SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Date of Report (Date of earliest event reported): August 29, 1996
NATIONSBANK CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 1-6523 56-0906609
------------------------ ------------ -------------------
(State of Incorporation) (Commission (IRS Employer
File Number) Identification No.)
NationsBank Corporate Center, Charlotte, North Carolina 28255
------------------------------------------------------- --------
(Address of principal executive offices) Zip Code
(704) 386-5000
----------------------------------------------------
(Registrant's telephone number, including area code) <PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS.
On August 29, 1996, NationsBank Corporation, a corporation
organized and existing under the laws of the State of North Caro-
lina ("NationsBank"), and Boatmen's Bancshares, Inc., a corpora-
tion organized and existing under the laws of the State of Mis-
souri ("Boatmen's"), and each registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended, entered
into an Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which Boatmen's will be merged with a wholly owned
subsidiary of NationsBank (the "Merger"). The Board of Directors
of both NationsBank and Boatmen's approved the Merger Agreement
and the transactions contemplated thereby at their meetings held
on August 29, 1996.
In accordance with the terms of the Merger Agreement, (i)
each share of Boatmen's common stock, $1.00 par value per share
("Boatmen's Common Stock"), outstanding immediately prior to the
effective time of the Merger (the "Effective Time") will be con-
verted into the right to receive 0.6525 of a share (the "Exchange
Ratio") of NationsBank common stock ("NationsBank Common Stock")
or, at the election of each of the holders of Boatmen's Common
Stock, an amount in cash in respect of each share of Boatmen's
Common Stock that is equal to the Exchange Ratio times the average
closing price of NationsBank Common Stock during the 10 consecu-
tive trading day period during which the shares of NationsBank
Common Stock are traded on the New York Stock Exchange ending on
the tenth calendar day immediately prior to the anticipated Effec-
tive Time (such cash consideration in the aggregate not to exceed
40% of the aggregate consideration paid by NationsBank in exchange
for Boatmen's Common Stock), and (ii) each share of Boatmen's pre-
ferred stock will be converted into new shares of NationsBank pre-
ferred stock having substantially similar terms.
If cash elections are made with respect to less than 40% of
the Boatmen's Common Stock, NationsBank currently expects to
repurchase shares of NationsBank Common Stock from time to time
so that the pro forma impact of the Merger will be the issuance of
approximately 60% of the aggregate Merger consideration in
NationsBank Common Stock and 40% of the aggregate Merger consid-
eration in cash.
The Merger is intended to constitute a tax-free reorganiza-
tion under the Internal Revenue Code of 1986, as amended, and to
be accounted for as a purchase.
In addition, the Merger Agreement contemplates that each
stock option or other right to purchase shares of Boatmen's Common
Stock under the stock option and other stock-based compensation
plans of Boatmen's (each a "Boatmen's Plan"), will be converted
into and become a right to purchase shares of NationsBank Common
Stock, or to receive cash, in accordance with the terms of the<PAGE>
Boatmen's Plan and Boatmen's option or right agreement by which it
is evidenced, except that from and after the Effective Time (i)
the number of shares of NationsBank Common Stock subject to each
Boatmen's option or right shall be equal to the number of shares
of Boatmen's Common Stock subject to such option or right im-
mediately prior to the Effective Time multiplied by the Exchange
Ratio, and (ii) the per share exercise price of NationsBank Common
Stock purchasable thereunder or upon which the amount of a cash
payment is determined shall be that specified in the Boatmen's
option or right divided by the Exchange Ratio. Each holder of
Boatmen's Common Stock or of a Boatmen's option or right who would
otherwise be entitled to receive a fractional 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 fractional share, without interest.
Consummation of the Merger is subject to various conditions,
including: (i) receipt of approval by the shareholders of each of
NationsBank and Boatmen's of appropriate matters relating to the
Merger Agreement and the Merger, as required to be approved under
applicable law; (ii) receipt of requisite regulatory approvals
from the Board of Governors of the Federal Reserve System and
other federal and state regulatory authorities; (iii) receipt of
an opinion of counsel as to the tax treatment of certain aspects
of the Merger; (iv) listing, subject to notice of issuance, of the
NationsBank stock to be issued in the Merger; and (v) satisfaction
of certain other conditions.
The Merger Agreement and the Merger will be submitted for
approval at meetings of the shareholders of each of Boatmen's and
NationsBank. Prior to such meetings, NationsBank will file a reg-
istration statement with the Securities and Exchange Commission
registering under the Securities Act of 1933, as amended, the Na-
tionsBank stock to be issued in the Merger. Such shares of Na-
tionsBank stock will be offered to the Boatmen's shareholders pur-
suant to a prospectus that will also serve as a joint proxy state-
ment for the shareholders' meetings.
The preceding description of the Merger Agreement is quali-
fied in its entirety by reference to the copy of the Merger Agree-
ment included as Exhibit 99.1 hereto and which is hereby incorpo-
rated herein by reference.
In connection with the Merger Agreement, NationsBank and
Boatmen's entered into a Stock Option Agreement, dated August 29,
1996 (the "Stock Option Agreement"), pursuant to which Boatmen's
granted to NationsBank an option to purchase, under certain cir-
cumstances, up to 31,218,660 shares of Boatmen's Common Stock at a
price, subject to certain adjustments, of $43.375 per share (the
"NationsBank Option"). The NationsBank Option if exercised, would
equal, before giving effect to the exercise of the NationsBank
Option, 19.9% of the total number of shares of Boatmen's Common
Stock outstanding. The NationsBank Option was granted by<PAGE>
Boatmen's as a condition and inducement to NationsBank's willing-
ness to enter into the Merger Agreement. Under certain circum-
stances, Boatmen's may be required to repurchase the NationsBank
Option or the shares acquired pursuant to the exercise of the Na-
tionsBank Option. The Stock Option Agreement contains a provision
which caps at $250 million the value of the NationsBank Option.
The preceding description of the Stock Option Agreement is
qualified in its entirety by reference to the copy of the Stock
Option Agreement included as Exhibit 99.2 hereto and which is
hereby incorporated herein by reference.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of businesses acquired.
The following supplemental consolidated financial statements
of Boatmen's Bancshares, Inc. are incorporated herein by ref-
erence to Exhibit 99.4 filed herewith:
1. Consolidated Balance Sheet as of December 31, 1995 and
1994.
2. Consolidated Statement of Income for the years ended
December 31, 1995 and 1994.
3. Consolidated Statement of Changes in Stockholders' Eq-
uity for the years ended December 31, 1995 and 1994.
4. Consolidated Statement of Cash Flows for the years ended
December 31, 1995 and 1994.
5. Notes to the Consolidated Financial Statements.
The information presented in Exhibit 99.4 with respect to the
year ended December 31, 1993 is not incorporated herein.
The report of Ernst & Young LLP, independent accountants, on
the supplemental consolidated financial statements of
Boatmen's Bancshares, Inc. as of December 31, 1995 and 1994
and for the three years then ended is filed herewith as part
of Exhibit 99.4 and the related consent is filed herewith as
Exhibit 99.5. Both the opinion and consent are incorporated
herein by reference.
(b) Pro forma financial information
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Financial Information
and explanatory notes are presented to show the impact on the his-
torical financial position and results of operations of Nations-
Bank of the proposed combination with Boatmen's.<PAGE>
In accordance with the Merger Agreement, each share of Boatmen's
Common Stock outstanding at the Effective Time will be converted
in the Merger into the right to receive 0.6525 of a share of Na-
tionsBank Common Stock or, at the election of each of the holders
of Boatmen's Common Stock, an amount in cash in respect of each
share of Boatmen's Common Stock that is equal to the Exchange Ra-
tio times the average closing price of the NationsBank Common
Stock during the 10 consecutive trading day period during which
the shares of NationsBank Common Stock are traded on the New York
Stock Exchange ending on the tenth calendar day immediately prior
to the anticipated Effective Time (such cash consideration in the
aggregate not to exceed 40% of the aggregate consideration paid by
NationsBank for Boatmen's Common Stock), and each share of
Boatmen's preferred stock will be converted into new shares of
NationsBank preferred stock having substantially similar terms.
The unaudited Pro Forma Condensed Financial Information reflects
the Merger using the purchase method of accounting. The cash com-
ponent of the purchase price is assumed to equal 40% of the pur-
chase price in the unaudited Pro Forma Condensed Financial Infor-
mation and is expected to be funded by NationsBank through the
issuance of additional debt securities.
The unaudited Pro Forma Condensed Balance Sheet assumes that the
Merger was consummated on June 30, 1996. The unaudited Pro Forma
Condensed Statements of Income reflect the consolidation of the
results of operations of NationsBank and Boatmen's for the year
ended December 31, 1995 and the six months ended June 30, 1996.
The unaudited Pro Forma Condensed Financial Information reflects
preliminary purchase accounting adjustments. Estimates relating
to the fair value of certain assets, liabilities and other items
have been made as more fully described in the Notes to the unau-
dited Pro Forma Condensed Financial Information. Actual adjust-
ments, which may include adjustments to additional assets, li-
abilities and other items, will be made on the basis of appraisals
and evaluations as of the Effective Time and, therefore, will dif-
fer from those reflected in the unaudited Pro Forma Condensed Fi-
nancial Information.
The combined company expects to achieve substantial merger ben-
efits including operating cost savings and revenue enhancements.
The pro forma earnings, which do not reflect any direct costs,
potential savings or revenue enhancements which are expected to
result from the consolidation of operations of NationsBank and
Boatmen's, are not indicative of the results of future operations.
The unaudited Pro Forma Condensed Financial Information and ex-
planatory notes presented also show the impact on the historical
financial position and results of operations of NationsBank of its
acquisitions of Bank South Corporation ("Bank South"), completed
January 9, 1996, TAC Bancshares, Inc. and its subsidiary, Chase
Federal Bank FSB ("Chase Federal"), completed August 13, 1996, and<PAGE>
CSF Holdings, Inc. ("CSF"), completed January 10, 1996 (col-
lectively, the "Other Acquisitions"). The Other Acquisitions are
reflected net of pro forma adjustments in the unaudited Pro Forma
Condensed Financial Information and explanatory notes.
With the exception of Chase Federal, which is reflected as if ac-
quired on June 30, 1996, the Other Acquisitions were closed prior
to June 30, 1996, and are reflected in the June 30, 1996 unaudited
NationsBank historical balance sheet. The unaudited Pro Forma
Condensed Statements of Income reflect the results of operations
of the Other Acquisitions for the year ended December 31, 1995 and
the six months ended June 30, 1996 as if the Other Acquisitions
had occurred on January 1, 1995 and January 1, 1996 respectively.
The acquisition of Chase Federal and CSF are reflected in the un-
audited Pro Forma Condensed Financial Information using the pur-
chase method of accounting and the acquisition of Bank South is
reflected as a pooling of interests. The Other Acquisitions pro
forma earnings do not reflect any direct costs, potential savings
or revenue enhancements that may result from the consolidation of
operations related to the Other Acquisitions, and are therefore
not indicative of the results of future operations.
In addition to the Other Acquisitions, during 1995 and 1996 Na-
tionsBank also acquired several other businesses, including bank-
ing institutions in Florida and Texas as well as a mortgage corpo-
ration. These acquisitions were all accounted for under the pur-
chase method of accounting and are included in the unaudited Pro
Forma Condensed Financial Information for the periods subsequent
to the consummation of each acquisition. The unaudited Pro Forma
Condensed Financial Information does not reflect these acquisi-
tions for the periods prior to consummation as the impacts, indi-
vidually and in the aggregate, were not material to NationsBank.<PAGE>
<TABLE>
PRO FORMA CONDENSED BALANCE SHEET
(Dollars in Millions)
(Unaudited)
<CAPTION>
At June 30, 1996
--------------------------------------------------------------------------
NationsBank
Pro Forma Boatmen's Other Pro Forma
NationsBank Boatmen's Adjustments Combined Acquisitions Combined
----------- ---------- ----------- ----------- ------------ ---------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 7,557 $ 2,139 $ $ 9,696 $ 20 $ 9,716
Time deposits placed 1,226 37 1,263 - 1,263
Investment securities 19,110 11,723 28 (1) 20,861 1,143 22,004
(10,000)(2)
Federal funds sold and securities purchased under
agreements to resell 7,560 489 8,049 - 8,049
Trading account assets 21,560 45 21,605 - 21,605
Loans, leases and factored accounts receivable, net
of unearned income 123,705 24,417 148,122 1,534 149,656
Allowance for credit losses (2,292) (472) (2,764) (20) (2,784)
Premises, equipment and lease rights, net 2,721 787 3,508 20 3,528
Customers' acceptance liability 935 - 935 - 935
Other assets 10,226 1,517 5,273 (1) 17,046 197 17,243
30 (1)
-------- ------- ------- -------- ------ --------
Total assets $ 192,308 $ 40,682 $ (4,669) $ 228,321 $ 2,894 $ 231,215
======== ======= ======= ======== ====== ========
LIABILITIES
Deposits 108,124 30,629 138,753 1,960 140,713
Borrowed funds 29,593 5,209 (10,000)(2) 24,802 423 25,225
Trading account liabilities 13,143 - 13,143 - 13,143
Acceptances outstanding 935 - 935 - 935
Accrued expenses and other liabilities 5,961 598 232 (1) 6,791 16 6,807
Long-term debt 20,527 655 3,436 (1) 24,618 495 25,113
-------- ------- ------- -------- ------ --------
Total liabilities $ 178,283 $ 37,091 $ (6,332) $ 209,042 $ 2,894 $ 211,936
======== ======= ======= ======== ====== ========
SHAREHOLDERS' EQUITY
Preferred stock $ 176 $ 99 $ $ 275 $ - $ 275
Common stock 5,130 158 (158)(1) 10,285 - 10,285
5,155 (1)<PAGE>
Surplus - 1,212 (1,212)(1) - - -
Retained earnings 8,779 2,274 (2,274)(1) 8,779 - 8,779
Less: Treasury stock - (59) 59 (1) - - -
Other including loan to ESOP trust (60) (93) 93 (1) (60) - (60)
-------- ------- ------- -------- ------ --------
Total shareholders' equity 14,025 3,591 1,663 19,279 - 19,279
-------- ------- ------- -------- ------ --------
-------- ------- ------- -------- ------ --------
Total liabilities and shareholders' equity $ 192,308 $ 40,682 $ (4,669) $ 228,321 $ 2,894 $ 231,215
======== ======= ======= ======== ====== ========
/TABLE
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF INCOME
(Dollars in Millions, Except Per Share Amounts)
(Unaudited)
<CAPTION>
For the Six Months Ended June 30, 1996
--------------------------------------------------------------------------
NationsBank
Pro Forma Boatmen's Other Pro Forma
NationsBank Boatmen's Adjustments Combined Acquisitions Combined
----------- ---------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Income from Earning Assets
Interest and fees on loans and leases $ 5,254 $ 1,059 $ $ 6,313 $ 55 $ 6,368
Interest and dividends on securities 759 358 3 (3) 794 45 839
(326)(5)
Interest on federal funds sold and securities
purchased under agreements to resell 345 18 363 - 363
Trading account securities 578 1 579 - 579
Other 79 3 82 - 82
-------- ------- ------- -------- ------- --------
Total income from earning assets 7,015 1,439 (323) 8,131 100 8,231
Interest Expense
Deposits 1,706 505 2,211 45 2,256
Borrowed funds 1,201 120 (287)(5) 1,034 9 1,043
Long-term debt 626 27 134 (4) 787 21 808
Other 338 - 338 - 338
-------- ------- ------- -------- ------- --------
Total interest expense 3,871 652 (153) 4,370 75 4,445
-------- ------- ------- --------- ------- --------
Net interest income 3,144 787 (170) 3,761 25 3,786
Provision for credit losses 310 46 356 6 362
-------- ------- ------- -------- ------- --------
Net credit income 2,834 741 (170) 3,405 19 3,424
Gains on sales of securities 8 1 9 2 11
Noninterest income 1,802 420 (2)(3) 2,220 3 2,223
Merger-related charge 118 42 (160)(8) - - -
Noninterest expense 2,806 715 123 (3) 3,644 25 3,669
-------- ------- ------- -------- ------- --------
Income before taxes 1,720 405 (135) 1,990 (1) 1,989
Income taxes 602 148 (15)(7) 735 - 735
-------- ------- ------- -------- ------- --------
Net income 1,118 257 (120) 1,255 (1) 1,254
Preferred dividends 8 3 11 - 11
-------- ------- ------- -------- ------- --------
Net income available to common shareholders $ 1,110 $ 254 $ (120) $ 1,244 $ (1) $ 1,243
======== ======= ======= ======== ======= ========
<PAGE>
Primary earnings per common share $ 3.70 $ 1.61 $ 3.43 $ 3.43
======== ======= ======== ========
Fully diluted earnings per common share $ 3.65 $ 3.40 $ 3.40
======== ======== ========
/TABLE
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF INCOME
(Dollars in Millions, Except Per Share Amounts)
(Unaudited)
<CAPTION>
For the Year Ended December 31, 1995
--------------------------------------------------------------------------
NationsBank
Pro Forma Boatmen's Other Pro Forma
NationsBank Boatmen's Adjustments Combined Acquisitions Combined
----------- ---------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Income from Earning Assets
Interest and fees on loans and leases $ 9,552 $ 2,108 $ $ 11,660 $ 677 $ 12,337
Interest and dividends on securities 1,468 719 6 (3) 1,543 379 1,922
(650)(5)
Interest on federal funds sold and securities
purchased under agreements to resell 937 40 977 16 993
Trading account securities 1,097 2 1,099 1 1,100
Other 166 4 170 4 174
-------- ------- ------- -------- ------- --------
Total income from earning assets 13,220 2,873 (644) 15,449 1,077 16,526
Interest Expense
Deposits 3,281 1,025 4,306 444 4,750
Borrowed funds 2,710 305 (617)(5) 2,398 195 2,593
Long-term debt 886 51 268 (4) 1,205 66 1,271
Other 896 - 896 - 896
-------- ------- ------- -------- ------- --------
Total interest expense 7,773 1,381 (349) 8,805 705 9,510
-------- ------- ------- --------- ------- --------
Net interest income 5,447 1,492 (295) 6,644 372 7,016
Provision for credit losses 382 60 442 10 452
-------- ------- ------- -------- ------- --------
Net credit income 5,065 1,432 (295) 6,202 362 6,564
Gains (losses) on sales of securities 29 (7) 22 9 31
Noninterest income 3,078 767 (4)(3) 3,841 165 4,006
Noninterest expense 5,181 1,451 245 (3) 6,877 438 7,315
-------- ------- ------- -------- ------- --------
Income before taxes 2,991 741 (544) 3,188 98 3,286
Income taxes 1,041 261 (130)(7) 1,172 27 1,199
-------- ------- ------- -------- ------- --------
Net income 1,950 480 (414) 2,016 71 2,087
Preferred dividends 8 7 15 6 21
-------- ------- ------- -------- ------- --------
Net income available to common shareholders $ 1,942 $ 473 $ (414) $ 2,001 $ 65 $ 2,066
======== ======= ======= ======== ======= ========
Primary earnings per common share $ 7.13 $ 3.02 $ 5.99 $ 5.74
======== ======= ======== ========
<PAGE>
Fully diluted earnings per common share $ 7.04 $ 5.94 $ 5.69
======== ======== ========
/TABLE
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMA-
TION
(Dollars in Millions,
Shares in Thousands,
Per-Share Amounts Actuals)
The unaudited Pro Forma Condensed Financial Information is
based upon the following adjustments and related assumptions;
the actual purchase accounting adjustments will be made on the
basis of appraisals and evaluations as of the date of consumma-
tion of the Merger and, therefore, will differ from those re-
flected in the unaudited Pro Forma Condensed Financial Informa-
tion.
