in form
reasonably satisfactory to it as to the validity of (i) the approvals
of the Merger by the directors and stockholders of Charter and (ii)
the Redemption.
ARTICLE X
TERMINATION
10.01 TERMINATION. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement, the Merger and
the other transactions contemplated hereby by the stockholders of NationsBank
and Charter or both, this Agreement may be terminated and the Merger abandoned
at any time prior to the Effective Time:
34
<PAGE>
(a) by mutual consent of the Board of Directors of NationsBank
and the Board of Directors of Charter; or
(b) by the Board of Directors of NationsBank or the Board of
Directors of Charter if (i) the Federal Reserve or the OCC has denied
approval of the Merger and such denial has become final and
nonappealable or has approved the Merger subject to conditions that in
the judgment of NationsBank would restrict it or its Subsidiaries or
affiliates in their respective spheres of operations and business
activities after the Effective Time or (ii) the Effective Time does
not occur by December 31, 1996; or
(c) by NationsBank (if it is not in breach of any of its
obligations hereunder) pursuant to notice in the event of a breach or
failure by Charter that would cause a failure of the conditions in
Section 9.03, which breach or failure has not been, or cannot be,
cured within 30 days after written notice of such breach is given to
Charter; or
(d) by Charter (if it is not in breach of any of its obligations
hereunder) pursuant to notice in the event of a breach or failure by
NationsBank that would cause a failure of the conditions in
Section 9.02, which breach or failure has not been, or cannot be,
cured within 30 days after written notice of such breach is given to
NationsBank; or
(e) by NationsBank if the stockholders of Charter fail to
approve the Merger at the Stockholder's Meeting; or
(f) by Charter if (i) there shall not have been a material
breach of any covenant or agreement on the part of Charter under this
Agreement and (ii) prior to the Effective Time, a corporation,
partnership, person or other entity or group shall have made a bona
fide Acquisition Proposal that the Charter Board determines in its
good faith judgment and in the exercise of its fiduciary duties, based
as to legal matters on the written opinion of legal counsel and as to
financial matters on the written opinion of an investment banking firm
of national reputation, is more favorable to the Charter stockholders
than the Exchange Ratio and the Merger and that the failure to
terminate this Agreement and accept such alternative Acquisition
Proposal would be inconsistent with the proper exercise of such
fiduciary duties; PROVIDED, HOWEVER, that termination under this
clause (ii) shall not be deemed effective until payment of the
Termination Fee required by Section 8.15; or
(g) By Charter, if its Board of Directors determines by a vote
of a majority of the members of its entire Board, at any time during
the ten-day period commencing two days after the Determination Date,
if either:
(x) both of the following conditions are satisfied:
(1) the Average Closing Price on the Determination
Date of shares of NationsBank Common Stock shall be less
than $56.419; and
(2) (i) the quotient obtained by dividing the Average
Closing Price on the Determination Date by $66.375 (such
number being referred to herein as the "NationsBank Ratio")
shall be less than (ii) the quotient
35
<PAGE>
obtained by dividing the Index Price on the Determination
Date by the Index Price on the Starting Date and subtracting
0.15 from the quotient in this clause (x)(2)(ii) (such
number being referred to herein as the "Index Ratio"); or
(y) the Average Closing Price on the Determination Date of
shares of NationsBank Common Stock shall be less than $53.100;
For purposes of this Section 10.01(g), the following terms shall have the
meanings indicated:
"Average Closing Price" shall mean the average of the daily
closing sales prices of NationsBank Common Stock as reported on the
NYSE-Composite Transactions List (as reported by THE WALL STREET
JOURNAL or, if not reported thereby, another authoritative source as
chosen by NationsBank) for the ten consecutive full trading days in
which such shares are traded on the NYSE ending at the close of
trading on the Determination Date.
"Determination Date" shall mean the date on which the Federal
Reserve Board (or its delegate) shall have issued its order approving
the Merger.