Note 1
The purchase accounting adjustments to record the Merger used
in the preparation of the unaudited Pro Forma Condensed Balance
Sheet are summarized below:
Shares of Boatmen's Common Stock outstanding............... 156,741(A)
Exchange Ratio............................................. 0.6525
--------
NationsBank Common Stock equivalant ....................... 102,274
Consideration to be paid in NationsBank Common Stock.... 60%(B)
--------
NationsBank Common Stock assumed issued................ 61,364
Assumed NationsBank Share Price........................ $ 84(C)
--------
Assumed additional shareholders' equity................ $ 5,155
--------
Consideration to be paid in cash....................... 40%(B)
--------
NationsBank Common Stock assumed issued................ 40,910
Assumed NationsBank Share Price........................ $ 84(C)
--------
Assumed cash consideration............................. $ 3,436
--------
Total purchase price........................................ $ 8,591
Historical net assets acquired.............................. $ 3,591
Less: Boatmen's preferred stock............................ (99)
--------
3,492
--------
Premium to allocate......................................... $ 5,099
--------
Adjustments to fair value of net assets acquired:
Investment securities.................................. 28(D)
Mortgage servicing rights.............................. 30(E)<PAGE>
Deferred income taxes.................................. (232)(F)
Intangibles............................................ 5,273(G)
--------
$ 5,099
--------
----------------
(A) The number of shares of Boatmen's Common Stock to be ex-
changed will be those outstanding immediately prior to the
Effective Time of the Merger. The number of shares of
Boatmen's Common Stock outstanding on July 31, 1996 has
been used in the pro forma computations.
(B) Each share of Boatmen's Common Stock outstanding at the
Effective Time will be converted in the Merger into the
right to receive 0.6525 of a share of NationsBank Common
Stock or, at the election of each of the holders of
Boatmen's Common Stock, an amount in cash in respect of
each share of Boatmen's Common Stock that is equal to the
Exchange Ratio times the average closing price of the Na-
tionsBank Common Stock during the 10 consecutive trading
day period during which the shares of NationsBank Common
Stock are traded on the New York Stock Exchange ending on
the tenth calendar day immediately prior to the antici-
pated Effective Time (such cash consideration in the ag-
gregate not to exceed 40% of the aggregate consideration
paid by NationsBank for Boatmen's Common Stock). An as-
sumed cash election of 40% has been used in the pro forma
computations. The unaudited Pro Forma Condensed Financial
Information reflects funding of the cash component of the
purchase price from issuance by NationsBank of additional
debt securities.
(C) NationsBank Common Stock price as of September 3, 1996.
(D) Reflects the net appreciation in the investment securities
portfolio at June 30, 1996.
(E) Reflects the estimated fair value in excess of carrying
value of mortgage servicing rights at June 30, 1996.
(F) Represents the estimated tax liability associated with
adjustments to the carrying value of investments securi-
ties, mortgage servicing rights and certain identifiable
intangible assets.
(G) Includes both identifiable intangibles and goodwill.
Since the final determination of adjustments to assets and
liabilities will be made based upon the fair values as of
the Effective Time and after appraisals and evaluations
are complete, the final amounts will differ from the esti-
mates provided herein.<PAGE>
Note 2
Reflects the planned reduction of discretionary investment se-
curity portfolio and related paydown of borrowed funds.
Note 3
The purchase accounting adjustments related to the Merger
reflected in the unaudited Pro Forma Condensed Statement
of Income are summarized as follows:
Six Months Year Ended
Ended December 31,
June 30, 1996 1995
------------- -----------
Interest income
Amortization of investment
securities adjustment......... $3 $6
Noninterest income
Amortization of mortgage
servicing rights
adjustment.................... $2 $4
Noninterest expense
Amortization of incremental
intangibles..................... $123 $245
Note 4
Purchase accounting adjustments related to NationsBank's fund-
ing of the Merger have been reflected in the unaudited Pro
Forma Condensed Statements of Income as follows:
Six Months Year Ended
Ended December 31,
June 30, 1996 1995
------------- -----------
Interest expense
Increase in interest
expense on debt securities
to fund the cash component
of the purchase price....... $134 $268
Note 5
Foregone interest income on discretionary investment security
portfolio reduction and related reduction in funding cost.
Six Months Year Ended
Ended December 31,
June 30, 1996 1995
------------- ------------<PAGE>
Interest income................ $326 $650
Interest expense............... $287 $617
--- ---
$39 $33
Note 6
The following assumptions were used in establishing the pur-
chase accounting adjustments related to the Merger in the unau-
dited Pro Forma Condensed Statements of Income.
Securities
Amortize the discount related to investment securities portfo-
lio assumed to be retained into interest income on a straight-
line method over the estimated maturities of the affected secu-
rities, 3 years.
Mortgage Servicing Rights
Amortize the excess of fair value over carrying value on a
straight-line method over the estimated maturities of the un-
derlying mortgages of 7 years.
Intangibles
Amortize the identifiable intangible value as noninterest ex-
pense over 10 years and goodwill on a straight-line basis over
25 years.
Note 7
Income tax expense on pro forma adjustments is reflected using
a 36% tax rate.
Note 8
Reflects the elimination of nonrecurring merger-related charges
incurred by NationsBank and Boatmen's associated with transac-
tions other than the Merger. Such charges were comprised pri-
marily of severance costs, facilities and branch closure costs,
cancellations of contractual obligations and other merger-
related expenses including investment banking fees.
Note 9
On July 18, 1996, NationsBank repurchased 10 million shares of
NationsBank Common Stock. The effect of this repurchase has
not been included in the unaudited Pro Forma Condensed Finan-
cial Information.
(c) Exhibits
--------<PAGE>
Exhibit Description
------- -----------
99.1 Agreement and Plan of Merger, dated as of August 29,
1996, by and between NationsBank Corporation and
Boatmen's Bancshares, Inc.
99.2 Stock Option Agreement, dated as of August 29, 1996,
by and between NationsBank Corporation, as grantee,
and Boatmen's Bancshares, Inc., as issuer.
99.3 Text of joint press release, dated August 30, 1996,
issued by NationsBank Corporation and Boatmen's Banc-
shares.
99.4 Consolidated Financial Statements of Boatmen's Banc-
shares, Inc. and Report of Ernst & Young.
99.5 Consent of Ernst & Young.<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly autho-
rized.
NATIONSBANK CORPORATION
(Registrant)
------------
By: /s/ Marc D. Oken
-----------------------
Marc D. Oken
Executive Vice
President
and Chief Accounting
Officer
Dated: September 6, 1996<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
99.1 Agreement and Plan of Merger, dated as of August
29, 1996, by and between NationsBank Corporation
and Boatmen's Bancshares, Inc.
99.2 Stock Option Agreement, dated as of August 29,
1996, by and between NationsBank Corporation, as
grantee, and Boatmen's Bancshares, Inc., as is-
suer.
99.3 Text of joint press release, dated August 30,
1996, issued by NationsBank Corporation and
Boatmen's Bancshares, Inc.
99.4 Consolidated Financial Statements of Boatmen's
Bancshares, Inc. and Report of Ernst & Young
LLP.
99.5 Consent of Ernst & Young LLP.
Exhibit 99.1
_______________________________________________________________
AGREEMENT AND PLAN OF MERGER
by and between
Boatmen's Bancshares, Inc.
and
NationsBank Corporation
Dated as of August 29, 1996
_______________________________________________________________
_______________________________________________________________<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS........................... 1
1.01. Certain Definitions............................ 1
ARTICLE II THE MERGER; EFFECTS OF THE MERGER............ 8
2.01. The Merger..................................... 8
2.02. Effective Date And Effective Time.............. 9
2.03. Amendment Of Parent Articles................... 9
2.04. Tax Consequences............................... 9
ARTICLE III MERGER CONSIDERATION; EXCHANGE PROCEDURES... 10
3.01. Merger Consideration........................... 10
3.02. Optional Cash Election......................... 11
3.03. Rights As Stockholders; Stock Transfers........ 14
3.04. Fractional Shares.............................. 14
3.05. Exchange Procedures............................ 14
3.06. Dissenting Stockholders........................ 15
3.07. Anti-Dilution Provisions....................... 16
3.08. Treasury Shares................................ 16
3.09. Options........................................ 16
ARTICLE IV ACTIONS PENDING MERGER....................... 17
4.01. Ordinary Course................................ 17
4.02. Capital Stock.................................. 18
4.03. Dividends, Etc................................. 18
4.04. Compensation; Employment Agreements; Etc....... 19
i<PAGE>
4.05. Benefit Plans.................................. 19
4.06. Acquisitions And Dispositions.................. 19
4.07. Amendments..................................... 20
4.08. Accounting Methods............................. 20
4.09. Adverse Actions................................ 20
4.10. Agreements..................................... 20
ARTICLE V REPRESENTATIONS AND WARRANTIES................ 20
5.01. Disclosure Schedules........................... 20
5.02. Standard....................................... 21
5.03. Representations And Warranties................. 21
ARTICLE VI COVENANTS.................................... 31
6.01. Best Efforts................................... 31
6.02. Stockholder Approvals.......................... 31
6.03. Registration Statement......................... 32
6.04. Press Releases................................. 33
6.05. Access; Information............................ 33
6.06. Acquisition Proposals.......................... 34
6.07. Affiliate Agreements........................... 34
6.08. Takeover Laws.................................. 34
6.09. No Rights Triggered............................ 35
6.10. Shares Listed.................................. 35
6.11. Regulatory Applications........................ 35
6.12. Indemnification................................ 36
6.13. Benefit Plans.................................. 37
ii<PAGE>
6.14. Certain Director And Officer Positions......... 38
6.15. Notification Of Certain Matters................ 39
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER.... 39
7.01. Shareholder Vote............................... 39
7.02. Regulatory Approvals........................... 39
7.03. Third Party Consents........................... 40
7.04. No Injunction, Etc............................. 40
7.05. Representations, Warranties And Covenants
Of Parent...................................... 40
7.06. Representations, Warranties And Covenants
Of The Company................................. 40
7.07. Effective Registration Statement............... 41
7.08. Tax Opinion.................................... 41
7.09. Articles Of Amendment.......................... 42
7.10. NYSE Listing................................... 42
7.11. Company Rights Agreement....................... 42
ARTICLE VIII TERMINATION................................ 42
8.01. Termination.................................... 42
8.02. Effect Of Termination And Abandonment.......... 45
ARTICLE IX MISCELLANEOUS................................ 46
9.01. Survival....................................... 46
9.02. Waiver; Amendment.............................. 46
9.03. Counterparts................................... 46
9.04. Governing Law.................................. 46
9.05. Expenses....................................... 46
iii<PAGE>
9.06. Confidentiality................................ 47
9.07. Notices........................................ 47
9.08. Entire Understanding; No Third Party
Beneficiaries.................................. 48
9.09. Headings....................................... 48
iv<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of August 29,
1996 (this "Agreement"), by and between Boatmen's Bancshares,
Inc. (the "Company") and NationsBank Corporation ("Parent").
WITNESSETH:
WHEREAS, the Boards of Directors of the Company and
Parent have determined that it is in the best interests of
their respective companies and their stockholders to consummate
the strategic business combination transaction provided for
herein in which the Company will, subject to the terms and
conditions set forth herein, merge (the "Merger") with and into
a wholly-owned direct or indirect subsidiary of Parent ("Merger
Sub"), so that Merger Sub is the surviving corporation in the
Merger;
WHEREAS, in connection with the execution of this
Agreement, the Company and Parent will enter into a stock
option agreement (the "Stock Option Agreement") in the form
attached hereto as Exhibit A; and
WHEREAS, the parties desire to make certain
representations, warranties and agreements in connection with
the Merger and also to prescribe certain conditions to the
Merger;
NOW, THEREFORE, in consideration of the mutual
covenants, representations, warranties and agreements contained
herein, and intending to be legally bound hereby, the parties
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:
"Affiliate" shall have the meaning set forth in
Section 6.07(a).
"Agreement" shall have the meaning set forth in the
recitals to this Agreement.
"Articles of Amendment" shall have the meaning set
forth in Section 2.03.
"Average Closing Price" shall have the meaning set
forth in Section 8.01(e).<PAGE>
"Average Index Price" shall have the meaning set
forth in Section 8.01(e).
"Cash Amount" shall have the meaning set forth in
Section 3.02.
"Cash Election Shares" shall have the meaning set
forth in Section 3.02.
"Certificate of Merger" shall have the meaning set
forth in Section 2.01(b).
"Code" shall mean the Internal Revenue Code of 1986,
as amended.
"Company" shall have the meaning set forth in the
recitals to this Agreement.
"Company Common Stock" shall have the meaning set
forth in Section 3.01(a).
"Company Directors" shall have the meaning set forth
in Section 6.14.
"Company Meeting" shall have the meaning set forth in
Section 6.02.
"Company Preferred Stock" shall mean Company Series A
Preferred Stock and Company Series B Preferred Stock.
"Company Right" shall have the meaning set forth in
Section 3.01(a).
"Company Rights Agreement" shall have the meaning set
forth in Section 3.01(a).
"Company Series A Preferred Stock" shall have the
meaning set forth in Section 3.01(b).
"Company Series B Preferred Stock" shall have the
meaning set forth in Section 3.01(b).
"Company Stock" shall mean Company Common Stock and
Company Preferred Stock.
"Company Stock Option" shall have the meaning set
forth in Section 3.09.
"Company Stock Option Plans" shall have the meaning
set forth in Section 3.09.
-2-<PAGE>
"Compensation and Benefit Plans" shall have the
meaning set forth in Section 5.03(l).
"Confidentiality Agreement" shall mean the
Confidentiality Agreement, dated August 13, 1996, between
the Company and Parent.
"Costs" shall have the meaning set forth in
Section 6.12(a).
"Determination Date" shall have the meaning set forth
in Section 8.01(e).
"Disclosure Schedule" shall have the meaning set
forth in Section 5.01.
"Dissenting Shares" shall have the meaning set forth
in Section 3.06.
"Effective Date" shall have the meaning set forth in
Section 2.02.
"Effective Time" shall have the meaning set forth in
Section 2.02.
"Election Deadline" shall have the meaning set forth
in Section 3.02.
"Election Form" shall have the meaning set forth in
Section 3.02.
"Election Form Record Date" shall have the meaning
set forth in Section 3.02.
"Employee Benefit Plans" shall have the meaning set
forth in Section 6.13.
"Environmental Laws" shall have the meaning set forth
in Section 5.03(o).
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in
Section 5.03(l).
"ESOP Preferred Stock" shall have the meaning set
forth in Section 4.03(1).
-3-<PAGE>
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations
thereunder.
"Exchange Agent" shall have the meaning set forth in
Section 3.02.
"Exchange Fund" shall have the meaning set forth in
Section 3.05(a).
"Exchange Ratio" shall have the meaning set forth in
Section 3.01(a).
"FDIC" shall mean the Federal Deposit Insurance
Corporation.
"Federal Reserve Board" shall mean the Board of
Governors of the Federal Reserve System.
"GBCL" shall have the meaning set forth in
Section 2.01(b).
"Indemnified Party" shall have the meaning set forth
in Section 6.12(a).
"Index Group" shall have the meaning set forth in
Section 8.01(e).
"Index Price" shall have the meaning set forth in
Section 8.01(e).
"Index Ratio" shall have the meaning set forth in
Section 8.01(e).
"Joint Proxy Statement" shall have the meaning set
forth in Section 6.03.
"Liens" shall mean any charge, mortgage, pledge,
security interest, restriction, claim, lien, or
encumbrance.
"Mailing Date" shall have the meaning set forth in
Section 3.02.
"Material Adverse Effect" shall mean with respect to
the Company or Parent, respectively, any effect that (i)
is material and adverse to the financial position, results
of operations or business of the Company and its
Subsidiaries taken as a whole, or Parent and its
Subsidiaries taken as a whole, respectively, or (ii) would
materially impair the ability of the Company or Parent,
-4-<PAGE>
respectively, to perform its obligations under this
Agreement or otherwise materially threaten or materially
impede the consummation of the Merger and the other
transactions contemplated by this Agreement; provided,
however, that Material Adverse Effect shall not be deemed
to include the impact of (a) changes in banking and
similar laws of general applicability or interpretations
thereof by courts or governmental authorities, (b) changes
in generally accepted accounting principles or regulatory
accounting requirements applicable to banks or savings
associations and their holding companies generally, (c)
actions or omissions of the Company, Parent or Merger Sub
taken with the prior written consent of the Company or
Parent, as applicable, in contemplation of the
transactions contemplated hereby, (d) circumstances
affecting banks or savings associations and their holding
companies generally, and (e) the effects of the Merger and
compliance with the provisions of this Agreement on the
operating performance of such party and its Subsidiaries.
"Meeting" shall have the meaning set forth in
Section 6.02.
"Merger" shall have the meaning set forth in the
recitals to this Agreement and in Section 2.01(a).
"Merger Consideration" shall have the meaning set
forth in Section 2.01.
"Merger Sub" shall have the meaning set forth in the
recitals to this Agreement.
"Merger Sub Common Stock" shall have the meaning set
forth in Section 3.01(c).
"Multiemployer Plans" shall have the meaning set
forth in Section 5.03(l).
"NASDAQ" shall mean the Nasdaq Stock Market, Inc.'s
National Market.
"New Certificates" shall have the meaning set forth
in Section 3.05(a).
"No Election Shares" shall have the meaning set forth
in Section 3.02.
"NYSE" shall mean the New York Stock Exchange.
-5-<PAGE>
"OCC" shall mean the Office of the Comptroller of the
Currency.
"Old Certificates" shall have the meaning set forth
in Section 3.02.
"OTS" shall mean the Office of Thrift Supervision.
"Parent" shall have the meaning set forth in the
recitals to this Agreement.
"Parent Common Stock" shall have the meaning set
forth in Section 3.01(a).
"Parent Meeting" shall have the meaning set forth in
Section 6.02.
"Parent Preferred Stock" shall mean Parent Series A
Preferred Stock and Parent Series B Preferred Stock.
"Parent Ratio" shall have the meaning set forth in
Section 8.01(e).
"Parent Series A Preferred Stock" shall have the
meaning set forth in Section 3.01(b).
"Parent Series B Preferred Stock" shall have the
meaning set forth in Section 3.01(b).
"Parent Stock" shall mean Parent Common Stock and
Parent Preferred Stock.
"Pension Plan" shall have the meaning set forth in
Section 5.03(l).
"Per Share Cash Consideration" shall have the meaning
set forth in Section 3.02.
"Per Share Stock Consideration" shall have the
meaning set forth in Section 3.01(a).
"Person" or "person" shall mean any individual, bank,
corporation, partnership, association, joint-stock
company, business trust or unincorporated organization.
"Plans" shall have the meaning set forth in
Section 5.03(l).
"Previously Disclosed" by a party shall mean
information set forth in its Disclosure Schedule.
-6-<PAGE>
"Registration Statement" shall have the meaning set
forth in Section 6.03.
"Regulatory Authorities" shall have the meaning set
forth in Section 5.03(h).
"Rights" shall mean, with respect to any person,
securities or obligations convertible into or exchangeable
for, or giving any person any right to subscribe for or
acquire, or any options, calls or commitments relating to,
shares of capital stock of such person.
"SEC" shall mean the Securities and Exchange
Commission.
"SEC Documents" shall have the meaning set forth in
Section 5.03(g).
"Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations
thereunder.
"Starting Date" shall have the meaning set forth in
Section 8.01(e).
"Starting Price" shall have the meaning set forth in
Section 8.01(e).
"Stock Designees" shall have the meaning set forth in
Section 3.02.
"Stock Option Agreement" shall have the meaning set
forth in the recitals to this Agreement.
"Subsidiary" and "Significant Subsidiary" shall have
the meanings ascribed to them in Rule 1-02 of Regulation
S-X of the SEC; provided that for purposes of Article V,
Merger Sub shall be deemed a Significant Subsidiary of
Parent.
"Surviving Corporation" shall have the meaning set
forth in Section 2.01(a).
"Takeover Laws" shall have the meaning set forth in
Section 5.03(n).
"Takeover Proposal" shall mean, with respect to any
person, any tender or exchange offer, proposal for a
merger, consolidation or other business combination
involving the Company or any of its Significant
Subsidiaries or any proposal or offer to acquire in any
-7-<PAGE>
manner a substantial equity interest in, or a substantial
portion of the assets of, the Company or any of its
Significant Subsidiaries other than the transactions
contemplated or permitted by this Agreement.
"Tax Returns" shall have the meaning set forth in
Section 5.03(p).
"Taxes" shall mean all taxes, charges, fees, levies
or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad
valorem, goods and services, capital, transfer, franchise,
profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp,
occupation, property or other taxes, custom duties, fees,
assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority.
"Treasury Shares" shall have the meaning set forth in
Section 3.01(a).
"Valuation Period" shall have the meaning set forth
in Section 3.02.
"Valuation Period Market Value" shall have the
meaning set forth in Section 3.02.
ARTICLE II
THE MERGER; EFFECTS OF THE MERGER
2.01. The Merger. (a) The Surviving Corporation.
At the Effective Time, the Company shall merge with and into
Merger Sub (the "Merger"), the separate corporate existence of
the Company shall cease and Merger Sub shall survive and
continue to exist as a Missouri corporation (Merger Sub, as the
surviving corporation in the Merger, sometimes being referred
to herein as the "Surviving Corporation"). Parent may at any
time change the method of effecting the combination with the
Company (including without limitation the provisions of this
Article II) if and to the extent it deems such change to be
desirable, including without limitation to provide for a merger
of the Company directly into Parent, in which Parent is the
surviving corporation; provided, however, that no such change
shall (A) alter or change the amount or kind of consideration
to be issued to holders of Company Stock as provided for in
this Agreement (the "Merger Consideration"), (B) adversely
affect the tax treatment of the Company's stockholders as a
result of receiving the Merger Consideration or (C) materially
-8-<PAGE>
impede or delay consummation of the transactions contemplated
by this Agreement.
(b) Effectiveness And Effects Of The Merger.
Subject to the satisfaction or waiver of the conditions set
forth in Article VII in accordance with this Agreement, the
Merger shall become effective upon the filing in the office of
the Secretary of State of Missouri of a certificate of merger
(the "Certificate of Merger"), or such later date and time as
may be set forth in the Certificate of Merger, in accordance
with Section 440 of the General and Business Corporation Law of
Missouri (the "GBCL"). The Merger shall have the effects
prescribed in Section 450 of the GBCL.
(c) Certificate Of Incorporation And By-Laws. The
certificate of incorporation and by-laws of the Surviving
Corporation shall be those of Merger Sub, as in effect
immediately prior to the Effective Time.
2.02. Effective Date And Effective Time. Subject to
the satisfaction or waiver of the conditions as set forth in
Article VII in accordance with this Agreement, the parties
shall cause the effective date of the Merger (the "Effective
Date") to occur on (1) the third business day to occur after
the last of the conditions set forth in Sections 7.01, 7.02,
7.03 and 7.10 shall have been satisfied or waived in accordance
with the terms of this Agreement or (2) such other date to
which the parties may agree in writing. The time on the
Effective Date when the Merger shall become effective is
referred to as the "Effective Time."
2.03. Amendment Of Parent Articles. At the
Effective Time, the articles of incorporation of Parent shall
be amended to fix the preferences, limitations and relative
rights of the series of Parent Preferred Stock, shares of which
are to be issued in the Merger pursuant to Section 3.01(b). At
or prior to the Effective Time, Parent shall deliver to the
Secretary of State of North Carolina for filing, pursuant to
Section 6-02 of the North Carolina Business Corporation Act,
articles of amendment, in a form mutually acceptable to Parent
and the Company, giving effect to the foregoing and containing
any other provisions with respect to the aforementioned series
of Parent Preferred Stock necessary to permit consummation of
the Merger in accordance with the terms of this Agreement (the
"Articles of Amendment").
2.04. Tax Consequences. It is intended that the
Merger shall qualify as a reorganization under Section 368(a)
of the Code.
-9-<PAGE>
ARTICLE III
MERGER CONSIDERATION; EXCHANGE PROCEDURES
3.01. Merger Consideration. Subject to the
provisions of this Agreement, at the Effective Time,
automatically by virtue of the Merger and without any action on
the part of any party or stockholder:
(a) Outstanding Company Common Stock. Each share
(excluding (i) shares held by the Company or any of its
Subsidiaries or by Parent or any of its Subsidiaries, in each
case other than in a fiduciary capacity or as a result of debts
previously contracted ("Treasury Shares") and (ii) Dissenting
Shares) of the common stock, par value $1.00 per share, of the
Company, including each attached right (a "Company Right")
issued pursuant to the Rights Agreement, dated August 14, 1990,
as amended (the "Company Rights Agreement"), between the
Company and the Rights Agent named therein (the "Company Common
Stock"), issued and outstanding immediately prior to the
Effective Time shall become and be converted into the right to
receive 0.6525 share (subject to adjustment as set forth
herein, the "Exchange Ratio") of common stock (the "Parent
Common Stock") of Parent (the "Per Share Stock Consideration"),
subject to the election rights set forth in Section 3.02.
(b) Outstanding Company Preferred Stock. (i) Each
share of the Company's Cumulative Convertible Preferred Stock,
Series A, stated value $100 per share, liquidation preference
$400 per share ("Company Series A Preferred Stock"), excluding
any Treasury Shares, issued and outstanding immediately prior
to the Effective Time, shall become and be converted into the
right to receive one share of newly created preferred stock of
Parent ("Parent Series A Preferred Stock") having terms (to be
set forth in the Articles of Amendment) substantially identical
to those of the Company Series A Preferred Stock.
(ii) Each share of the Company's 7% Cumulative
Redeemable Preferred Stock, Series B, stated value $100 per
share, liquidation preference $100 per share ("Company Series B
Preferred Stock"), excluding any Treasury Shares, issued and
outstanding immediately prior to the Effective Time, shall
become and be converted into the right to receive one share of
newly created preferred stock of Parent ("Parent Series B
Preferred Stock") having terms (to be set forth in the Articles
of Amendment) substantially identical to those of the Company
Series B Preferred Stock.
(iii) At the Effective Time, any deposit agreements
pursuant to which shares of Company Preferred Stock are held
-10-<PAGE>
subject to depositary receipts shall automatically, and without
further action on the part of Parent or the Surviving
Corporation, be assumed by Parent.
(c) Outstanding Merger Sub Common Stock. Each share
of the common stock of Merger Sub ("Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time
shall be unchanged and shall remain issued and outstanding as
common stock of the Surviving Corporation.
Section 3.02. Optional Cash Election. Holders of
the Company Common Stock shall be provided with an opportunity
to elect to receive cash consideration in lieu of receiving
Parent Common Stock in the Merger, in accordance with the
election procedures set forth below in this Section 3.02.
Holders who are to receive cash in lieu of exchanging their
shares of Company Common Stock for Parent Common Stock as
specified below shall receive an amount in cash (the "Per Share
Cash Consideration") in respect of each share of Company Common
Stock that is so converted equal to the Exchange Ratio times
the Valuation Period Market Value. The aggregate amount of
cash that shall be issued in the Merger to satisfy such
elections shall not exceed 40% of the aggregate consideration
paid in exchange for shares of Company Common Stock in the
Merger (the "Cash Amount"). For purposes of this Section 3.02:
(i) "Valuation Period Market Value" shall mean the
average of the closing sales prices for Parent Common
Stock as reported on the NYSE Composite Transactions
reporting system (as reported in The Wall Street Journal
or, in the absence thereof, by another authoritative
source) during the Valuation Period; and
(ii) "Valuation Period" shall mean the ten (10)
consecutive trading day period during which the shares of
Parent Common Stock are traded on the NYSE ending on the
tenth calendar day immediately prior to the anticipated
Effective Time.
An election form and other appropriate and customary
transmittal materials (which shall specify that delivery shall
be effected, and risk of loss and title to the certificates
theretofore representing Company Common Stock ("Old
Certificates") shall pass, only upon proper delivery of such
Old Certificates to an exchange agent designated by Parent (the
"Exchange Agent")) in such form as Parent and the Company shall
mutually agree ("Election Form") shall be mailed 25 days prior
to the anticipated Effective Time or on such other date as the
Company and Parent shall mutually agree ("Mailing Date") to
each holder of record of Company Common Stock as of five
-11-<PAGE>
business days prior to the Mailing Date ("Election Form Record
Date").
Each Election Form shall permit a holder (or the
beneficial owner through appropriate and customary
documentation and instructions) of Company Common Stock to
elect to receive cash with respect to all or a portion of such
holder's Company Common Stock (shares as to which the election
is made being "Cash Election Shares").
Any shares of Company Common Stock with respect to
which the holder (or the beneficial owner, as the case may be)
shall not have submitted to the Exchange Agent an effective,
properly completed Election Form on or before 5:00 p.m. on the
20th day following the Mailing Date (or such other time and
date as Parent and the Company may mutually agree) (the
"Election Deadline") shall be converted into Parent Common
Stock at the Exchange Ratio (such shares being "No Election
Shares").
Parent shall make available one or more Election
Forms as may be reasonably requested by all persons who become
holders (or beneficial owners) of Company Common Stock between
the Election Form Record Date and the close of business on the
business day prior to the Election Deadline, and the Company
shall provide to the Exchange Agent all information reasonably
necessary for it to perform as specified herein.
Any such election shall have been properly made only
if the Exchange Agent shall have actually received a properly
completed Election Form by the Election Deadline. An Election
Form shall be deemed properly completed only if accompanied by
one or more certificates (or customary affidavits and
indemnification regarding the loss or destruction of such
certificates or the guaranteed delivery of such certificates)
representing all shares of the Company Common Stock covered by
such Election Form, together with duly executed transmittal
materials included in the Election Form. Any Election Form may
be revoked or changed by the person submitting such Election
Form at or prior to the Election Deadline. In the event an
Election Form is revoked prior to the Election Deadline, the
shares of Company Common Stock represented by such Election
Form shall become No Election Shares and Parent shall cause the
certificates representing Company Common Stock to be promptly
returned without charge to the person submitting the Election
Form upon written request to that effect from the person who
submitted the Election Form. Subject to the terms of this
Agreement and of the Election Form, the Exchange Agent shall
have reasonable discretion to determine whether any election,
revocation or change has been properly or timely made and to
-12-<PAGE>
disregard immaterial defects in the Election Forms, and any
good faith decisions of the Exchange Agent regarding such
matters shall be binding and conclusive. Neither Parent nor
the Exchange Agent shall be under any obligation to notify any
person of any defect in an Election Form. Any Dissenting
Shares (as defined below) shall be treated as Cash Election
Shares for the purposes of the determinations set forth below
(but shall not be converted into the right to receive the Per
Share Cash Consideration and shall instead be treated as set
forth in Section 3.06).
Within five business days after the Election
Deadline, unless the Effective Time has not yet occurred, in
which case as soon thereafter as practicable, Parent shall
cause the Exchange Agent to effect the allocation among the
holders of Company Common Stock in accordance with the Election
Forms as follows:
(i) Cash Elections Less Than or Equal To the Cash
Amount. If the amount of cash that would be issued upon
conversion in the Merger of the Cash Election Shares is
less than or equal to the Cash Amount, then:
(1) all Cash Election Shares shall be converted into
the right to receive the Per Share Cash
Consideration, and
(2) the No Election Shares shall be converted into
the right to receive the Per Share Stock
Consideration.
(ii) Cash Elections More Than the Cash Amount. If
the amount of cash that would be issued upon the
conversion of the Cash Election Shares is greater than the
Cash Amount, then:
(1) all No Election Shares shall be converted into
the right to receive the Per Share Stock
Consideration,
(2) the Exchange Agent shall select from among the
holders of Cash Election Shares (other than
Dissenting Shares), by random selection (as described
below), a sufficient number of such holders ("Stock
Designees") such that the amount of cash that will be
issued in the Merger equals as closely as practicable
the Cash Amount, and all shares held by the Stock
Designees shall be converted into the right to
receive the Per Share Stock Consideration, and
-13-<PAGE>
(3) the Cash Election Shares not held by Stock
Designees shall be converted into the right to
receive the Per Share Cash Consideration.
The random selection process to be used by the
Exchange Agent shall consist of such processes as shall be
mutually determined by Parent and the Company.
3.03. Rights As Stockholders; Stock Transfers. At
the Effective Time, holders of Company Stock shall cease to be,
and shall have no rights as, stockholders of the Company, other
than to receive any dividend or other distribution with respect
to such Company Stock with a record date occurring prior to the
Effective Time and the consideration provided under this
Article III. After the Effective Time, there shall be no
transfers on the stock transfer books of the Company or the
Surviving Corporation of shares of Company Stock.
3.04. Fractional Shares. Notwithstanding any other
provision hereof, no fractional shares of Parent Common Stock
and no certificates or scrip therefor, or other evidence of
ownership thereof, will be issued in the Merger; instead,
Parent shall pay to each holder of Company Common Stock who
would otherwise be entitled to a fractional share of Parent
Common Stock (after taking into account all Old Certificates
delivered by such holder) an amount in cash (without interest)
determined by multiplying such fraction by the average of the
last sale prices of Parent Common Stock, as reported by the
NYSE Composite Transactions reporting system (as reported in
The Wall Street Journal or, if not reported therein, in another
authoritative source), for the five NYSE trading days
immediately preceding the Effective Date.
3.05. Exchange Procedures. (a) At or prior to the
Effective Time, Parent shall deposit, or shall cause to be
deposited, with the Exchange Agent, for the benefit of the
holders of Old Certificates (which for purposes of this Section
3.05 shall include certificates formerly representing shares of
Company Preferred Stock), for exchange in accordance with this
Article III, certificates representing the shares of Parent
Stock ("New Certificates") and an estimated amount of cash
(such cash and New Certificates, together with any dividends or
distributions with respect thereto (without any interest
thereon), being hereinafter referred to as the "Exchange Fund")
to be paid pursuant to this Article III in exchange for
outstanding shares of Company Stock.
(b) As promptly as practicable after the Effective
Date, Parent shall send or cause to be sent to each former
holder of record of shares (other than Cash Election Shares,
-14-<PAGE>
Treasury Shares or Dissenting Shares) of Company Stock
immediately prior to the Effective Time transmittal materials
for use in exchanging such stockholder's Old Certificates for
the consideration set forth in this Article III. Parent shall
cause the New Certificates into which shares of a stockholder's
Company Stock are converted on the Effective Date and/or any
check in respect of the Per Share Cash Consideration and any
fractional share interests or dividends or distributions which
such person shall be entitled to receive to be delivered to
such stockholder upon delivery to the Exchange Agent of Old
Certificates representing such shares of Company Stock (or
indemnity reasonably satisfactory to Parent and the Exchange
Agent, if any of such certificates are lost, stolen or
destroyed) owned by such stockholder. No interest will be paid
on any such cash to be paid pursuant to this Article III upon
such delivery.
(c) Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to any
former holder of Company Stock for any amount properly
delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) No dividends or other distributions with respect
to Parent Stock with a record date occurring after the
Effective Time shall be paid to the holder of any unsurrendered
Old Certificate representing shares of Company Stock converted
in the Merger into shares of such Parent Stock until the holder
thereof shall surrender such Old Certificate in accordance with
this Article III. After the surrender of an Old Certificate in
accordance with this Article III, the record holder thereof
shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore
had become payable with respect to shares of Parent Stock
represented by such Old Certificate.
(e) Any portion of the Exchange Fund that remains
unclaimed by the stockholders of the Company for twelve months
after the Effective Time shall be paid to Parent. Any
stockholders of the Company who have not theretofore complied
with this Article III shall thereafter look only to Parent for
payment of the shares of Parent Stock, cash in lieu of any
fractional shares and unpaid dividends and distributions on the
Parent Stock deliverable in respect of each share of Company
Stock such stockholder holds as determined pursuant to this
Agreement, in each case, without any interest thereon.
3.06. Dissenting Stockholders. Notwithstanding
anything in this Agreement to the contrary, shares of Company
Stock which are issued and outstanding immediately prior to the
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Effective Time and which are held by stockholders who did not
vote in favor of the adoption of this Agreement, who are
entitled to demand the fair value of such shares of Company
Stock under Section 455 of the GBCL, and who comply with all of
the relevant provisions of such Section (the "Dissenting
Shares") shall not be converted into or be exchangeable for the
right to receive Parent Common Stock or Parent Preferred Stock,
as applicable (unless and until such holders shall have failed
to perfect or shall have effectively withdrawn or lost their
dissenters' rights under the GBCL), but shall instead be
entitled to all applicable dissenters' rights as are prescribed
by the GBCL. If any such holder shall have failed to perfect
or shall have effectivelywithdrawn or lost such dissenters'
rights, such holder's shares of Company Stock shall thereupon
be converted into and become exchangeable for the right to
receive, as of the Effective Time, Parent Common Stock or
Parent Preferred Stock, as applicable, without any interest
thereon. The Company shall give Parent (i) prompt notice of
any written demands for payment for any Company Stock under
Section 455 of the GBCL, attempted withdrawals of such demands,
and any other instruments served pursuant to the GBCL and
received by the Company relating to dissenters' rights, and
(ii) the opportunity to participate in all negotiations and
proceedings with respect to the exercise of dissenters' rights
under the GBCL. The Company shall not, except with the prior
written consent of the Parent, voluntarily make any payment
with respect to any demands for payment for Company Stock under
Section 455 of the GBCL, offer to settle or settle any such
demands or approve any withdrawal of any such demands.
3.07. Anti-Dilution Provisions. In the event Parent
changes (or establishes a record date for changing) the number
of shares of Parent Common Stock issued and outstanding prior
to the Effective Date as a result of a stock split, stock
dividend, recapitalization or similar transaction with respect
to the outstanding Parent Common Stock and the record date
therefor shall be prior to the Effective Date, the Exchange
Ratio shall be proportionately adjusted.
3.08. Treasury Shares. Each of the shares of
Company Stock held as Treasury Shares immediately prior to the
Effective Time shall be canceled and retired at the Effective
Time and no consideration shall be issued in exchange therefor.
3.09. Options. At the Effective Time, all employee
and director stock options to purchase shares of Company Common
Stock (each, a "Company Stock Option"), which are then
outstanding and unexercised, shall cease to represent a right
to acquire shares of Company Stock and shall be converted
automatically into options to purchase shares of Parent Common
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Stock, and Parent shall assume each such Company Stock Option
subject to the terms of any of the stock option plans listed
under "Stock Option Plans" in Exhibit 5.03(l)(i) of the
Company's Disclosure Schedule (collectively, the "Company Stock
Option Plans"), and the agreements evidencing grants
thereunder, including but not limited to the accelerated
vesting of such options which shall occur in connection with
and by virtue of the Merger as and to the extent required by
such plans and agreements; provided, however, that from and
after the Effective Time, (i) the number of shares of Parent
Common Stock purchasable upon exercise of such Company Stock
Option shall be equal to the number of shares of Company Common
Stock that were purchasable under such Company Stock Option
immediately prior to the Effective Time multiplied by the
Exchange Ratio, and rounding to the nearest whole share, and
(ii) the per share exercise price under each such Company Stock
Option shall be adjusted by dividing the per share exercise
price of each such Company Stock Option by the Exchange Ratio,
and rounding down to the nearest cent. The terms of each
Company Stock Option shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any
stock split, stock dividend, recapitalization or other similar
transaction with respect to Parent Common Stock on or
subsequent to the Effective Date. Notwithstanding the
foregoing, each Company Stock Option which is intended to be an
"incentive stock option" (as defined in Section 422 of the
Code) shall be adjusted in accordance with the requirements of
Section 424 of the Code. Accordingly, with respect to any
incentive stock options, fractional shares shall be rounded
down to the nearest whole number of shares and where necessary
the per share exercise price shall be rounded down to the
nearest cent.
ARTICLE IV
ACTIONS PENDING MERGER
From the date hereof until the Effective Time, except
as expressly contemplated by this Agreement, (i) without the
prior written consent of Parent (which consent shall not be
unreasonably withheld or delayed) the Company will not, and
will cause each of its Subsidiaries not to, and (ii) without
the prior written consent of the Company (which consent shall
not be unreasonably withheld or delayed) Parent will not, and
will cause each of its Subsidiaries not to:
4.01. Ordinary Course. Conduct the business of it
and its Subsidiaries other than in the ordinary and usual
course or, to the extent consistent therewith, fail to use
reasonable efforts to preserve intact their business
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organizations and assets and maintain their rights, franchises
and existing relations with customers, suppliers, employees and
business associates, or take any action that would (i)
adversely affect the ability of any party to obtain any
necessary approvals of any Regulatory Authorities required for
the transactions contemplated hereby without the imposition of
a condition or restriction of the type referred to in the
second sentence of Section 7.02 or (ii) adversely affect its
ability to perform any of its material obligations under this
Agreement.
4.02. Capital Stock. In the case of the Company,
other than (i) pursuant to Rights or other stock options
Previously Disclosed in its Disclosure Schedule and currently
outstanding as of the date hereof, or (ii) upon conversion of
shares of Company Preferred Stock pursuant to the terms
thereof, (x) issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional
shares of capital stock, any stock appreciation rights or any
Rights, (y) enter into any agreement with respect to the
foregoing, or (z) permit any additional shares of capital stock
to become subject to new grants of employee stock options,
stock appreciation rights, or similar stock-based employee
rights.