"Index Group" shall mean the 20 bank holding companies listed
below, the common stocks of all of which shall be publicly traded and
as to which there shall not have been, since the Starting Date and
before the Determination Date, any public announcement of a proposal
for such company to be acquired or for such company to acquire another
company or companies in transactions with a value exceeding 25% of the
acquiror's market capitalization. In the event that any such company
or companies are removed from the Index Group, the weights (which have
been determined based upon the number of outstanding shares of common
stock) will be redistributed proportionately for purposes of
determining the Index Price. The 20 bank holding companies and the
weights attributed to them are as follows:
36
<PAGE>
<TABLE>
<CAPTION>
BANK HOLDING COMPANIES WEIGHTING
---------------------- ---------
<S> <C>
Boatman's Bancshares, Inc. . . . . . . . . . . . . . . 2.72%
Citicorp . . . . . . . . . . . . . . . . . . . . . . . 9.01
BankAmerica Corporation. . . . . . . . . . . . . . . . 7.84
Chase Manhattan Corporation. . . . . . . . . . . . . . 9.29
J.P. Morgan & Co. Incorporated . . . . . . . . . . . . 3.98
BancOne Corporation. . . . . . . . . . . . . . . . . . 8.29
Norwest Corporation. . . . . . . . . . . . . . . . . . 7.16
First Union Corporation. . . . . . . . . . . . . . . . 5.89
Bank of New York Company . . . . . . . . . . . . . . . 4.09
KeyCorp. . . . . . . . . . . . . . . . . . . . . . . . 5.03
SunTrust Banks, Inc. . . . . . . . . . . . . . . . . . 2.40
Wachovia Corporation . . . . . . . . . . . . . . . . . 3.61
Mellon Bank Corporation. . . . . . . . . . . . . . . . 2.99
First Bank System, Inc.. . . . . . . . . . . . . . . . 2.70
PNC Bank Corp. . . . . . . . . . . . . . . . . . . . . 7.12
First Chicago NBD Corporation. . . . . . . . . . . . . 6.75
Barnett Banks, Inc.. . . . . . . . . . . . . . . . . . 2.01
Bankers Trust New York Corp. . . . . . . . . . . . . . 1.67
Fleet Financial Group. . . . . . . . . . . . . . . . . 3.00
Corestates Financial Corp. . . . . . . . . . . . . . . 4.44
------
Total . . . . . . . . . . . . . . . . . . . . . . . . 100.00%
------
------
</TABLE>
"Index Price" on a given date shall mean the weighted average
(weighted in accordance with the factors listed above) of the closing
prices of the companies composing the Index Group.
"Index Price on the Starting Date" shall mean $48.67.
"Starting Date" shall mean January 17, 1996.
If any company belonging to the Index Group or NationsBank declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares, or similar transaction between the Starting
Date and the Determination Date, the prices for the common stock of such company
or NationsBank shall be appropriately adjusted for the purposes of applying this
Section 10.01(g).
10.02 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.01, this Agreement shall
become void and have no effect, except that (i) the provisions of Section
8.01(d), 8.15 and Section 11.01 shall survive any such termination and
abandonment; (ii) no party shall be relieved or released from any liability
arising out of an intentional breach of any provision of this Agreement; (iii)
in the event Charter shall have completed the Redemption, at the request of
Charter, NationsBank will purchase up to $700,000 of Charter's 8% subordinated
notes with the shortest maturity and bearing such other terms as shall be
necessary for such indebtedness to qualify for Tier 2 treatment under Federal
Reserve Board risk-based
37
<PAGE>
guidelines and (iv) if Charter has prepaid the American National Insurance
Company loan as required by Section 8.18, NationsBank will reimburse Charter
any prepayment premium and, at Charter's request, will make or cause a
Subsidiary to make a loan to Charter in the amount and on substantially the
terms as the prepaid loan.
10.03 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
FOLLOWING THE EFFECTIVE TIME. Except for Articles III and IV and Sections 8.07,
8.08 and 8.17, none of the respective representations, warranties, obligations,
covenants and agreements of the parties shall survive the Effective Time.
ARTICLE XI
GENERAL PROVISIONS
11.01 EXPENSES. Except as provided in Section 8.15, Unless otherwise
agreed by the parties in writing, each party hereto shall bear its own expenses
incident to preparing, entering into and carrying out this Agreement and to
consummating the Merger and NationsBank shall pay all printing expenses and
filing fees incurred in connection with this Agreement, the Registration
Statement and the Proxy Statement.