4.03. Dividends, Etc. (1) Make, declare or pay any
dividend (other than (i) in the case of the Company, (A)
quarterly cash dividends on Company Common Stock in an amount
not to exceed the greater of (I) $0.42 per share and (II) the
productof the Exchange Ratio multiplied by Parent's then-
effective quarterly dividend, dividends payable on Company
Preferred Stock at a rate not exceeding the rate provided for
in the terms thereof, and (B) dividends from greater than 95%-
owned Subsidiaries to the Company or another greater than 95%-
owned Subsidiary of the Company, as applicable, and (ii) in the
case of Parent, quarterly cash dividends on Parent Common Stock
not in excess of $0.66 per share, semi-annual cash dividends on
the ESOP Convertible Preferred Stock, Series C (the "ESOP
Preferred Stock"), not in excess of $3.30 per share and cash
dividends on any other outstanding issues of preferred stock in
accordance with the terms thereof and dividends from
Subsidiaries to Parent or another Subsidiary of Parent, as
applicable) on or in respect of, or declare or make any
distribution on any shares of its capital stock, or (2) other
than (A) as Previously Disclosed in its Disclosure Schedule,
(B) in the case of the Company, pursuant to the terms of the
Company Preferred Stock, (C) in the ordinary course pursuant to
employee benefit plans, directly or indirectly combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its
capital stock, or (D) in the case of Parent, repurchases of
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Parent Stock in the ordinary course. After the date of this
Agreement, each of Parent and the Company shall coordinate with
the other the declaration of any dividends in respect of Parent
Common Stock and Company Common Stock and the record dates and
payment dates relating thereto, it being the intention of the
parties hereto that holders of Parent Common Stock or Company
Common Stock shall not receive two dividends, or fail to
receive one dividend, for any single calendar quarter with
respect to their shares of Parent Common Stock and/or Company
Common Stock and any shares of Parent Common Stock any such
holder receives in exchange therefor in the Merger.
4.04. Compensation; Employment Agreements; Etc. In
the case of the Company and its Subsidiaries, enter into or
amend any written employment, severance or similar agreements
or arrangements with any of its directors, officers or
employees, or grant any salary or wage increase or increase any
employee benefit (including incentive or bonus payments),
except for (i) normal individual increases in compensation to
employees in the ordinary course of business consistent with
past practice or (ii) other changes as are provided for herein
or as may be required by law or to satisfy contractual
obligations existing as of the date hereof or additional grants
of awards to newly hired employees consistent with past
practice or such changes that, either individually or in the
aggregate, would not reasonably be expected to result in a
material liability to the Company or its Subsidiaries or such
changes that, either individually or in the aggregate, would
not reasonably be expected to result in a material liability to
the Company or its Subsidiaries.
4.05. Benefit Plans. In the case of the Company and
its Subsidiaries, enter into or amend (except as may be
required by applicable law, to satisfy contractual obligations
existing as of the date hereof or amendments which, either
individually or in the aggregate, would not reasonably be
expected to result in a material liability to the Company or
its Subsidiaries) any pension, retirement, stock option, stock
purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any
trust agreement related thereto, in respect of any of its
directors, officers or other employees, including without
limitation taking any action that accelerates the vesting or
exercise of any benefits payable thereunder.
4.06. Acquisitions And Dispositions. In the case of
the Company, except as Previously Disclosed in its Disclosure
Schedule, dispose of or discontinue any portion of its assets,
business or properties, which is material to it and its
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Subsidiaries taken as a whole, or acquire (other than by way of
foreclosures or acquisitions of control in a bona fide
fiduciary capacity or in satisfaction of debts previously
contracted in good faith, in each case in the ordinary and
usual course of business consistent with past practice) all or
any portion of, the business or property of any other entity
which is material to it and its Subsidiaries taken as a whole.
Parent will not, and will cause its Subsidiaries not to, make
any acquisition or take any other action which would materially
adversely affect its ability to consummate the transactions
contemplated by this Agreement.
4.07. Amendments. In the case of the Company, amend
its Articles of Incorporation or By-laws or amend or waive any
rights under the Company Rights Agreement.
4.08. Accounting Methods. Implement or adopt any
change in its accounting principles, practices or methods,
other than as may be required by generally accepted accounting
principles.
4.09. Adverse Actions. (1) Take any action while
knowing that such action would, or is reasonably likely to,
prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the
Code; or (2) knowingly take any action that is intended or is
reasonably likely to result in (x) 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, (y) any of the conditions to the Merger set
forth in Article VII not being satisfied or (z) a material
violation of any provision of this Agreement except, in each
case, as may be required by applicable law.
4.10. Agreements. Agree or commit to do anything
prohibited by Sections 4.01 through 4.09.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01. Disclosure Schedules. On or prior to the date
hereof, Parent has delivered to the Company and the Company has
delivered to Parent a schedule (respectively, its "Disclosure
Schedule") setting forth, among other things, items the
disclosure of which is necessary or appropriate in relation to
any or all of its representations and warranties; provided,
that (i) no such item is required to be set forth in a
Disclosure Schedule as an exception to a representation or
warranty if its absence is not reasonably likely to result in
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the related representation or warranty being deemed untrue or
incorrect under the standard established by Section 5.02, and
(ii) the mere inclusion of an item in a Disclosure Schedule
shall not be deemed an admission by a party that such item
represents a material exception or fact, event or circumstance
or that such item is reasonably likely to result in a Material
Adverse Effect.
5.02. Standard. No representation or warranty of
Parent or the Company contained in Section 5.03 shall be deemed
untrue or incorrect, and no party hereto shall be deemed to
have breached a representation or warranty, as a consequence of
the existence of any fact, circumstance or event unless such
fact, circumstance or event, individually or taken together
with allother facts, circumstances or events inconsistent with
any paragraph of Section 5.03 has had or is expected to have a
Material Adverse Effect.
5.03. Representations And Warranties. Subject to
Sections 5.01 and 5.02 and except as Previously Disclosed in
its Disclosure Schedule, the Company hereby represents and
warrants to Parent, and Parent hereby represents and warrants
to the Company, to the extent applicable, in each case with
respect to itself and its Subsidiaries, as follows:
(a) Organization, Standing and Authority. Such
party is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
organization. Such party is duly qualified to do business and
is in good standing in the states of the United States and
foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires it to be so
qualified. It has in effect all federal, state, local, and
foreign governmental authorizations necessary for it to own or
lease its properties and assets and to carry on its business as
it is now conducted.
(b) Shares. (i) As of the date hereof, the
authorized capital stock of the Company consists solely of
250,000,000 shares of Company Common Stock, of which, as of
July 31, 1996, 156,741,130 shares were outstanding, 10,300,000
shares of Company Preferred Stock, of which 250,000 shares have
been designated as Company Series A Preferred Stock, of which,
as of July 31, 1996, 247,729 shares were outstanding, and
35,045 shares have been designated as Company Series B
Preferred Stock, of which, as of July 31, 1996, 9,487 shares
were outstanding. As of the date hereof, the authorized
capital stock of Parent consists solely of 800,000,000 shares
of Parent Common Stock, of which, as of July 31, 1996,
291,169,674 shares were outstanding, and 45,000,000 shares of
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Parent Preferred Stock, of which, as of July 31, 1996,
2,445,143 shares of ESOP Preferred Stock were outstanding. As
of July 31, 1996, 1,659,226 shares of Company Common Stock and
no shares of Parent Common Stock were held in treasury. The
outstanding shares of such party's capital stock are validly
issued and outstanding, fully paid and nonassessable, and
subject to no preemptive rights (and were not issued in
violation of any preemptive rights). As of the date hereof,
there are no shares of such party's capital stock authorized
and reserved for issuance, such party does not have any Rights
issued or outstanding with respect to its capital stock, and
such party does not have any commitment to authorize, issue or
sell any such shares or Rights, except pursuant to this
Agreement and the Company Rights Agreement, as the case may be.
Since July 31, 1996, the Company has issued no shares of its
capital stock or rights in respect thereof or reserved any
shares for such purposes except pursuant to plans or
commitments Previously Disclosed in its Disclosure Schedule.
(ii) The number of shares of Company Common Stock
which are issuable and reserved for issuance upon exercise of
Company Stock Options as of the date hereof are Previously
Disclosed in the Company's Disclosure Schedule, and the number
of shares of Parent Common Stock which are issuable and
reserved for issuance upon exercise of any employee or director
stock options to purchase shares of Parent Common Stock as of
the date hereof are Previously Disclosed in Parent's Disclosure
Schedule.
(iii) In the case of the representations and
warranties of Parent: (i) the outstanding shares of Merger Sub
Common Stock are validly issued and outstanding, fully paid and
nonassessable, and subject to no preemptive rights; and (ii)
the shares of Parent Stock to be issued in exchange for shares
of Company Stock in the Merger, when issued in accordance with
the terms of this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable.
(c) Subsidiaries. (i) (A) Such party has
Previously Disclosed in its Disclosure Schedule a list of all
of its Subsidiaries together with the jurisdiction of
organization of each such Subsidiary, (B) it owns, directly or
indirectly at least 99% of the issued and outstanding shares of
each of its Significant Subsidiaries, (C) no equity securities
of any of its Significant Subsidiaries are or may become
required to be issued (other than to it or a Subsidiary of it)
by reason of any Rights, (D) there are no contracts,
commitments, understandings or arrangements by which any of
such Significant Subsidiaries is or may be bound to sell or
otherwise transfer any shares of the capital stock of any such
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Significant Subsidiaries (other than to it or a Subsidiary of
it), (E) there are no contracts, commitments, understandings,
or arrangements relating to its rights to vote or to dispose of
such shares (other than to it or a Subsidiary of it), and (F)
all of the shares of capital stock of each such Significant
Subsidiary held by it or its Subsidiaries are fully paid and
(except pursuant to 12 U.S.C. Section 55 or equivalent state
statutes in the case of bank Subsidiaries) nonassessable and
are owned by it or its Subsidiaries free and clear of any
Liens.
(ii) In the case of the representations and
warranties of the Company, the Company does not own (other than
in a bona fide fiduciary capacity or in satisfaction of a debt
previously contracted) beneficially, directly or indirectly,
any shares of any equity securities or similar interests of any
person, or any interest in a partnership or joint venture of
any kind.
(iii) Each of such party's Significant Subsidiaries
has been duly organized and is validly existing in good
standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and in good
standing in the jurisdictions where its ownership or leasing of
property or the conduct of its business requires it to be so
qualified. Each of such Significant Subsidiaries has in effect
all federal, state, local, and foreign governmental
authorizations necessary for it to own or lease its properties
and assets and to carry on its business as it is now conducted.
(d) Corporate Power. Such party and each of its
Significant Subsidiaries has the corporate power and authority
to carry on its business as it is now being conducted and to
own all its properties and assets; and it has (and, in the case
of the representations and warranties of Parent, Merger Sub
will have as of the Effective Time) the corporate power and
authority to execute, deliver and perform its obligations under
this Agreement and to consummate the transactions contemplated
hereby.
(e) Corporate Authority. Subject to receipt of the
requisite approval by the holders of two-thirds of the
outstanding Company Common Stock (in the case of the Company)
and by the holders of a majority of a quorum of Parent Common
Stock (in the case of Parent), this Agreement and the
transactions contemplated hereby have been authorized by all
necessary corporate action of it, and this Agreement is a
legal, valid and binding agreement of it, enforceable in
accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
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moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by
general equity principles).
(f) No Defaults. Subject to receipt of the
regulatory approvals, and expiration of the waiting periods,
referred to in Section 7.02 and the required filings under
federal and state securities laws, the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby by it do not and will not (i)
constitute a breach or violation of, or a default under, any
law, rule or regulation or any judgment, decree, order,
governmental permit or license, or agreement, indenture or
instrument of it or of any of its Significant Subsidiaries or
to which it or any of its Significant Subsidiaries or
properties is subject or bound, (ii) constitute a breach or
violation of, or a default under, its articles or certificate
of incorporation or by-laws, or (iii) require any consent or
approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license agreement,
indenture or instrument.
(g) Financial Reports And SEC Documents. Its Annual
Report on Form 10-K for the fiscal year ended December 31,
1995, and all other reports, registration statements,
definitive proxy statements or information statements filed or
to be filed by it or any of its Subsidiaries subsequent to
December 31, 1995 under the Securities Act, or under Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, in the form
filed, or to be filed (collectively, its "SEC Documents"), with
the SEC (i) complied or will comply in all material respects as
to form with the applicable requirements under the Securities
Act or the Exchange Act, as the case may be, and (ii) did not
and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; and
each of the balance sheets contained in or incorporated by
reference into any such SEC Document (including the related
notes and schedules thereto) fairly presents and will fairly
present the financial position of the entity or entities to
which it relates as of its date, and each of the statements of
income and changes in stockholders' equity and cash flows or
equivalent statements in such SEC Documents (including any
related notes and schedules thereto) fairly presents and will
fairly present the results of operations, changes in
stockholders' equity and changes in cash flows, as the case may
be, of the entity or entities to which it relates for the
periods to which they relate, in each case in accordance with
generally accepted accounting principles consistently applied
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during the periods involved, except in each case as may be
noted therein, subject to normal year-end audit adjustments in
the case of unaudited statements.
(h) Litigation; Regulatory Action. (i) No
litigation, claim or other proceeding before any court or
governmental agency is pending against it or any of its
Subsidiaries and, to the best of its knowledge, no such
litigation, claim or other proceeding has been threatened.
(ii) Neither it nor any of its Subsidiaries or
properties is a party to or is subject to any order, decree,
agreement, memorandum of understanding or similar arrangement
with, or a commitment letter or similar submission to, any
federal or state governmental agency or authority charged with
the supervision or regulation of financial institutions or
issuers of securities or engaged in the insurance of deposits
(including, without limitation, the OCC, the Federal Reserve
Board, the FDIC and the OTS) or the supervision or regulation
of it or any of its Subsidiaries (collectively, the "Regulatory
Authorities").
(iii) Neither it nor any of its Subsidiaries has
been advised by any Regulatory Authority that such Regulatory
Authority is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding,
commitment letter or similar submission.
(i) Compliance With Laws. It and each of its
Subsidiaries:
(i) in the conduct of its business, is in compliance
with all applicable federal, state, local and foreign statutes,
laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act, the Home Mortgage Disclosure Act and all
other applicable fair lending laws and other laws relating to
discriminatory business practices;
(ii) has all permits, licenses, authorizations,
orders and approvals of, and have made all filings,
applications andregistrations with, all Regulatory Authorities
that are required in order to permit them to conduct their
businesses substantially as presently conducted; all such
permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to the best of its
-25-<PAGE>
knowledge, no suspension or cancellation of any of them is
threatened; and
(iii) has received, since December 31, 1995, no
notification or communication from any Regulatory Authority (A)
asserting that it or any of its Subsidiaries is not in
compliance with any of the statutes, regulations, or ordinances
which such Regulatory Authority enforces, (B) threatening to
revoke any license, franchise, permit, or governmental
authorization, (C) threatening or contemplating revocation or
limitation of, or which would have the effect of revoking or
limiting, federal deposit insurance (nor, to its knowledge, do
any grounds for any of the foregoing exist) or (D) failing to
approve any proposed acquisition, or stating its intention not
to approve acquisitions proposed to be effected by it within a
certain time period or indefinitely.
(j) Defaults. Neither it nor any of its
Subsidiaries is in default under any contract, agreement,
commitment, arrangement, lease, insurance policy, or other
instrument to which it is a party, by which its respective
assets, business, or operations may be bound or affected, or
under which it or its respective assets, business, or
operations receives benefits, and there has not occurred any
event that, with the lapse of time or the giving of notice or
both, would constitute such a default.
(k) No Brokers. No action has been taken by it that
would give rise to any valid claim against any party hereto for
a brokerage commission, finder's fee or other like payment with
respect to the transactions contemplated by this Agreement,
excluding, in the case of the Company, a fee to be paid to
Goldman, Sachs & Co., and, in the case of Parent, a fee to be
paid to Stephens, Inc., which, in each case, has been
heretofore disclosed to the other party.
(l) Employee Benefit Plans. (i) Such Party's
Disclosure Schedule contains a complete list of all written
bonus, vacation, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, restricted stock and stock option
plans,all employment or severance contracts, all medical,
dental, disability, health and life insurance plans, all other
employee benefit and fringe benefit plans, contracts or
arrangements and any applicable "change of control" or similar
provisions in any plan, contract or arrangement maintained or
contributed to by it or any of its Subsidiaries for the benefit
of officers, former officers, employees, former employees,
directors, former directors, or the beneficiaries of any of the
foregoing (collectively, "Compensation and Benefit Plans").
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(ii) True and complete copies of its Compensation
and Benefit Plans, including, but not limited to, any trust
instruments and/or insurance contracts, if any, forming a part
thereof, and all amendments thereto have been supplied to the
other party.
(iii) Each of its Compensation and Benefit Plans has
been administered in all material respects in accordance with
the terms thereof. All "employee benefit plans" within the
meaning of Section 3(3) of ERISA, other than "multiemployer
plans" within the meaning of Section 3(37) of ERISA
("Multiemployer Plans"), covering employees or former employees
of it and its Subsidiaries (its "Plans"), to the extent subject
to ERISA, are in material compliance with ERISA, the Code, the
Age Discrimination in Employment Act and other applicable laws.
Each Compensation and Benefit Plan of it or its Subsidiaries
which is an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA ("Pension Plan") and which is intended
to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue
Service, and it is not aware of any circumstances reasonably
likely to result in the revocation or denial of any such
favorable determination letter. There is no pending or, to its
knowledge, threatened litigation or governmental audit,
examination or investigation relating to the Plans.
(iv) No material liability under Title IV of ERISA
has been or is expected to be incurred by it or any of its
Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan", within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by any
of them, or the single-employer plan of any entity which is
considered one employer with it under Section 4001(a)(15) of
ERISA or Section 414 of the Code (an "ERISA Affiliate").
Neither it nor any of its Subsidiaries presently contributes to
a Multiemployer Plan, nor have they contributed to such a plan
within the past five calendar years. No notice of a
"reportable event", within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived,
has been required to be filed for any Pension Plan of it or any
of its Subsidiaries or by any ERISA Affiliate within the past
12 months.
(v) All contributions, premiums and payments
required to be made under the terms of any Compensation and
Benefit Plan of it or any of its Subsidiaries have been made.
Neither any Pension Plan of it or any of its Subsidiaries nor
any single-employer plan of an ERISA Affiliate of it or any of
its Subsidiaries has an "accumulated funding deficiency"
(whether or not waived) within the meaning of Section 412 of
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the Code or Section 302 of ERISA. Neither it nor any of its
Subsidiaries has provided, or is required to provide, security
to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(vi) Under each Pension Plan of it or any of its
Subsidiaries which is a single-employer plan, as of the last
day of the most recent plan year ended prior to the date
hereof, the actuarially determined present value of all
"benefit liabilities", within the meaning of Section
4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the Plan's most recent
actuarial valuation) did not exceed the then current value of
the assets of such Plan, and there has been no adverse change
in the financial condition of such Plan (with respect to either
assets or benefits) since the last day of the most recent Plan
year.
(vii) Neither it nor any of its Subsidiaries has any
obligations under any Compensation and Benefit Plans to provide
benefits, including death or medical benefits, with respect to
employees of it or its Subsidiaries beyond their retirement or
other termination of service other than (i) coverage mandated
by Part 6 of Title I of ERISA or Section 4980B of the Code,
(ii) retirement or death benefits under any employee pension
benefit plan (as defined under Section 3(2) of ERISA), (iii)
disability benefits under any employee welfare plan that have
been fully provided for by insurance or otherwise, or (iv)
benefits in the nature of severance pay.
(viii) Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden
parachute or otherwise) becoming due to any director or any
employee of it or any of its Subsidiaries under any
Compensation and Benefit Plan or otherwise from it or any of
its Subsidiaries, (ii) increase any benefits otherwise payable
under any Compensation and Benefit Plan or (iii) result in any
acceleration of the time of payment or vesting of any such
benefit.
(m) Labor Matters. Neither it nor any of its
Subsidiaries is a party to, or is bound by any collective
bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is
it or any of its Subsidiaries the subject of a proceeding
asserting that it or any such Subsidiaries has committed an
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unfair labor practice (within the meaning of the National Labor
Relations Act) or seeking to compel it or such Subsidiaries to
bargain with any labor organization as to wages and conditions
of employment.
(n) Takeover Laws; Rights Plans. (i) It has taken
all action required to be taken by it in order to exempt this
Agreement and the transactions contemplated hereby from, and
this Agreement and the transactions contemplated hereby are
exempt from, the requirements of any "moratorium", "control
share", "fair price" or other antitakeover laws and regulations
(collectively, "Takeover Laws") of the State of Missouri in the
case of the representations and warranties of the Company,
including Section 459 of the GBCL. In the case of the
representations and warranties of the Company, the transactions
contemplated by this Agreement have been approved for purposes
of Article XI of the Company's Restated Articles of
Incorporation.
(ii) In the case of the representations and
warranties of the Company, it has (A) duly entered into an
amendment to the Company Rights Agreement in substantially the
form of Exhibit B hereto and (B) taken all other action
necessary or appropriate so that, the entering into of this
Agreement, and the consummation of the transactions
contemplated hereby (including, without limitation, the Merger)
do not and will not result in the ability of any person to
exercise any Rights under the Company Rights Agreement or
enable or require the Company Rights to separate from the
shares of Company Common Stock to which they are attached or to
be triggered or become exercisable.
(iii) In the case of the representations and
warranties of the Company, no "Distribution Date" or "Shares
Acquisition Date" (as such terms are defined in the Company
Rights Plan) has occurred.
(o) Environmental Matters. (i) As used in this
Plan, "Environmental Laws" means all applicable local, state
and federal environmental, health and safety laws and
regulations, including, without limitation, the Resource
Conversation and Recovery Act, the Comprehensive Environmental
Response, Compensation, and Liability Act, the Clean Water Act,
the Federal Clean Air Act, and the Occupational Safety and
Health Act, each as amended, regulations promulgated
thereunder, and state counterparts.
(ii) Neither the conduct nor operation of such party
or its Subsidiaries nor any condition of any property presently
or previously owned, leased or operated by any of them violates
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or violated Environmental Laws and no condition has existed or
event has occurred with respect to any of them or any such
property that, with notice or the passage of time, or both, is
reasonably likely to result in liability under Environmental
Laws. Neither such party nor any of its Subsidiaries has
received any notice from any person or entity that it or its
Subsidiaries or the operation or condition of any property ever
owned, leased, operated, held as collateral or held as a
fiduciary by any of them are or were in violation of or
otherwise are alleged to have liability under any Environmental
Law, including but not limited to responsibility (or potential
responsibility) for the cleanup or other remediation of any
pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on, beneath, or originating from
any such property.
(p) Tax Matters. (i) (A) All returns,
declarations, reports, estimates, information returns and
statements required to be filed under federal, state, local or
any foreign tax laws ("Tax Returns") with respect to it or any
of its Subsidiaries, have been timely filed, or requests for
extensions have been timely filed and have not expired; (B) all
material Tax Returns filed by it are complete and accurate; (C)
all Taxes shown to be due on such Tax Returns have been paid or
adequate reserves have been established for the payment of such
Taxes; and (D) no material (1) audit or examination or (2)
refund litigation with respect to any Tax Return is pending.
(ii) It has no reason to believe that any conditions
exist that might prevent or impede the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the
Code.
(q) Tax Treatment. As of the date hereof, it is
aware of no reason why the Merger will fail to qualify as a
reorganization under Section 368(a) of the Code.
(r) Regulatory Approvals. The approval of the
following regulatory authorities is necessary to consummate the
Merger: the Federal Reserve Board and the regulatory
authorities of the States in which the Company and its
Subsidiaries operate. As of the date hereof, neither of the
Company nor Parent is aware of any reason why the approvals of
such regulatory authorities will not be received without the
imposition of a condition or requirement described in the
second sentence of Section 7.02.
(s) No Material Adverse Effect. Since December 31,
1995, except as disclosed in its SEC Documents filed with the
SEC on or before the date hereof, (i) it and its Subsidiaries
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have conducted their respective businesses in the ordinary and
usual course (excluding the incurrence of expenses related to
this Agreement and the transactions contemplated hereby) and
(ii) no event has occurred or circumstance arisen that,
individually or taken together with all other facts,
circumstances and events (described in any paragraph of Section
5.03 or otherwise), is reasonably likely to have a Material
Adverse Effect with respect to it.
ARTICLE VI
COVENANTS
The Company hereby covenants to and agrees with
Parent, and Parent hereby covenants to and agrees with the
Company, that:
6.01. Best Efforts. Subject to the terms and
conditions of this Agreement, it shall use its best efforts in
good faith to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit
consummation of the Merger as promptly as practicable and
otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other
parties hereto to that end.
6.02. Stockholder Approvals. Each of them shall
take, in accordance with applicable law, applicable stock
exchange or NASDAQ rules and its respective articles or
certificate of incorporation and by-laws, all action necessary
to convene, respectively, an appropriate meeting of
stockholders of Parent to consider and vote upon the issuance
of the shares of Parent Stock to be issued in the Merger
pursuant to this Agreement and any other matters required to be
approved by Parent stockholders for consummation of the Merger
(including any adjournment or postponement, the "Parent
Meeting"), and an appropriate meeting of stockholders of the
Company to consider and vote upon the approval of this
Agreement and any other matters required to be approved by the
Company's stockholders for consummation of the Merger
(including any adjournment or postponement, the "Company
Meeting"; and each of the Parent Meeting and the Company
Meeting, a "Meeting"), respectively, as promptly as practicable
after the Registration Statement is declared effective. The
Board of Directors of each of Parent and the Company shall
(subject in the case of the Company to compliance with its
fiduciary duties as advised by counsel) recommend such
approval, and each of Parent and the Company shall take all
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reasonable lawful action to solicit such approval by its
respective stockholders.
6.03. Registration Statement. (a) Each of Parent
and the Company agrees to cooperate in the preparation of a
registration statement on Form S-4 (the "Registration
Statement") to be filed by Parent with the SEC in connection
with the issuance of Parent Stock in the Merger (including the
joint proxy statement and prospectus and other proxy
solicitation materials of Parent and the Company constituting a
part thereof (the "Joint Proxy Statement") and all related
documents). Provided the Company has cooperated as required
above, Parent agrees to file the Registration Statement with
the SEC as promptly as practicable, but in no event later than
45 days after the date of this Agreement. Each of the Company
and Parent agrees to use all reasonable efforts to cause the
Registration Statement to be declared effective under the
Securities Act as promptly as reasonably practicable after
filing thereof. Parent also agrees to use all reasonable
efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. The Company
agrees to furnish to Parent all information concerning the
Company, its Subsidiaries, officers, directors and stockholders
as may be reasonably requested in connection with the
foregoing.
(b) Each of the Company and Parent agrees, as to
itself and its Subsidiaries, that none of the information
supplied or to be supplied by it for inclusion or incorporation
by reference in (i) the Registration Statement will, at the
time the Registration Statement and each amendment or
supplement thereto, if any, becomes effective under the
Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading, and (ii) the Joint Proxy Statement and any
amendment or supplement thereto will, at the date of mailing to
stockholders and at the times of the Parent Meeting and the
Company Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading or any statement which, in the light of the
circumstances under which such statement is made, will be false
or misleading with respect to any material fact, or which will
omit to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to
correct any statement in any earlier statement in the Joint
Proxy Statement or any amendment or supplement thereto. Each
of the Company and Parent further agrees that if it shall
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become aware prior to the Effective Date of any information
that would cause any of the statements in the Joint Proxy
Statement to be false or misleading with respect to any
material fact, or to omit to state any material fact necessary
to make the statements therein not false or misleading, to
promptly inform the other party thereof and to take the
necessary steps to correct the Joint Proxy Statement.
(c) In the case of Parent, Parent will advise the
Company, promptly after Parent receives notice thereof, of the
time when the Registration Statement has become effective or
any supplement or amendment has been filed, of the issuance of
any stop order or the suspension of the qualification of the
Parent Stock for offering or sale in any jurisdiction, of the
initiation or threat of any proceeding for any such purpose, or
of any request by the SEC for the amendment or supplement of
the Registration Statement or for additional information.
6.04. Press Releases. It will not, without the
prior approval of the other parties, issue any press release or
written statement for general circulation relating to the
transactions contemplated hereby, except as otherwise required
by applicable law or regulation.
6.05. Access; Information. (a) Upon reasonable
notice and subject to applicable laws relating to the exchange
of information, it shall afford the other parties and their
officers, employees, counsel, accountants and other authorized
representatives, access, during normal business hours
throughout the period prior to the Effective Date, to all of
its properties, books, contracts, commitments and records and,
during such period, it shall furnish promptly to such other
parties and representatives (i) a copy of each material report,
schedule and other document filed by it pursuant to the
requirements of federal or state securities or banking laws,
and (ii) all other information concerning the business,
properties and personnel of it as the other may reasonably
request.
(b) It will not use any information obtained
pursuant to this Section 6.05 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement
and, if this Agreement is terminated, will hold all information
and documents obtained pursuant to this paragraph in confidence
(as provided in, and subject to the provisions of, the
Confidentiality Agreement). No investigation by either party
of the business and affairs of another shall affect or be
deemed to modify or waive any representation, warranty,
covenant or agreement in this Agreement, or the conditions to
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either party's obligation to consummate the transactions
contemplated by this Agreement.
6.06. Acquisition Proposals. Without the prior
written consent of Parent, the Company shall not, and shall
cause its Subsidiaries and its and its Subsidiaries' officers,
directors, agents, advisors and affiliates not to, solicit or
encourage inquiries or proposals with respect to, or engage in
any negotiations concerning, or provide any confidential
information to, or have any discussions with, any such person
relating to, any tender offer or exchange offer for, or any
proposal for the acquisition of a substantial equity interest
in, or a substantial portion of the assets of, or any merger or
consolidation with, the Company or any of its Significant
Subsidiaries; provided, however, that the Board of Directors of
the Company, on behalf of the Company, may furnish or cause to
be furnished information and may participate in such
discussions and negotiations directly or through its
representatives if such Board of Directors, after having
consulted with and considered the advice of outside counsel
reasonably acceptable to Parent, has determined that the
failure to provide such information or participate in such
negotiations and discussions would cause the members of such
Board of Directors to breach their fiduciary duties under
applicable laws. The Company shall promptly (within 24 hours)
advise Parent of its receipt of any such proposal or inquiry,
of the substance thereof, and of the identity of the person
making such proposal or inquiry.
6.07. Affiliate Agreements. (a) Not later than the
15th day prior to the mailing of the Joint Proxy Statement, the
Company shall deliver to Parent, a schedule of each person
that, to the best of its knowledge, is or is reasonably likely
to be, as of the date of the relevant Meeting, deemed to be an
"affiliate" of it (each, an "Affiliate") as that term is used
in Rule 145 under the Securities Act.
(b) The Company shall use its best efforts to cause
each person who may be deemed to be an Affiliate of the Company
to execute and deliver to the Company and Parent on or before
the date of mailing of the Joint Proxy Statement an agreement
in the form attached hereto as Exhibit C.
6.08. Takeover Laws. No party shall take any action
that would cause the transactions contemplated by this
Agreement to be subject to requirements imposed by any Takeover
Law and each of them shall take all necessary steps within its
control to exempt (or ensure the continued exemption of) the
transactions contemplated by this Agreement from, or if
necessary challenge the validity or applicability of, any
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applicable Takeover Law, as now or hereafter in effect,
including, without limitation, Section 459 of the GBCL and
Takeover Laws of any other State that purport to apply to this
Agreement or the transactions contemplated hereby or thereby.
6.09. No Rights Triggered. Each of Company and
Parent shall take all steps necessary to ensure that the
entering into of this Agreement and the consummation of the
transactions contemplated hereby and any other action or
combination of actions, or any other transactions contemplated
hereby, do not and will not result in the grant of any rights
to any person (i) under its articles or certificate of
incorporation or by-laws, (ii) under any material agreement to
which it or any of its Subsidiaries is a party (including
without limitation, in the case of the Company, the Company
Rights Agreement) or (iii) in the case of the Company, to
exercise or receive certificates for Rights, or acquire any
property in respect of Rights, under the Company Rights
Agreement.
6.10. Shares Listed. In the case of Parent, Parent
shall use its best efforts to list, prior to the Effective
Date, on the NYSE (or, in the case of Company Preferred Stock,
NASDAQ), upon official notice of issuance, the shares of Parent
Stock to be issued to the holders of Company Stock in the
Merger (but only to the extent that the corresponding class or
series of Company Stock were listed on NASDAQ immediately prior
to the Effective Time).
6.11. Regulatory Applications. Parent and the
Company and their respective Subsidiaries 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 and
Regulatory Authorities necessary to consummate the transactions
contemplated by this Agreement, including, without limitation,
any such approvals or authorizations required by the Federal
Reserve Board and the regulatory authorities of the States in
which the Company and its Subsidiaries operate, and (ii) to
cause the Merger to be consummated as expeditiously as
practicable. Provided the Company has cooperated as required
above, Parent agrees to file the requisite applications to be
filed by it with the Federal Reserve Board and the regulatory
authorities of the States in which the Company and its
Subsidiaries operate as promptly as practicable, but in no
event later than 45 days after the date of this Agreement.
Each of Parent and the Company shall have the right to review
in advance, and to the extent practicable each will consult
with the other, in each case subject to applicable laws
relating to the exchange of information, with respect to, all
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material written information submitted to any third party or
any Regulatory Authorities in connection with the transactions
contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and
as promptly as practicable. Each party hereto agrees that it
will consult with the other parties hereto with respect to the
obtaining of all material permits, consents, approvals and
authorizations of all third parties and Regulatory Authorities
necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the
other parties apprised of the status of material matters
relating to completion of the transactions contemplated hereby.
(2) Each party agrees, upon request, to furnish the
other parties with all information concerning itself, its
Subsidiaries, directors, officers and stockholders and such
other matters as may be reasonably necessary or advisable in
connection with any filing, notice or application made by or on
behalf of such other party or any of its Subsidiaries to any
Regulatory Authority.
6.12. Indemnification. (a) Following the Effective
Date and without limitation as to time, Parent shall indemnify,
defend and hold harmless the present and former directors,
officers and employees of the Company and its Subsidiaries
(each, an "Indemnified Party") against all costs or expenses
(including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities (collectively, "Costs")
incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or
investigative, arising out of actions or omissions occurring at
or prior to the Effective Time (including, without limitation,
the transactions contemplated by this Agreement) to the fullest
extent that the Company is permitted to indemnify such persons
under the laws of the State of Missouri and the Company's
Restated Articles of Incorporation and By-laws as in effect on
the date hereof (and Parent shall also advance expenses
(including expenses constituting Costs described in Section
6.12(e)) as incurred to the fullest extent permitted under
applicable law; provided that any determination required to be
made with respect to whether an officer's or director's conduct
complies with the standards set forth under Missouri law and
such articles of incorporation and by-laws shall be made by
independent counsel (which shall not be counsel that provides
material services to Parent) selected by Parent and reasonably
acceptable to such officer or director; and provided, further,
that in the absence of applicable Missouri judicial precedent
to the contrary, such counsel, in making such determination,
shall presume such officer's or director's conduct complied
with such standard and Parent shall have the burden to
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demonstrate that such officer's or director's conduct failed to
comply with such standard.
(b) Parent shall maintain the Company's existing
directors' and officers' liability insurance policy (or a
policy providing comparable coverage amount on terms no less
favorable to the covered persons, including Parent's existing
policy if it meets the foregoing standard) covering persons who
are currently covered by such insurance for a period of six
years after the Effective Date.
(c) Any Indemnified Party wishing to claim
indemnification under Section 6.12(a), upon learning of any
claim, action, suit, proceeding or investigation described
above, shall promptly notify Parent thereof; provided that the
failure so to notify shall not affect the obligations of Parent
under Section 6.12(a) unless and to the extent such failure
materially increases Parent's liability under such subsection
(a).
(d) If Parent or any of its successors or assigns
shall consolidate with or merge into any other entity and shall
not be the continuing or surviving entity of such consolidation
or merger or shall transfer all or substantially all of its
assets to any entity, then and in each case, proper provision
shall be made so that the successors and assigns of Parent
shall assume the obligations set forth in this Section 6.12.
(e) Parent shall pay all reasonable Costs, including
attorneys' fees, that may be incurred by any Indemnified Party
in enforcing the indemnity and other obligations provided for
in this Section 6.12. The rights of each Indemnified Party
hereunder shall be in addition to any other rights such
Indemnified Party may have under applicable law.
6.13. Benefit Plans. (i) Until the transition to
Parent's benefit plans as set forth below, Parent shall cause
the Surviving Corporation and its Subsidiaries to provide
employees of the Company and its Subsidiaries who become
employees of the Surviving Corporation and its Subsidiaries
with compensation and employee benefit plans, programs,
arrangements and other perquisites (including, but not limited
to, "employee benefit plans" within the meaning of section 3(3)
of ERISA) ("Employee Benefit Plans") that are, in the
aggregate, substantially the same as the compensation and
Employee Benefit Plans provided to such individuals by the
Company immediately prior to the Effective Date; provided,
however, that for at least a one-year period, Parent shall
cause the Surviving Corporation and its Subsidiaries to
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continue the Company's severance benefits, as disclosed in the
Company's Disclosure Schedule, with respect to all employees of
the Company and its Subsidiaries who become employees of the
Surviving Corporation or its Subsidiaries. Promptly following
the Effective Time, Parent shall cause the Surviving
Corporation and its Subsidiaries to provide Company employees
who are employees thereof with compensation and Employee
Benefit Plans that are substantially the same as the
compensation and Employee Benefit Plans provided to similarly
situated employees of the Surviving Corporation or its
Subsidiaries who were not employees of the Company; provided,
however, that employees of the Company shall not be required to
satisfy any additional copayment or other eligibility
requirements in connection with such transition of Employee
Benefit Plans. For the purpose of determining eligibility to
participate in Employee Benefit Plans, eligibility for benefit
forms and subsidies and the vesting of benefits under such
Employee Benefit Plans (including, but not limited to, any
pension, severance, 401(k), vacation and sick pay), and for
purposes of accrual of benefits under any severance, sick
leave, vacation and other similar Employee Benefit Plans,
Parent shall give effect to years of service (and for purposes
of qualified and nonqualified pension plans, prior earnings)
with the Company or its Subsidiaries, as the case may be, as if
they were with Parent or its Subsidiaries. For a period of one
year after the Effective Date, Parent shall cause the Surviving
Corporation and its Subsidiaries to continue substantially the
same retiree benefits to all retirees of the Company and its
Subsidiaries as well as all employees of the Company and its
Subsidiaries who become retirees during the one-year period.
Parent also shall cause the Surviving Corporation and its
Subsidiaries to assume and agree to perform the Company's
obligations under all employment, severance, consulting and
other compensation contracts as disclosed in the Company
Disclosure Schedule, including without limitation the Company
Change in Control Severance Plan, between the Company or any of
its Subsidiaries and any current or former director, officer or
employee thereof. Parent shall give fair consideration to the
promotion, retention, firing, and other terms and conditions of
employment of all employees of the Company and its Subsidiaries
who become employees thereof. Furthermore, Parent will offer
to enter into executive compensation arrangements with certain
Company executives on terms to be set forth in separate letter
agreements.
6.14. Certain Director And Officer Positions. (a)
Parent agrees to cause five (5) persons designated by the
Company willing so to serve and reasonably satisfactory to
Parent ("Company Directors"), which shall include Mr. Andrew B.
Craig, III, to be elected or appointed as directors of Parent
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at, or as promptly as practicable after, the Effective Time.
At the first annual meeting of stockholders of Parent
subsequent to the Effective Time, Parent shall take all
corporate action necessary to, and shall, renominate each such
person, including Mr. Andrew B. Craig, III, for election as
directors of Parent and shall recommend that the Parent
stockholders vote for the election of such individuals as
directors.
(b) Parent agrees to cause Mr. Andrew B. Craig, III
to be elected or appointed as a member of the Executive
Committee of the Board of Directors of Parent at, or as
promptly as practicable after, the Effective Time.
(c) At the Effective Time, Mr. Andrew B. Craig, III
shall be Chairman of the Board of Directors of Parent for a
term extending through one year from the Effective Date.
6.15. Notification Of Certain Matters. Each of the
Company and Parent shall give prompt notice to the other of any
fact, event or circumstance known to it that (i) is reasonably
likely, individually or taken together with all other facts,
events and circumstances known to it, to result in any Material
Adverse Effect with respect to it or (ii) would cause or
constitute a material breach of any of its representations,
warranties, covenants or agreements contained herein.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of each of the parties to consummate
the Merger is conditioned upon the satisfaction at or prior to
the Effective Time of each of the following:
7.01. Shareholder Vote. Approval of the Plan of
Merger contained in this Agreement by the requisite vote of the
stockholders of the Company and of Parent, respectively.