11.02 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein, this Agreement contains the entire agreement between the parties hereto
with respect to the transactions contemplated hereunder and thereunder, and such
agreements supersede all prior arrangements or understandings with respect
thereto, written or oral. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors. Other than Section 8.07, nothing in this Agreement,
expressed or implied, is intended to confer upon any individual, corporation or
other entity, other than NationsBank, Charter and the Bank or their respective
successors, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
11.03 AMENDMENTS. To the extent permitted by law, this Agreement may
be amended by a subsequent writing signed by each of NationsBank and Charter;
PROVIDED, HOWEVER, that the provisions hereof relating to the manner or basis in
which shares of Charter Common Stock or Charter Special Common Stock will be
exchanged for the Merger Consideration shall not be amended after the
Stockholders' Meeting without any requisite approval of the holders of the
issued and outstanding shares of Charter capital stock entitled to vote thereon.
11.04 WAIVERS. Prior to or at the Effective Time, each of
NationsBank and Charter shall have the right to waive any default in the
performance of any term of this Agreement by the other, to waive or extend the
time for the compliance or fulfillment by the other of any and all of the
other's obligations under this Agreement and to waive any or all of the
conditions precedent to its obligations under this Agreement, except any
condition which, if not satisfied, would result in the violation of any law or
applicable governmental regulation.
11.05 NO ASSIGNMENT. None of the parties hereto may assign any of
its rights or delegate any of its obligations under this Agreement to any other
person or entity. Any such purported
38
<PAGE>
assignment or delegation that is made without the prior written consent of
the other parties to this Agreement shall be void and of no effect.
11.06 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, or by registered or certified mail, postage
prepaid to the persons at the addresses set forth below (or at such other
address as may be provided hereunder), and shall be deemed to have been
delivered as of the date so delivered:
Charter: Charter Bancshares, Inc.
2600 Citadel Plaza Drive
Houston, Texas 77008
Attention: Jerry E. Finger, Chairman
Telecopy: (713) 691-7578
Copy to Counsel: L. Proctor Thomas III
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002
Telecopy: (713) 229-1522
Michael A. Roy
General Counsel
Charter Bancshares, Inc.
2600 Citadel Plaza Drive, Suite 600
Houston, Texas 77008
Telecopy: (713) 691-7578
NationsBank: NationsBank Corporation
NationsBank Corporate Center
Charlotte, North Carolina 28255
Attention: Frank L. Gentry
Executive Vice President
Telecopy: (704) 386-6416
Copy to Counsel: NationsBank Corporation
NationsBank Corporate Center
Charlotte, North Carolina 28255
Attention: Paul J. Polking
General Counsel
Telecopy: (704) 386-6453
11.07 SPECIFIC PERFORMANCE. The parties hereby acknowledge and agree
that the failure of either party to fulfill any of its covenants and agreements
hereunder, including the failure to take all
39
<PAGE>
such actions as are necessary on its part to cause the consummation of the
Merger, will cause irreparable injury for which damages, even if available,
will not be an adequate remedy. Accordingly, each party hereby consents to
the issuance of injunctive relief by any court of competent jurisdiction to
compel performance of the other party's obligations or any arbitration award
hereunder and to the granting by any such court of the remedy of the specific
performance hereunder.
11.08 GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Delaware.
11.09 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same instrument.
11.10 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.11 SEVERABILITY. In the event that any one or more of the
provisions contained in this Agreement, or in any other instrument referred to
herein, shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any other such instrument.
IN WITNESS WHEREOF, NationsBank and Charter have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
NATIONSBANK CORPORATION
By: /s/ Frank L. Gentry
-------------------------------------
Executive Vice President
CHARTER BANCSHARES, INC.
By: /s/ Jerry E. Finger
-------------------------------------
Chairman and Chief Executive Officer
40
<PAGE>
SUBSIDIARIES OF CHARTER BANCSHARES, INC.
The following comprise all the subsidiaries of Charter Bancshares, Inc.:
CBH, Inc.
2500 West Fourth Street, Suite 11
Wilmington, Delaware 19899
Charter National Bank-Houston
2600 Citadel Plaza Drive
Houston, Texas 77008
Charter National Bank-Colonial
2301 FM 1960 West
Houston, Texas 77068
University National Bank-Galveston
700 University Blvd.
Galveston, Texas 77550
Charter Venture Group, Inc.
2600 Citadel Plaza Drive
Houston, Texas 77008
Charter-Houston Securities, Inc.