7.02. Regulatory Approvals. All regulatory
approvals required to consummate the transactions contemplated
hereby, including, without limitation, those specified in
Section 5.03(r), shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in
respect thereof shall have expired. No such approvals shall
contain any conditions or restrictions which the Board of
Directors of either Parent or the Company reasonably determines
in good faith will have a Material Adverse Effect on Parent and
its Subsidiaries (including the Surviving Corporation and its
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Subsidiaries) taken as a whole. For purposes of this
paragraph, a divestiture required as a condition to any
regulatory approval shall not be deemed to have a Material
Adverse Effect if such divestiture is consistent with
Department of Justice and Federal Reserve Board guidelines,
policies and practices regarding mergers of bank holding
companies that have been utilized in transactions that have
recently been reviewed prior to the date of this Agreement.
7.03. Third Party Consents. All consents or
approvals of all persons (other than Regulatory Authorities)
required for the consummation of the Merger shall have been
obtained and shall be in full force and effect, unless the
failure to obtain any such consent or approval is not
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on the Company or Parent.
7.04. No Injunction, Etc. No order, decree or
injunction of any court or agency of competent jurisdiction
shall be in effect, and no law, statute or regulation shall
have been enacted or adopted, that enjoins, prohibits or makes
illegal consummation of any of the transactions contemplated
hereby.
7.05. Representations, Warranties And Covenants Of
Parent. In the case of the Company's obligations: (i) each of
the representations and warranties contained herein of Parent
shall be true and correct as of the date of this Agreement and
upon the Effective Date with the same effect as though all such
representations and warranties had been made on the Effective
Date, except for any such representations and warranties made
as of a specified date, which shall be true and correct as of
such date, in any case subject to the standard set forth in
Section 5.02, (ii) each and all of the agreements and covenants
of Parent to be performed and complied with pursuant to this
Agreement on or prior to the Effective Date shall have been
duly performed and complied with in all material respects, and
(iii) the Company shall have received a certificate signed by
the Chief Financial Officer of Parent, dated the Effective
Date, to the effect set forth in clauses (i) and (ii) of this
Section 7.05.
7.06. Representations, Warranties And Covenants Of
The Company. In the case of Parent's obligations: (i) each of
the representations and warranties contained herein of the
Company shall be true and correct as of the date of this
Agreement and upon the Effective Date with the same effect as
though all such representations and warranties had been made on
the Effective Date, except for any such representations and
warranties made as of a specified date, which shall be true and
correct as of such date, in any case subject to the standard
-40-<PAGE>
set forth in Section 5.02, (ii) each and all of the agreements
and covenants of the Company to be performed and complied with
pursuant to this Agreement on or prior to the Effective Date
shall have been duly performed and complied with in all
material respects, and (iii) Parent shall have received a
certificate signed by the Chief Financial Officer of the
Company, dated the Effective Date, to the effect set forth in
clauses (i) and (ii) of this Section 7.06.
7.07. Effective Registration Statement. The
Registration Statement shall have become effective and no stop
order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC or
any other Regulatory Authority.
7.08. Tax Opinion. Parent and the Company shall
have received an opinion from Wachtell, Lipton, Rosen & Katz,
Cleary, Gottlieb, Steen & Hamilton or such other tax counsel as
is reasonably acceptable to the Company and Parent, dated as of
the Effective Time, substantially to the effect that, on the
basis of the facts, representations and assumptions set forth
in such opinions which are consistent with the state of facts
existing at the Effective Time, the Merger will be treated for
Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by Parent,
the Company or Merger Sub as a result of the Merger;
(ii) No gain or loss will be recognized by the
stockholders of the Company who exchange their Company
Stock solely for Parent Stock pursuant to the Merger
(except with respect to cash received in lieu of a
fractional share interest in Parent Stock); and
(iii) The tax basis of the Parent Stock received by
stockholders who exchange all of their Company Stock
solely for Parent Stock in the Merger will be the same as
the tax basis of the Company Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional
share interest for which cash is received).
In rendering such opinion, such counsel may require
and rely upon representations and covenants including those
contained in certificates of officers of Parent, the Company
and Merger Sub and others.
-41-<PAGE>
7.09. Articles Of Amendment. The Articles of
Amendment shall have become effective in accordance with the
North Carolina Business Corporation Act.
7.10. NYSE Listing. The shares of Parent Stock
issuable pursuant to this Agreement shall have been approved
for listing on the NYSE (or, in the case of Company Preferred
Stock, NASDAQ) (but only to the extent that the corresponding
class or series of Company Stock were listed on NASDAQ
immediately prior to the Effective Time), subject to official
notice of issuance.
7.11. Company Rights Agreement. There shall exist
no "Shares Acquisition Date" or "Distribution Date" (as each of
such terms is defined in the Company Rights Agreement).
It is specifically provided, however, that a failure to satisfy
any of the conditions set forth in Section 7.06 or 7.11 shall
only constitute conditions if asserted by Parent, and a failure
to satisfy the condition set forth in Section 7.05 shall only
constitute a condition if asserted by the Company.
ARTICLE VIII
TERMINATION
8.01. Termination. This Agreement may be
terminated, and the Merger may be abandoned:
(a) Mutual Consent. At any time prior to the
Effective Time, by the mutual consent of Parent and the
Company, if the Board of Directors of each so determines by
vote of a majority of the members of its entire Board.
(b) Breach. At any time prior to the Effective
Time, by Parent or the Company, if its Board of Directors so
determines by vote of a majority of the members of its entire
Board, in the event of either: (i) a breach by the other party
of any representation or warranty contained herein (subject to
the standard set forth in Section 5.02), which breach cannot be
or has not been cured within 30 days after the giving of
written notice to the breaching party of such breach; or (ii) a
material breach by the other party of any of the covenants or
agreements contained herein, which breach cannot be or has not
been cured within 30 days after the giving of written notice to
the breaching party of such breach.
(c) Delay. At any time prior to the Effective Time,
by Parent or the Company, if its Board of Directors so
determines by vote of a majority of the members of its entire
-42-<PAGE>
Board, in the event that the Merger is not consummated by
September 1, 1997, except to the extent that the failure of the
Merger then to be consummated arises out of or results from the
knowing action or inaction of the party seeking to terminate
pursuant to this Section 8.01(c).
(d) No Approval. By the Company or Parent, if its
Board of Directors so determines by a vote of a majority of the
members of its entire Board, in the event (i) the approval of
the Federal Reserve Board required for consummation of the
Merger and the other transactions contemplated by the Merger
shall have been denied by final nonappealable action of such
Regulatory Authority or (ii) any stockholder approval required
by Section 7.01 herein is not obtained at the Company Meeting
or the Parent Meeting.
(e) Possible Adjustment. By the Company, if its
Board of Directors so 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:
(i) the Average Closing Price shall be less than
$79.26; and
(ii) (A) the number obtained by dividing the
Average Closing Price by the Starting Price (such number being
referred to herein as the "Parent Ratio") shall be less than
(B) the number obtained by dividing the Average Index Price by
the Index Price on the Starting Date and subtracting .15 from
the quotient in this clause (x)(ii)(B) (such number being
referred to herein as the "Index Ratio");
or (y) the Average Closing Price shall be less than $74.60;
subject, however, to the following four sentences. If the
Company elects to exercise its termination right pursuant to
the immediately preceding sentence, it shall give prompt
written notice to Parent which notice shall specify which of
clause (x) or (y) is applicable (or if both would be
applicable, which clause is being invoked); provided that such
notice of election to terminate may be withdrawn at any time
within the aforementioned ten-day period. During the five-day
period commencing with its receipt of such notice, Parent shall
have the option in the case of a failure to satisfy the
condition in clause (x), of adjusting the Exchange Ratio to
equal the lesser of (i) a number equal to a quotient (rounded
to the nearest one-thousandth), the numerator of which is the
product of $79.26 and the Exchange Ratio (as then in effect)
and the denominator of which is the Average Closing Price, and
-43-<PAGE>
(ii) a number equal to a quotient (rounded to the nearest one-
thousandth), the numerator of which is the Index Ratio
multiplied by the Exchange Ratio (as then in effect) and the
denominator of which is the Parent Ratio. During such five-day
period, Parent shall have the option, in the case of a failure
to satisfy the condition in clause (y), to elect to increase
the Exchange Ratio to equal a number equal to a quotient
(rounded to the nearest one-thousandth), the numerator of which
is the product of $74.60 and the Exchange Ratio (as then in
effect) and the denominator of which is the Average Closing
Price. If Parent makes an election contemplated by either of
the two preceding sentences within such five-day period, it
shall give prompt written notice to the Company of such
election and the revised Exchange Ratio, whereupon no
termination shall have occurred pursuant to this Section
8.01(e) and this Agreement shall remain in effect in accordance
with its terms (except as the Exchange Ratio shall have been so
modified), and any references in this Agreement to "Exchange
Ratio" shall thereafter be deemed to refer to the Exchange
Ratio as adjusted pursuant to this Section 8.01(e).
For purposes of this Section 8.01(e), the following
terms shall have the meanings indicated:
"Average Closing Price" means the average of the
daily last sale prices of Parent Common Stock as reported on
the NYSE Composite Transactions reporting system (as reported
in The Wall Street Journal or, if not reported therein, in
another mutually agreed upon authoritative source) 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.
"Average Index Price" means the average of the Index
Prices for the ten consecutive full NYSE trading days ending at
the close of trading on the Determination Date.
"Determination Date" means the date on which the
approval of the Federal Reserve Board required for consummation
of the Merger shall be received.
"Index Group" means the group of each of the 15 bank
holding companies listed below, the common stock 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 the common
stock of any such company ceases to be publicly traded or such
-44-<PAGE>
an announcement is made, such company will be removed from the
Index Group, and the weights (which have been determined based
on the number of outstanding shares of common stock)
redistributed proportionately for purposes of determining the
Index Price. The 15 bank holding companies and the weights
attributed to them are as follows:
Bank Holding Company Weighting
Citicorp 15.8%
Chase Manhattan Corp. 13.2
BankAmerica Corporation 11.3
Wells Fargo & Company 9.4
First Union Corporation 7.2
Banc One Corporation 6.5
Norwest Corporation 5.5
First Chicago NBD Corporation 5.4
Fleet Financial Group, Inc. 4.4
PNC Bank Corp. 4.2
Bank of New York Company, Inc. 4.2
KeyCorp 3.6
SunTrust Banks, Inc. 3.4
Wachovia Corporation 3.0
Mellon Bank Corporation 2.9
Total 100.0%
"Index Price" on a given date means the weighted
average (weighted in accordance with the factors listed above)
of the closing prices on such date of the companies composing
the Index Group.
"Starting Date" means the last full day on which the
NYSE was open for trading prior to the execution of this
Agreement.
"Starting Price" shall mean the last sale price per
share of Parent Common Stock on the Starting Date, as reported
by the NYSE Composite Transactions reporting system (as
reported in The Wall Street Journal or, if not reported
therein, in another mutually agreed upon authoritative source).
If any company belonging to the Index Group or Parent
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 Parent shall be appropriately adjusted for the
purposes of applying this Section 8.01(e).
8.02. Effect Of Termination And Abandonment. In the
event of termination of this Agreement and the abandonment of
-45-<PAGE>
the Merger pursuant to this Article VIII, no party to this
Agreement shall have any liability or further obligation to any
other party hereunder except (i) as set forth in Section 9.01
and (ii) that termination will not relieve a breaching party
from liability for any willful breach of this Agreement giving
rise to such termination.
ARTICLE IX
MISCELLANEOUS
9.01. Survival. All representations, warranties,
agreements and covenants contained in this Agreement shall not
survive the Effective Time or termination of this Agreement if
this Agreement is terminated prior to the Effective Time;
provided, however, if the Effective Time occurs, the agreements
of the parties in Sections 6.12, 6.13, 6.14, 9.01, 9.04 and
9.08 shall survive the Effective Time, and if this Agreement is
terminated prior to the Effective Time, the agreements of the
parties in Sections 6.05(b), 8.02, 9.01, 9.02, 9.04, 9.05,
9.06, 9.07 and 9.08, shall survive such termination.
9.02. Waiver; Amendment. Prior to the Effective
Time, any provision of this Agreement may be (i) waived by the
party benefited by the provision, or (ii) amended or modified
at any time, by an agreement in writing among the parties
hereto approved by their respective Boards of Directors and
executed in the same manner as this Agreement, except that,
after the Company Meeting the consideration to be received by
the stockholders of the Company for each share of Company Stock
shall not thereby be decreased. Prior to submission of this
Agreement for approval by the stockholders of the Company,
Parent shall supplement this Agreement by specifying the name
of Merger Sub and may make such amendments as are permitted by
Section 2.01 and the Company's Board of Directors shall approve
the supplements and amendments specified in this sentence.
9.03. Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed to
constitute an original.
9.04. Governing Law. This Agreement shall be
governed by, and interpreted in accordance with, the laws of
the State of Missouri, without regard to the conflict of law
principles thereof (except to the extent that mandatory
provisions of Federal law govern).
9.05. Expenses. Each party hereto will bear all
expenses incurred by it in connection with this Agreement and
the transactions contemplated hereby, except that printing
-46-<PAGE>
expenses and SEC registration fees shall be shared equally
between the Company and Parent.
9.06. Confidentiality. Each of the parties hereto
and their respective agents, attorneys and accountants will
maintain the confidentiality of all information provided in
connection herewith in accordance, and subject to the
limitations of, the Confidentiality Agreement.
9.07. Notices. All notices, requests and other
communications hereunder to a party shall be in writing and
shall be deemed given if personally delivered, telecopied (with
confirmation) or mailed by registered or certified mail (return
receipt requested) to such party at its address set forth below
or such other address as such party may specify by notice to
the parties hereto.
If to Parent, to:
NationsBank Corporation
NationsBank Corporate Center
100 North Tryon Center
Charlotte, North Carolina 28255
Attention: Hugh L. McColl, Jr.
Chairman and Chief Executive Officer
With copies to:
Paul J. Polking, Esq.
Executive Vice President and General Counsel
NationsBank Corporation
NationsBank Corporate Center
Legal Department
100 North Tryon Center
Charlotte, North Carolina 28255
and:
Edward D. Herlihy, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
-47-<PAGE>
If to the Company, to:
Boatmen's Bancshares, Inc.
One Boatmen's Plaza
800 Market Street
P.O. Box 236
St. Louis, Missouri 63166-0236
Attention: Andrew B. Craig, III
Chairman and Chief Executive Officer
With copies to:
John C. Murphy, Jr., Esq.
Cleary, Gottlieb, Steen & Hamilton
1752 N Street, N.W.
Washington, D.C. 20036
and:
Thomas C. Erb, Esq.
Lewis, Rice & Fingersh
500 N. Broadway, Suite 2000
St. Louis, Missouri 63102-2147
9.08. Entire Understanding; No Third Party
Beneficiaries. Except for the Confidentiality Agreement, which
shall remain in effect, this Agreement represents the entire
understanding of the parties hereto with reference to the
transactions contemplated hereby and thereby and supersede any
and all other oral or written agreements heretofore made.
Except for Sections 6.12 and 6.14, nothing in this Agreement
expressed or implied, is intended to confer upon any person,
other than the parties hereto or their respective successors,
any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
9.09. Headings. The headings contained in this
Agreement are for reference purposes only and are not part of
this Agreement.
-48-<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this instrument to be executed in counterparts by their duly
authorized officers, all as of the day and year first above
written.
BOATMEN'S BANCSHARES, INC.
By: /s/ Andrew B. Craig, III
Andrew B. Craig, III
Chairman and Chief
Executive Officer
NATIONSBANK CORPORATION
By: /s/ Hugh L. McColl, Jr.
Hugh L. McColl, Jr.
Chairman and Chief
Executive Officer
-49-
Exhibit 99.2
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of August 29, 1996 (the
"Agreement"), by and between BOATMEN'S BANCSHARES, INC., a Mis-
souri corporation ("Issuer"), and NATIONSBANK CORPORATION, a
North Carolina corporation ("Grantee").
RECITALS
(A) Merger Agreement. Grantee and Issuer have, on the
date hereof, entered into an Agreement and Plan of Merger (the
"Merger Agreement"), providing for, among other things, the
merger of Issuer with and into a wholly owned subsidiary of
Grantee, with such subsidiary being the surviving corporation.
(B) Condition to Merger Agreement. As a condition and
inducement to Grantee's pursuit of the transactions contem-
plated by the Merger Agreement, and in consideration therefor,
Issuer has agreed to grant Grantee the Option (as hereinafter
defined).
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agree-
ments set forth herein and in the Merger Agreement, and intend-
ing to be legally bound hereby, Issuer and Grantee agree as
follows:
1. Defined Terms. Capitalized terms which are used but
not defined herein shall have the meanings ascribed to such
terms in the Merger Agreement.
2. Grant of Option. Subject to the terms and conditions
set forth herein, Issuer hereby grants to Grantee an irrevo-
cable option (the "Option") to purchase a number of shares of
common stock, par value $1.00 per share ("Issuer Common"), of
Issuer up to 31,218,660 of such shares (as adjusted as set
forth herein, the "Option Shares", which shall include the Op-
tion Shares before and after any transfer of such Option
Shares, but in no event shall the number of Option Shares for
which this Option is exercisable exceed 19.9% of the issued and
outstanding shares of Issuer Common) at a purchase price per
Option Share (as adjusted as set forth herein, the "Purchase
Price") equal to $43.375.
3. Exercise of Option.
(a) Provided that (i) Grantee or Holder (as herein-
after defined), as applicable, shall not be in material breach
of the agreements or covenants contained in this Agreement or<PAGE>
the Merger Agreement, and (ii) no preliminary or permanent in-
junction or other order against the delivery of shares covered
by the Option issued by any court of competent jurisdiction in
the United States shall be in effect, the Holder may exercise
the Option, in whole or in part, at any time and from time to
time following the occurrence of a Purchase Event (as hereinaf-
ter defined); provided that the Option shall terminate and be
of no further force or effect upon the earliest to occur of (A)
the Effective Time, (B) termination of the Merger Agreement in
accordance with the terms thereof prior to the occurrence of a
Purchase Event or a Preliminary Purchase Event (as hereinafter
defined) other than a termination thereof by Grantee pursuant
to Section 8.01(b) of the Merger Agreement (but only if the
breach of Issuer giving rise to such termination was willful)
(a termination of the Merger Agreement by Grantee pursuant to
Section 8.01 (b) thereof as a result of a willful breach by
Issuer being referred to herein as a "Default Termination"),
(C) fifteen (15) months after a Default Termination, or (D)
fifteen (15) months after termination of the Merger Agreement
(other than by reason of a Default Termination) following the
occurrence of a Purchase Event or a Preliminary Purchase Event;
provided, however, that any purchase of shares upon exercise of
the Option shall be subject to compliance with applicable law.
The term "Holder" shall mean the holder or holders of the Op-
tion from time to time, and which initially is Grantee. The
rights set forth in Section 8 hereof shall terminate when the
right to exercise the Option terminates (other than as a result
of a complete exercise of the Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of
the following events:
(i) Without Grantee's prior written consent,
Issuer shall have recommended, publicly proposed or pub-
licly announced an intention to authorize, recommend or
propose, or entered into an agreement with any person
(other than Grantee or any subsidiary of Grantee) to ef-
fect (A) a merger, consolidation or similar transaction
involving Issuer or any of its significant subsidiaries
(other than transactions solely between Issuer's subsid-
iaries that are not violative of the Merger Agreement),
(B) the disposition, by sale, lease, exchange or other-
wise, of assets or deposits of Issuer or any of its sig-
nificant subsidiaries representing in either case 25% or
more of the consolidated assets or deposits of Issuer and
its subsidiaries, or (C) the issuance, sale or other dis-
position by Issuer of (including by way of merger, con-
solidation, share exchange or any similar transaction)
securities representing 25% or more of the voting power of
Issuer or any of its significant subsidiaries, other than,
-2-<PAGE>
in each case of (A), (B), or (C), any merger, consolida-
tion or similar transaction involving Issuer or any of its
significant subsidiaries in which the voting securities of
Issuer outstanding immediately prior thereto continue to
represent (by either remaining outstanding or being con-
verted into the voting securities of the surviving entity
of any such transaction) at least 65% of the combined vot-
ing power of the voting securities of the Issuer or the
surviving entity outstanding immediately after the consum-
mation of such merger, consolidation, or similar transac-
tion (provided any such transaction is not violative of
the Merger Agreement) (each of (A), (B), or (C), an "Ac-
quisition Transaction"); or
(ii) any person (other than Grantee or any sub-
sidiary of Grantee) shall have acquired beneficial owner-
ship (as such term is defined in Rule 13d-3 promulgated
under the Exchange Act) of or the right to acquire benefi-
cial ownership of, or any "group" (as such term is defined
in Section 13(d)(3) of the Exchange Act), other than a
group of which Grantee or any subsidiary of Grantee is a
member, shall have been formed which beneficially owns, or
has the right to acquire beneficial ownership of, 25% or
more of the voting power of Issuer or any of its signifi-
cant subsidiaries.
(c) As used herein, a "Preliminary Purchase Event"
means any of the following events:
(i) any person (other than Grantee or any sub-
sidiary of Grantee) shall have commenced (as such term is
defined in Rule 14d-2 under the Exchange Act) or shall
have filed a registration statement under the Securities
Act, with respect to, a tender offer or exchange offer to
purchase any shares of Issuer Common such that, upon con-
summation of such offer, such person would own or control
15% or more of the then outstanding shares of Issuer Com-
mon (such an offer being referred to herein as a "Tender
Offer" or an "Exchange Offer," respectively); or
(ii)) the shareholders shall not have approved
the Merger Agreement by the requisite vote at the Company
Meeting, the Company Meeting shall not have been held or
shall have been canceled prior to termination of the Mer-
ger Agreement, or Issuer's Board of Directors shall have
withdrawn or modified in a manner adverse to Grantee the
recommendation of Issuer's Board of Directors with respect
to the Merger Agreement, in each case after it shall have
been publicly announced that any person (other than
Grantee or any subsidiary of Grantee) shall have (A) made,
-3-<PAGE>
or disclosed an intention to make, a bona fide proposal to
engage in an Acquisition Transaction, (B) commenced a
Tender Offer or filed a registration statement under the
Securities Act with respect to an Exchange Offer, or (C)
filed an application (or given a notice), whether in draft
or final form, under the Home Owners' Loan Act, as
amended, the Bank Holding Company Act of 1956, as amended,
the Bank Merger Act, as amended, or the Change in Bank
Control Act of 1978, as amended, for approval to engage in
an Acquisition Transaction; or
(iii) any person (other than Grantee or any
subsidiary of Grantee) shall have made a bona fide pro-
posal to Issuer or its shareholders by public announce-
ment, or written communication that is or becomes the sub-
ject of public disclosure, to engage in an Acquisition
Transaction; or
(iv) after a proposal is made by a third party
to Issuer or its shareholders to engage in an Acquisition
Transaction, or such third party states its intention to
the Issuer to make such a proposal if the Merger Agreement
terminates, Issuer shall have breached any representation,
warranty, covenant or agreement contained in the Merger
Agreement and such breach would entitle Grantee to termi-
nate the Merger Agreement under Article VIII thereof (wit-
hout regard to the cure period provided for therein unless
such cure is promptly effected without jeopardizing
consummation of the Merger pursuant to the terms of the
Merger Agreement); or
(v) any person (other than Grantee or any sub-
sidiary of Grantee), other than in connection with a
transaction to which Grantee has given its prior written
consent, shall have filed an application or notice with
any Regulatory Authority for approval to engage in an Ac-
quisition Transaction.
As used in this Agreement, "person" shall have the meaning
specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing
of the occurrence of any Preliminary Purchase Event or Purchase
Event, it being understood that the giving of such notice by
Issuer shall not be a condition to the right of Holder to exer-
cise the Option.
(e) In the event Holder wishes to exercise the Op-
tion, it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying
-4-<PAGE>
(i) the total number of Option Shares it intends to purchase
pursuant to such exercise and (ii) a place and date not earlier
than three (3) business days nor later than fifteen (15) busi-
ness days from the Notice Date for the closing (the "Closing")
of such purchase (the "Closing Date"); provided that the first
notice of exercise shall be sent to Issuer within one hundred
eighty (180) days after the first Purchase Event of which
Grantee has been notified. If prior notification to or ap-
proval of any Regulatory Authority is required in connection
with such purchase, Issuer shall cooperate with the Holder in
the filing of the required notice or application for approval
and the obtaining of such approval and the Closing shall occur
immediately following such regulatory approvals (and any manda-
tory waiting periods). Any exercise of the Option shall be
deemed to occur on the Notice Date relating thereto.
4. Payment and Delivery of Certificates.
(a) On each Closing Date, Holder shall (i) pay to
Issuer, in immediately available funds by wire transfer to a
bank account designated by Issuer, an amount equal to the Pur-
chase Price multiplied by the number of Option Shares to be
purchased on such Closing Date, and (ii) present and surrender
this Agreement to the Issuer at the address of the Issuer spec-
ified in Section 13(f).
(b) At each Closing, simultaneously with the deliv-
ery of immediately available funds and surrender of this Agree-
ment as provided in Section 4(a), (i) Issuer shall deliver to
Holder (A) a certificate or certificates representing the Op-
tion Shares to be purchased at such Closing, which Option
Shares shall be free and clear of all liens and subject to no
preemptive rights, and (B), if the Option is exercised in part
only, an executed new agreement with the same terms as this
Agreement evidencing the right to purchase the balance of the
shares of Issuer Common purchasable hereunder, and (ii) Holder
shall deliver to Issuer a letter agreeing that Holder shall not
offer to sell or otherwise dispose of such Option Shares in
violation of applicable federal and state law or of the provi-
sions of this Agreement.
(c) In addition to any other legend that is required
by applicable law, certificates for the Option Shares delivered
at each Closing shall be endorsed with a restrictive legend
which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND PURSUANT TO THE TERMS OF A
STOCK OPTION AGREEMENT DATED AS OF AUGUST 29, 1996. A
-5-<PAGE>
COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER
HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A
WRITTEN REQUEST THEREFOR.
It is understood and agreed that the portion of the above leg-
end relating to the Securities Act shall be removed by delivery
of substitute certificate(s) without such legend if Holder
shall have delivered to Issuer a copy of a letter from the
staff of the SEC, or an opinion of counsel in form and sub-
stance reasonably satisfactory to Issuer and its counsel, to
the effect that such legend is not required for purposes of the
Securities Act.
(d) Upon the giving by Holder to Issuer of the writ-
ten notice of exercise of the Option provided for under Section
3(e), the tender of the applicable purchase price in immedi-
ately available funds and the tender of this Agreement to
Issuer, Holder shall be deemed to be the holder of record of
the shares of Issuer Common issuable upon such exercise, not-
withstanding that the stock transfer books of issuer shall then
be closed or that certificates representing such shares of Is-
suer Common shall not then be actually delivered to Holder.
Issuer shall pay all expenses, and any and all United States
federal, state, and local taxes and other charges that may be
payable in connection with the preparation, issuance and deliv-
ery of stock certificates under this Section in the name of
Holder or its assignee, transferee, or designee.
(e) Issuer agrees (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized
but unissued or treasury shares of Issuer Common so that the
Option may be exercised without additional authorization of
Issuer Common after giving effect to all other options, war-
rants, convertible securities and other rights to purchase Is-
suer Common, (ii) that it will not, by charter amendment or
through reorganization, consolidation, merger, dissolution or
sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereun-
der by Issuer, (iii) promptly to take all action as may from
time to time be required (including (A) complying with all pre-
merger notification, reporting and waiting period requirements,
and (B) in the event prior approval of or notice to any Regula-
tory Authority is necessary before the Option may be exercised,
cooperating fully with Holder in preparing such applications or
notices and providing such information to such Regulatory Au-
thority as it may require) in order to permit Holder to exer-
cise the Option and Issuer duly and effectively to issue shares
of the Issuer Common pursuant hereto, and (iv) promptly to take
-6-<PAGE>
all action provided herein to protect the rights of Holder
against dilution.
5. Representations and Warranties of Issuer. Issuer
hereby represents and warrants to Grantee (and Holder, if dif-
ferent than Grantee) as follows:
(a) Corporate Authority. Issuer has full corporate
power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby; the execu-
tion and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer, and no other
corporate proceedings on the part of Issuer are necessary to
authorize this Agreement or to consummate the transactions so
contemplated; this Agreement has been duly and validly executed
and delivered by Issuer.
(b) Beneficial Ownership. To the best knowledge of
Issuer, as of the date of this Agreement, no person or group
has beneficial ownership of more than 10% of the issued and
outstanding shares of Issuer Common.
(c) Shares Reserved for Issuance; Capital Stock.
Issuer has taken all necessary corporate action to authorize
and reserve and permit it to issue, and at all times from the
date hereof through the termination of this Agreement in ac-
cordance with its terms, will have reserved for issuance upon
the exercise of the Option, that number of shares of Issuer
Common equal to the maximum number of shares of Issuer Common
at any time and from time to time purchasable upon exercise of
the Option, and all such shares, upon issuance pursuant to the
Option, will be duly authorized, validly issued, fully paid and
nonassessable, and will be delivered free and clear of all
claims, liens, encumbrances, and security interests (other than
those created by this Agreement) and not subject to any preemp-
tive rights.
(d) No Violations. The execution, delivery and per-
formance of this Agreement does not or will not, and the con-
summation by Issuer of any of the transactions contemplated
hereby will not, constitute or result in (A) a breach or viola-
tion of, or a default under, its certificate of incorporation
or by-laws, or the comparable governing instruments of any of
its subsidiaries, or (B) a breach or violation of, or a default
under, any agreement, lease, contract, note, mortgage, inden-
ture, arrangement or other obligation of it or any of its sub-
sidiaries (with or without the giving of notice, the lapse of
time or both) or under any law, rule, ordinance or regulation
-7-<PAGE>
or judgment, decree, order, award or governmental or non-
governmental permit or license to which it or any of its sub-
sidiaries is subject, that would, in any case give any other
person the ability to prevent or enjoin Issuer's performance
under this Agreement in any material respect.
6. Representations and Warranties of Grantee. Grantee
hereby represents and warrants to Issuer that Grantee has full
corporate power and authority to enter into this Agreement and,
subject to obtaining the approvals referred to in this Agree-
ment, to consummate the transactions contemplated by this
Agreement; the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part
of Grantee; and this Agreement has been duly executed and de-
livered by Grantee.
7. Adjustment upon Changes in Issuer Capitalization,
etc.
(a) In the event of any change in Issuer Common by
reason of a stock dividend, stock split, split-up, recapital-
ization, combination, exchange of shares or similar transac-
tion, the type and number of shares or securities subject to
the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agree-
ments governing such transaction so that Holder shall receive,
upon exercise of the Option, the number and class of shares or
other securities or property that Holder would have received in
respect of Issuer Common if the Option had been exercised im-
mediately prior to such event, or the record date therefor, as
applicable. If any additional shares of Issuer Common are is-
sued after the date of this Agreement (other than pursuant to
an event described in the first sentence of this Section 7(a),
upon exercise of any option to purchase Issuer Common outstand-
ing on the date hereof or upon conversion into Issuer Common of
any convertible security of Issuer outstanding on the date
hereof), the number of shares of Issuer Common subject to the
Option shall be adjusted so that, after such issuance, it, to-
gether with any shares of Issuer Common previously issued pur-
suant hereto, equals 19.9% of the number of shares of Issuer
Common then issued and outstanding, without giving effect to
any shares subject to or issued pursuant to the Option. No
provision of this Section 7 shall be deemed to affect or
change, or constitute authorization for any violation of, any
of the covenants or representations in the Merger Agreement.
(b) In the event that Issuer shall enter into an
agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its subsidiaries, and shall not be
-8-<PAGE>
the continuing or surviving corporation of such consolidation
or merger, (ii) to permit any person, other than Grantee or one
of its subsidiaries, to merge into Issuer and Issuer shall be
the continuing or surviving corporation, but, in connection
with such merger, the then outstanding shares of Issuer Common
shall be changed into or exchanged for stock or other securi-
ties of Issuer or any other person or cash or any other prop-
erty or the outstanding shares of Issuer Common immediately
prior to such merger shall after such merger represent less
than 50% of the outstanding shares and share equivalents of the
merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets or deposits to any person,
other than Grantee or one of its subsidiaries, then, and in
each such case, the agreement governing such transaction shall
make proper provisions so that the Option shall, upon the con-
summation of any such transaction and upon the terms and condi-
tions set forth herein, be converted into, or exchanged for, an
option (the "Substitute Option"), at the election of Holder, of
either (x) the Acquiring Corporation (as hereinafter defined),
(y) any person that controls the Acquiring Corporation, or (z)
in the case of a merger described in clause (ii), Issuer (such
person being referred to as "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms
as the Option, provided, that, if the terms of the Substitute
Option cannot, for legal reasons, be the same as the Option,
such terms shall be as similar as possible and in no event less
advantageous to Holder. Substitute Option Issuer shall also
enter into an agreement with Holder in substantially the same
form as this Agreement, which shall be applicable to the Sub-
stitute Option.
(d) The Substitute Option shall be exercisable for
such number of shares of Substitute Common (as hereinafter de-
fined) as is equal to the Assigned Value (as hereinafter de-
fined) multiplied by the number of shares of Issuer Common for
which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of
Substitute Option per share of Substitute Common (the "Substi-
tute Option Price") shall then be equal to the Purchase Price
multiplied by a fraction in which the numerator is the number
of shares of Issuer Common for which the Option was theretofore
exercisable and the denominator is the number of shares of the
Substitute Common for which the Substitute Option is exercis-
able.
(e) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the
continuing or surviving corporation of a consolidation or
-9-<PAGE>
merger with Issuer (if other than Issuer), (ii) Issuer in
a merger in which Issuer is the continuing or surviving
person, or (iii) the transferee of all or substantially
all of Issuer's assets (or a substantial part of the as-
sets of its subsidiaries taken as a whole).
(2) "Substitute Common" shall mean the shares
of capital stock (or similar equity interest) with the
greatest voting power in respect of the election of direc-
tors (or persons similarly responsible for the direction
of the business and affairs) of the Substitute Option Is-
suer.
(3) "Assigned Value" shall mean the highest of
(w) the price per share of Issuer Common at which a Tender
Offer or an Exchange Offer therefor has been made, (x) the
price per share of Issuer Common to be paid by any third
party pursuant to an agreement with Issuer, (y) the high-
est closing price for shares of Issuer Common within the
six (6) month period immediately preceding the consolida-
tion, merger, or sale in question and (z) in the event of
a sale of all or substantially all of Issuer's assets or
deposits an amount equal to (i) the sum of the price paid
in such sale for such assets (and/or deposits) and the
current market value of the remaining assets of Issuer, as
determined by a nationally recognized investment banking
firm selected by Holder divided by (ii) the number of
shares of Issuer Common outstanding at such time. In the
event that a Tender Offer or an Exchange Offer is made for
Issuer Common or an agreement is entered into for a merger
or consolidation involving consideration other than cash,
the value of the securities or other property issuable or
deliverable in exchange for Issuer Common shall be deter-
mined by a nationally recognized investment banking firm
selected by Holder.
(4) "Average Price" shall mean the average
closing price of a share of Substitute Common for the one
year immediately preceding the consolidation, merger, or
sale in question, but in no event higher than the closing
price of the shares of Substitute Common on the day pre-
ceding such consolidation, merger or sale; provided that
if Issuer is the issuer of the Substitute Option, the Av-
erage Price shall be computed with respect to a share of
common stock issued by Issuer, the person merging into
Issuer or by any company which controls such person, as
Holder may elect.
(f) In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Option be exercisable for more
-10-<PAGE>
than 19.9 % of the aggregate of the shares of Substitute Common
outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more
than 19.9% of the aggregate of the shares of Substitute Common
but for the limitation in the first sentence of this Section
7(f), Substitute Option Issuer shall make a cash payment to
Holder equal to the excess of (i) the value of the Substitute
Option without giving effect to the limitation in the first
sentence of this Section 7(f) over (ii) the value of the Sub-
stitute Option after giving effect to the limitation in the
first sentence of this Section 7(f). This difference in value
shall be determined by a nationally-recognized investment bank-
ing firm selected by Holder.
(g) Issuer shall not enter into any transaction de-
scribed in Section 7(b) unless the Acquiring Corporation and
any person that controls the Acquiring Corporation assume in
writing all the obligations of Issuer hereunder and take all
other actions that may be necessary so that the provisions of
this Section 7 are given full force and effect (including,
without limitation, any action that may be necessary so that
the holders of the other shares of common stock issued by Sub-
stitute Option Issuer are not entitled to exercise any rights
by reason of the issuance or exercise of the Substitute Option
and the shares of Substitute Common are otherwise in no way
distinguishable from or have lesser economic value (other than
any diminution in value resulting from the fact that the Sub-
stitute Common are restricted securities, as defined in Rule
144 under the Securities Act or any successor provision) than
other shares of common stock issued by Substitute Option Is-
suer).
8. Repurchase at the Option of Holder.
(a) Subject to the last sentence of Section 3(a), at
the request of Holder at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 8(d))
and ending twelve (12) months immediately thereafter, Issuer
shall repurchase from Holder (i) the Option, and (ii) all
shares of Issuer Common purchased by Holder pursuant hereto
with respect to which Holder then has beneficial ownership.
The date on which Holder exercises its rights under this Sec-
tion 8 is referred to as the "Request Date". Such repurchase
shall be at an aggregate price (the "Section 8 Repurchase Con-
sideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Holder
for any shares of Issuer Common acquired pursuant to the
Option with respect to which Holder then has beneficial
ownership;
-11-<PAGE>
(ii) the excess, if any, of (x) the Applicable
Price (as defined below) for each share of Issuer Common
over (y) the Purchase Price (subject to adjustment pursu-
ant to Section 7), multiplied by the number of shares of
Issuer Common with respect to which the Option has not
been exercised; and
(iii) the excess, if any, of the Applicable
Price over the Purchase Price (subject to adjustment pur-
suant to Section 7) paid (or, in the case of Option Shares
with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Holder for
each share of Issuer Common with respect to which the Op-
tion has been exercised and with respect to which Holder
then has beneficial ownership, multiplied by the number of
such shares.
(b) If Holder exercises its rights under this Sec-
tion 8, Issuer shall, within ten (10) business days after the
Request Date, pay the Section 8 Repurchase Consideration to
Holder in immediately available funds, and contemporaneously
with such payment, Holder shall surrender to Issuer the Option
and the certificates evidencing the shares of Issuer Common
purchased thereunder with respect to which Holder then has ben-
eficial ownership, and Holder shall warrant that it has sole
record and beneficial ownership of such shares and that the
same are then free and clear of all liens. Notwithstanding the
foregoing, to the extent that prior notification to or approval
of any Regulatory Authority is required in connection with the
payment of all or any portion of the Section 8 Repurchase Con-
sideration, Holder shall have the ongoing option to revoke its
request for repurchase pursuant to Section 8, in whole or in
part, or to require that Issuer deliver from time to time that
portion of the Section 8 Repurchase Consideration that it is
not then so prohibited from paying and promptly file the re-
quired notice or application for approval and expeditiously
process the same (and each party shall cooperate with the other
in the filing of any such notice or application and the obtain-
ing of any such approval). If any Regulatory Authority disap-
proves of any part of Issuer's proposed repurchase pursuant to
this Section 8, Issuer shall promptly give notice of such fact
to Holder. If any Regulatory Authority prohibits the repur-
chase in part but not in whole, then Holder shall have the
right (i) to revoke the repurchase request, or (ii) to the ex-
tent permitted by such Regulatory Authority, determine whether
the repurchase should apply to the Option and/or Option Shares
and to what extent to each, and Holder shall thereupon have the
right to exercise the Option as to the number of Option Shares
for which the Option was exercisable at the Request Date less
-12-<PAGE>
the sum of the number of shares covered by the Option in re-
spect of which payment has been made pursuant to Section
8(a)(ii) and the number of shares covered by the portion of the
Option (if any) that has been repurchased. Holder shall notify
Issuer of its determination under the preceding sentence within
five (5) business days of receipt of notice of disapproval of
the repurchase.
Notwithstanding anything herein to the contrary,
all of Holder's rights under this Section 8 shall terminate on
the date of termination of this Option pursuant to Section
3(a).