(formerly Charter Leasing, Inc.)
2600 Citadel Plaza Drive
Houston, Texas 77008
Charter-Colonial Securities, Inc.
(formerly Bissonnet West, Inc.)
2600 Citadel Plaza Drive
Houston, Texas 77008
Charter Mortgage Company
(formerly Capital Standard Mortgage Company)
13101 Northwest Freeway, Ste. 120
Houston, Texas 77040-6309
Charter Bank, SSB
(formerly West Loop Savings & Loan)
4672 Beechnut
Houston, Texas 77096
Beechnut Holdings, Inc.
2600 Citadel Plaza Drive
Houston, Texas 77008
<PAGE>
[ARTICLE] 9
This schedule contains summary financial information extracted from
December 31, 1995 10K of Charter Bancshares, Inc. and is qualified in its
entirety by reference to such financial statements.
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[CASH] 50,193
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 22,716
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 197,153
[INVESTMENTS-CARRYING] 98,915
[INVESTMENTS-MARKET] 99,446
[LOANS] 513,235
[ALLOWANCE] 5,620
[TOTAL-ASSETS] 914,565
[DEPOSITS] 733,714
[SHORT-TERM] 91,241
[LIABILITIES-OTHER] 12,918
[LONG-TERM] 14,650
[PREFERRED-MANDATORY] 0
[PREFERRED] 710
[COMMON] 6,510
[OTHER-SE] 54,822
[TOTAL-LIABILITIES-AND-EQUITY] 914,565
[INTEREST-LOAN] 46,842
[INTEREST-INVEST] 18,510
[INTEREST-OTHER] 1,118
[INTEREST-TOTAL] 66,470
[INTEREST-DEPOSIT] 21,769
[INTEREST-EXPENSE] 27,425
[INTEREST-INCOME-NET] 39,045
[LOAN-LOSSES] 979
[SECURITIES-GAINS] 277
[EXPENSE-OTHER] 39,509
[INCOME-PRETAX] 16,951
[INCOME-PRE-EXTRAORDINARY] 10,759
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 10,759
[EPS-PRIMARY] 1.69
[EPS-DILUTED] 1.69
[YIELD-ACTUAL] 4.97
[LOANS-NON] 2,337
[LOANS-PAST] 1,687
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 4,446
[CHARGE-OFFS] 1,022
[RECOVERIES] 199
[ALLOWANCE-CLOSE] 5,620
[ALLOWANCE-DOMESTIC] 622
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 4,998
</TABLE>
<PAGE>
Exhibit 99.2
CHARTER BANCSHARES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY , 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of Charter Bancshares, Inc. ("Charter") will be held on May , 1996,
at 10:00 a.m., Houston time, at the Houstonian Hotel and Conference Center, 111
North Post Oak Lane, Houston, Texas, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of January 25, 1996 (the "Agreement"), by and between
NationsBank Corporation ("NationsBank") and Charter, pursuant to which (i)
Charter would merge with and into a wholly-owned subsidiary of NationsBank (the
"Merger") and (ii) each outstanding share of Charter common stock and Charter
special common stock would be converted into the right to receive 0.385 shares
of NationsBank common stock.
2. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Only holders of record of Charter common stock and Charter special common
stock as of the close of business on April 1, 1996 are entitled to notice of and
to vote at the Meeting and any adjournments or postponements thereof. Each share
of Charter common stock is entitled to one vote and each share of Charter
special common stock is entitled to 14 votes. Approval of the Agreement requires
the affirmative vote of the holders of shares representing two-thirds of the
votes outstanding, voting together without distinction as to class. Any holder
of Charter common stock or Charter special common stock may exercise rights to
dissent in connection with the Merger and demand payment for the fair value of
his shares.
THE BOARD OF DIRECTORS OF CHARTER HAS APPROVED THE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THE MERGER IS FAIR TO, AND IS IN
THE BEST INTERESTS OF, CHARTER AND ALL OF ITS SHAREHOLDERS. ACCORDINGLY, THE
BOARD RECOMMENDS THAT CHARTER'S SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
By Order of the Board of Directors of
CHARTER BANCSHARES, INC.
MICHAEL A. ROY
SECRETARY
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED
ENVELOPE AS SOON AS POSSIBLE. YOU MAY REVOKE SUCH PROXY AT ANY TIME PRIOR TO ITS
EXERCISE IN THE MANNER PROVIDED IN THE ACCOMPANYING PROXY STATEMENT-PROSPECTUS.
IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON WHETHER OR NOT YOU
HAVE PREVIOUSLY SUBMITTED A PROXY.
Houston, Texas
April , 1996
<PAGE>
EXHIBIT 99.3
CHARTER BANCSHARES, INC.
P R O X Y
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR A SPECIAL MEETING MAY , 1996
The undersigned hereby appoints Winston C. Davis, William S. Shropshire,
Jr. and Michael A. Roy, or any of them, each with power of substitution, the
proxies of the undersigned, to vote the stock of the undersigned, whether Common
or Special Common, at the special meeting of shareholders of Charter Bancshares,
Inc. to be held May , 1996 and at any adjournment thereof as follows:
<TABLE>
<S> <C>
I. MERGER PROPOSAL. To vote for approval of the Agreement and Plan of (change of address)
Merger dated January 25, 1996, between Charter Bancshares, Inc. and
NationsBank, and the transactions contemplated thereby.
II. OTHER BUSINESS. To vote in their discretion with respect to any
other business that may properly come before the meeting.
(If you have written in the above space,
please mark the corresponding box in the
reverse side of this card.)
</TABLE>
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
(Continued, and to be signed and dated on the reverse side)
<PAGE>
X Please mark your
votes as in this
example.
1. MERGER PROPOSAL
(SEE REVERSE)
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. As such proxies may in their discretion determine upon such other
matters as may properly come before the meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
CHANGE OF ADDRESS
ATTEND MEETING
Signature(s) Date
Signature(s) Date
NOTE: Please sign exactly as name
appears hereon. Joint owners should
each sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
<PAGE>
Exhibit 99.4
CHARTER BANCSHARES, INC.
2600 Citadel Plaza Drive
Houston, Texas 77008
April , 1996
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Charter Bancshares, Inc. ("Charter"), to be held on May , 1996, at 10:00 a.m.
Houston time, at the Houstonian Hotel and Conference Center, 111 North Post Oak
Lane, Houston, Texas.
In connection with this meeting, holders of Charter common stock and
Charter special common stock (collectively, the "Charter Capital Stock") are
being asked to consider and vote upon a proposal to approve an Agreement and
Plan of Merger dated as of January 25, 1996 by and between NationsBank
Corporation ("NationsBank") and Charter (the "Agreement"), pursuant to which
Charter will merge (the "Merger") with and into a wholly-owned subsidiary of
NationsBank.
Upon consummation of the Merger, each outstanding share of Charter Capital
Stock will be converted into the right to receive 0.385 shares of common stock
of NationsBank. It is expected that the Merger will be tax-free to Charter's
shareholders for federal income tax purposes.
Based on the last reported sale price per share of NationsBank common stock
on the New York Stock Exchange on April , 1996 ($ ), each share of Charter
Capital Stock would have been converted into the right to receive NationsBank
common stock having a market price equivalent value of $ at such time. The
actual value of the NationsBank common stock to be exchanged for Charter Capital
Stock will depend on the market price of the NationsBank common stock at the
time the Merger is consummated.
Consummation of the Merger is subject to certain conditions, including
obtaining the requisite approvals of Charter's shareholders and the appropriate
regulatory authorities.
CHARTER SHAREHOLDERS ARE URGED TO READ CAREFULLY THE ACCOMPANYING PROXY
STATEMENT-PROSPECTUS, INCLUDING THE APPENDICES THERETO, WHICH CONTAIN IMPORTANT
INFORMATION ABOUT THE PROPOSED MERGER. Whether or not you personally attend the
meeting, you should complete, sign and date the enclosed proxy card and return
it in the enclosed envelope as soon as possible. If you attend the meeting, you
may vote in person, whether or not you have previously submitted a proxy.
THE BOARD OF DIRECTORS OF CHARTER HAS APPROVED THE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE MERGER IS FAIR TO, AND
IS IN THE BEST INTERESTS OF, CHARTER AND ALL OF ITS SHAREHOLDERS. ACCORDINGLY,
THE BOARD RECOMMENDS THAT CHARTER'S SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Sincerely,
JERRY E. FINGER
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