(c) For purposes of this Agreement, the "Applicable
Price" means the highest of (i) the highest price per share of
Issuer Common paid for any such share by the person or groups
described in Section 8(d)(i), (ii) the price per share of Is-
suer Common received by holders of Issuer Common in connection
with any merger or other business combination transaction de-
scribed in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (iii) the
highest closing sales price per share of Issuer Common on Nas-
daq (or if Issuer Common is not traded on Nasdaq, the highest
bid price per share as quoted on the principal trading market
or securities exchange on which such shares are traded as re-
ported by a recognized source chosen by Holder) during the
forty (40) business days preceding the Request Date; provided,
however, that in the event of a sale of less than all of
Issuer's assets, the Applicable Price shall be the sum of the
price paid in such sale for such assets and the current market
value of the remaining assets of Issuer as determined by a na-
tionally recognized investment banking firm selected by Holder,
divided by the number of shares of the Issuer Common outstand-
ing at the time of such sale. If the consideration to be of-
fered, paid or received pursuant to either of the foregoing
clauses (i) or (ii) shall be other than in cash, the value of
such consideration shall be determined in good faith by an in-
dependent nationally recognized investment banking firm se-
lected by Holder and reasonably acceptable to Issuer, which
determination shall be conclusive for all purposes of this
Agreement.
(d) As used herein, "Repurchase Event" shall occur
if (i) any person (other than Grantee or any subsidiary of
Grantee) shall have acquired beneficial ownership of (as such
term is defined in Rule 13d-3 promulgated under the Exchange
Act), or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under the Exchange Act) shall
have been formed which beneficially owns or has the right to
-13-<PAGE>
acquire beneficial ownership of, 50% or more of the then out-
standing shares of Issuer Common, or (ii) any of the transac-
tions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) shall
be consummated.
9. Registration Rights.
(a) Demand Registration Rights. Issuer shall, sub-
ject to the conditions of Section 9(c) below, if requested by
any Holder, including Grantee and any permitted transferee
("Selling Shareholder"), as expeditiously as possible prepare
and file a registration statement under the Securities Act if
such registration is necessary in order to permit the sale or
other disposition of any or all shares of Issuer Common or
other securities that have been acquired by or are issuable to
the Selling Shareholder upon exercise of the Option in ac-
cordance with the intended method of sale or other disposition
stated by the Selling Shareholder in such request, including
without limitation a "shelf" registration statement under Rule
415 under the Securities Act or any successor provision, and
Issuer shall use its best efforts to qualify such shares or
other securities for sale under any applicable state securities
laws.
(b) Additional Registration Rights. If Issuer at
any time after the exercise of the Option proposes to register
any shares of Issuer Common under the Securities Act in connec-
tion with an underwritten public offering of such Issuer Com-
mon, Issuer will promptly give written notice to the Selling
Shareholders of its intention to do so and, upon the written
request of any Selling Shareholder given within thirty (30)
days after receipt of any such notice (which request shall
specify the number of shares of Issuer Common intended to be
included in such underwritten public offering by the Selling
Shareholder), Issuer will cause all such shares for which a
Selling Shareholder requests participation in such registra-
tion, to be so registered and included in such underwritten
public offering; provided, however, that Issuer may elect to
not cause any such shares to be so registered (i) if the under-
writers in good faith object for valid business reasons, or
(ii) in the case of a registration solely to implement an em-
ployee benefit plan or a registration filed on Form S-4 of the
Securities Act or any successor Form; provided, further, how-
ever, that such election pursuant to (i) may only be made two
times. If some but not all the shares of Issuer Common, with
respect to which Issuer shall have received requests for regis-
tration pursuant to this Section 9(b), shall be excluded from
such registration, Issuer shall make appropriate allocation of
shares to be registered among the Selling Shareholders desiring
to register their shares pro rata in the proportion that the
-14-<PAGE>
number of shares requested to be registered by each such Sell-
ing Shareholder bears to the total number of shares requested
to be registered by all such Selling Shareholders then desiring
to have Issuer Common registered for sale.
(c) Conditions to Required Registration. Issuer
shall use all reasonable efforts to cause each registration
statement referred to in Section 9(a) above to become effective
and to obtain all consents or waivers of other parties which
are required therefor and to keep such registration statement
effective; provided, however, that Issuer may delay any regis-
tration of Option Shares required pursuant to Section 9(a)
above for a period not exceeding ninety (90) days provided Is-
suer shall in good faith determine that any such registration
would adversely affect an offering or contemplated offering of
other securities by Issuer, and Issuer shall not be required to
register Option Shares under the Securities Act pursuant to
Section 9(a) above:
(i) prior to the earliest of (a) termination of
the Merger Agreement pursuant to Article VIII thereof, (b)
failure to obtain the requisite shareholder approval pur-
suant to Section 7.01 of the Merger Agreement, and (c) a
Purchase Event or a Preliminary Purchase Event;
(ii) on more than one occasion during any cal-
endar year;
(iii) within ninety (90) days after the effec-
tive date of a registration referred to in Section 9(b)
above pursuant to which the Selling Shareholder or Selling
Shareholders concerned were afforded the opportunity to
register such shares under the Securities Act and such
shares were registered as requested; and
(iv) unless a request therefor is made to Is-
suer by Selling Shareholders that hold at least 25% or
more of the aggregate number of Option Shares (including
shares of Issuer Common issuable upon exercise of the Op-
tion) then outstanding.
In addition to the foregoing, Issuer shall not be
required to maintain the effectiveness of any registration
statement after the expiration of nine (9) months from the ef-
fective date of such registration statement. Issuer shall use
all reasonable efforts to make any filings, and take all steps,
under all applicable state securities laws to the extent neces-
sary to permit the sale or other disposition of the Option
Shares so registered in accordance with the intended method of
distribution for such shares; provided, however, that Issuer
-15-<PAGE>
shall not be required to consent to general jurisdiction or
qualify to do business in any state where it is not otherwise
required to so consent to such jurisdiction or to so qualify to
do business.
(d) Expenses. Except where applicable state law
prohibits such payments, Issuer will pay all expenses (includ-
ing without limitation registration fees, qualification fees,
blue sky fees and expenses (including the fees and expenses of
counsel), legal expenses, including the reasonable fees and
expenses of one counsel to the holders whose Option Shares are
being registered, printing expenses and the costs of special
audits or "cold comfort" letters, expenses of underwriters,
excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters so require,
and the reasonable fees and expenses of any necessary special
experts) in connection with each registration pursuant to Sec-
tion 9(a) or 9(b) above (including the related offerings and
sales by holders of Option Shares) and all other qualifica-
tions, notifications or exemptions pursuant to Section 9(a) or
9(b) above.
(e) Indemnification. In connection with any regis-
tration under Section 9(a) or 9(b) above, Issuer hereby indem-
nities the Selling Shareholders, and each underwriter thereof,
including each person, if any, who controls such holder or un-
derwriter within the meaning of Section 15 of the Securities
Act, against all expenses, losses, claims, damages and li-
abilities caused by any untrue, or alleged untrue, statement of
a material fact contained in any registration statement or pro-
spectus or notification or offering circular (including any
amendments or supplements thereto) or any preliminary prospec-
tus, or caused by any omission, or alleged omission, to state
therein a material fact required to be stated therein or neces-
sary to make the statements therein not misleading, except in-
sofar as such expenses, losses, claims, damages or liabilities
of such indemnified party are caused by any untrue statement or
alleged untrue statement that was included by Issuer in any
such registration statement or prospectus or notification or
offering circular (including any amendments or supplements
thereto) in reliance upon and in conformity with, information
furnished in writing to issuer by such indemnified party ex-
pressly for use therein, and Issuer and each officer, director
and controlling person of Issuer shall be indemnified by such
Selling Shareholders, or by such underwriter, as the case may
be, for all such expenses, losses, claims, damages and liabil-
ities caused by any untrue, or alleged untrue, statement, that
was included by issuer in any such registration statement or
prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon, and in
-16-<PAGE>
conformity with, information furnished in writing to issuer by
such holder or such underwriter, as the case may be, expressly
for such use.
Promptly upon receipt by a party indemnified under
this Section 9(e) of notice of the commencement of any action
against such indemnified party in respect of which indemnity or
reimbursement may be sought against any indemnifying party un-
der this Section 9(e), such indemnified party shall notify the
indemnifying party in writing of the commencement of such ac-
tion, but the failure so to notify the indemnifying party shall
not relieve it of any liability which it may otherwise have to
any indemnified party under this Section 9(e). In case notice
of commencement of any such action shall be given to the indem-
nifying party as above provided, the indemnifying party shall
be entitled to participate in and, to the extent it may wish,
jointly with any other indemnifying party similarly notified,
to assume the defense of such action at its own expense, with
counsel chosen by it and satisfactory to such indemnified
party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the de-
fense thereof, but the fees and expenses of such counsel (other
than reasonable costs of investigation) shall be paid by the
indemnified party unless (i) the indemnifying party either
agrees to pay the same, (ii) the indemnifying party fails to
assume the defense of such action with counsel satisfactory to
the indemnified party, or (iii) the indemnified party has been
advised by counsel that one or more legal defenses may be
available to the indemnifying party that may be contrary to the
interest of the indemnified party, in which case the indemnify-
ing party shall be entitled to assume the defense of such ac-
tion notwithstanding its obligation to bear fees and expenses
of such counsel. No indemnifying party shall be liable for any
settlement entered into without its consent, which consent may
not be unreasonably withheld.
If the indemnification provided for in this Section
9(e) is unavailable to a party otherwise entitled to be indem-
nified in respect of any expenses, losses, claims, damages or
liabilities referred to herein, then the indemnifying party, in
lieu of indemnifying such party otherwise entitled to be indem-
nified, shall contribute to the amount paid or payable by such
party to be indemnified as a result of such expenses, losses,
claims, damages or liabilities in such proportion as is ap-
propriate to reflect the relative benefits received by issuer,
the Selling Shareholders and the underwriters from the offering
of the securities and also the relative fault of Issuer, the
Selling Shareholders and the underwriters in connection with
the statements or omissions which resulted in such expenses,
losses, claims, damages or liabilities, as well as any other
-17-<PAGE>
relevant equitable considerations. The amount paid or payable
by a party as a result of the expenses, losses, claims, damages
and liabilities referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action
or claim, provided, however, that in no case shall any Selling
Shareholder be responsible, in the aggregate, for any amount in
excess of the net offering proceeds attributable to its Option
Shares included in the offering. No person guilty of fraudu-
lent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
Any obligation by any holder to indemnify shall be several and
not joint with other holders.
In connection with any registration pursuant to Sec-
tion 9(a) or 9(b) above, Issuer and each Selling Shareholder
(other than Grantee) shall enter into an agreement containing
the indemnification provisions of this Section 9(e).
(f) Miscellaneous Reporting. Issuer shall comply
with all reporting requirements and will do all such other
things as may be necessary to permit the expeditious sale at
any time of any Option Shares by the Selling Shareholders
thereof in accordance with and to the extent permitted by any
rule or regulation promulgated by the SEC from time to time,
including, without limitation, Rule 144A. Issuer shall at its
expense provide the Selling Shareholders with any information
necessary in connection with the completion and filing of any
reports or forms required to be filed by them under the Securi-
ties Act or the Exchange Act, or required pursuant to any state
securities laws or the rules of any stock exchange.
(g) Issue Taxes. Issuer will pay all stamp taxes in
connection with the issuance and the sale of the Option Shares
and in connection with the exercise of the Option, and will
save the Selling Shareholders harmless, without limitation as
to time, against any and all liabilities, with respect to all
such taxes.
10. Quotation; Listing. If Issuer Common or any other
securities to be acquired in connection with the exercise of
the Option are then authorized for quotation or trading or
listing on any securities exchange, Issuer, upon the request of
Holder, will promptly file an application, if required, to au-
thorize for quotation or trading or listing the shares of Is-
suer Common or other securities to be acquired upon exercise of
the Option on such securities exchange and will use its best
efforts to obtain approval, if required, of such quotation or
listing as soon as practicable.
-18-<PAGE>
11. Division of Option. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the op-
tion of Holder, upon presentation and surrender of this Agree-
ment at the principal office of Issuer for other Agreements
providing for Options of different denominations entitling the
holder thereof to purchase in the aggregate the same number of
shares of Issuer Common purchasable hereunder. The terms
"Agreement" and "Option" as used herein include any other
Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new
Agreement of like tenor and date. Any such new Agreement ex-
ecuted and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement
so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
12. Limitation on Total Profit and Notional Total Profit.
(a) Notwithstanding anything to the contrary con-
tained herein, in no event shall Grantee's Total Profit (as
defined below in Section 12(c) hereof) exceed $250 million and,
if it otherwise would exceed such amount, Grantee, at its sole
election, shall either (i) reduce the number of shares of Is-
suer Common subject to the Option, (ii) deliver to Issuer for
cancellation Option Shares previously purchased by Grantee,
(iii) pay cash to Issuer, or (iv) any combination thereof, so
that Grantee's actually realized Total Profit shall not exceed
$250 million after taking into account the foregoing actions.
(b) Notwithstanding anything to the contrary con-
tained herein, the Option may not be exercised for a number of
shares as would, as of the date of exercise, result in a No-
tional Total Profit (as defined below in Section 14(d) hereof)
of more than $250 million; provided, that nothing in this sen-
tence shall restrict any exercise of the Option permitted
hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall
mean the aggregate amount (before taxes) of the following: (i)
the amount received by Grantee pursuant to Issuer's repurchase
of the Option (or any portion thereof) pursuant to Section 8
hereof, (ii)(x) the amount received by Grantee pursuant to
Issuer's repurchase of Option Shares pursuant to Section 8
hereof, less (y) Grantee's purchase price for such Option
-19-<PAGE>
Shares, (iii)(x) the net cash amounts received by Grantee pur-
suant to the sale of Option Shares (or any other securities
into which such Option Shares shall be converted or exchanged)
to any unaffiliated party, less (y) Grantee's purchase price of
such Option Shares, (iv) any amounts received by Grantee on the
transfer of the Option (or any portion thereof) to any unaf-
filiated party, and (v) any equivalent amount with respect to
the Substitute Option.
(d) As used herein, the term "Notional Total Profit"
with respect to any number of shares as to which Grantee may
propose to exercise the Option shall be the Total Profit deter-
mined as of the date of such proposed exercise assuming that
the Option were exercised on such date for such number of
shares and assuming that such shares, together with all other
Option Shares held by Grantee and its affiliates as of such
date, were sold for cash at the closing market price for the
Issuer Common as of the close of business on the preceding
trading day (less customary brokerage commissions).
(e) Grantee agrees, promptly following any exercise
of all or any portion of the Option, and subject to its rights
under Section 8 hereof, to use commercially reasonable efforts
promptly to maximize the value of Option Shares purchased tak-
ing into account market conditions, the number of Option
Shares, the potential negative impact of substantial sales on
the market price for Issuer Common, and the availability of an
effective registration statement to permit public sale of Op-
tion Shares.
13. Miscellaneous.
(a) Expenses. Each of the parties hereto shall bear
and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this
Agreement may be waived at any time by the party that is en-
titled to the benefits of such provision. This Agreement may
not be modified, amended, altered or supplemented except upon
the execution and delivery of a written agreement executed by
the parties hereto.
(c) Entire Agreement: No Third-Party Beneficiaries;
Severability. This Agreement, together with the Merger Agree-
ment and the other documents and instruments referred to herein
and therein, between Grantee and Issuer (i) constitutes the
-20-<PAGE>
entire agreement and supersedes all prior agreements and under-
standings, both written and oral, between the parties with re-
spect to the subject matter hereof, and (ii) is not intended to
confer upon any person other than the parties hereto (other
than the indemnified parties under Section 9(e) and any trans-
ferees of the Option Shares or any permitted transferee of this
Agreement pursuant to Section 13(h)) any rights or remedies
hereunder. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or
Regulatory Authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions
of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated. If for
any reason such court or Regulatory Authority determines that
the Option does not permit Holder to acquire, or does not re-
quire Issuer to repurchase, the full number of shares of Issuer
Common as provided in Section 3 (as may be adjusted herein), it
is the express intention of Issuer to allow Holder to acquire
or to require Issuer to repurchase such lesser number of shares
as may be permissible without any amendment or modification
hereof.
(d) Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of Mis-
souri without regard to any applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings
contained herein are for convenience of reference only and
shall not affect in any way the meaning or interpretation of
this Agreement.
(f) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if de-
livered personally, telecopied (with confirmation) or mailed by
registered or certified mail (return receipt requested) to the
parties at the addresses set forth in the Merger Agreement (or
at such other address for a party as shall be specified by like
notice).
(g) Counterparts. This Agreement and any amendments
hereto may be executed in two counterparts, each of which shall
be considered one and the same agreement and shall become ef-
fective when both counterparts have been signed and delivered,
it being understood that both parties need not sign the same
counterpart.
(h) Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder or under the
Option shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written
-21-<PAGE>
consent of the other party, except that Holder may assign this
Agreement to a wholly-owned subsidiary of Holder and Holder may
assign its rights hereunder in whole or in part after the oc-
currence of a Purchase Event. Subject to the preceding sen-
tence, this Agreement shall be binding upon, inure to the ben-
efit of and be enforceable by the parties and their respective
successors and assigns.
(i) Further Assurances. In the event of any exer-
cise of the Option by the Holder, Issuer and the Holder shall
execute and deliver all other documents and instruments and
take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree
that this Agreement may be enforced by either party through
specific performance, injunctive relief and other equitable
relief. Both parties further agree to waive any requirement
for the securing or posting of any bond in connection with the
obtaining of any such equitable relief and that this provision
is without prejudice to any other rights that the parties
hereto may have for any failure to perform this Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused
this Stock Option Agreement to be signed by their respective
officers thereunto duly authorized, all as of the day and year
first written above.
BOATMEN'S BANCSHARES, INC.
By /s/ Andrew B. Craig, III
Andrew B. Craig, III
Chairman and Chief
Executive Officer
NATIONSBANK CORPORATION
By /s/ Hugh L. McColl, Jr.
Hugh L. McColl, Jr.
Chairman and Chief
Executive Officer
-22-
EXHIBIT 99.3
NationsBank News Release
FOR IMMEDIATE RELEASE
August 30, 1996 -- NationsBank Corporation and Boatmen's
Bancshares, Inc., today announced a definitive agreement to
merge the two companies. The combined company will create an
unmatched banking franchise serving more than 13 million
customers in 16 states in the Midwest, Southwest, Southeast and
Mid-Atlantic.
Following the merger, NationsBank will have combined assets of
approximately $230 billion, $20 billion in shareholders' equity
and a market capitalization of $33 billion. The company will
have the earnings power to produce nearly $3 billion in net
income during 1997, based on current analyst consensus
estimates. The transaction is expected to close in January
1997.
Andrew B. Craig III, chairman and chief executive officer of
Boatmen's, will be chairman of the board of NationsBank Corp.
Hugh L. McColl Jr., current chairman and chief executive
officer of NationsBank Corp., will be chief executive officer
of the merged company.
--MORE--<PAGE>
PAGE 2
"The combination of these two great companies creates a new
power in banking in North America. The access to products and
services in our newly expanded 16-state franchise is evidence
of our continued commitment to convenience, choice and value
for our new and existing customers. We are creating tomorrow's
banking company today," McColl said.
"In addition, the short-term and long-term earnings potential
of our company has been strengthened dramatically, providing
increasing financial opportunity for NationsBank shareholders,"
McColl added. "We welcome our new teammates and eagerly
anticipate joining them in this partnership. Such a dynamic
expansion of our company means greater opportunity for all."
Banking customers in the expanded NationsBank territory will
have access to the premier retail banking organization in the
United States. NationsBank will reach a population of 100
million people through more than 5,000 ATMs and approximately
2,600 banking centers. NationsBank will have a combined 15
percent deposit share across its franchise.
"We believe NationsBank is the best partner for Boatmen's.
Together we bring an innovative technological expertise and the
same strong commitment to helping our customers succeed," Craig
said. "We feel confident that our customers, our communities,
our associates and our shareholders will benefit from this
combination."
--MORE--<PAGE>
PAGE 3
In addition to creating a unique retail banking franchise, the
newly combined company will enjoy:
-- A trust and asset management division with $111
billion in assets under discretionary management, making it the
sixth-largest bank-owned asset management business in North
America, and generating $650 million in annual fees
-- $23 billion in combined proprietary mutual funds
-- A $110 billion mortgage servicing portfolio
-- A greatly expanded business customer base in small- to
middle-market companies
NationsBank will use purchase accounting for the transaction.
The purchase price is based on a fixed exchange rate of .6525
shares of NationsBank common stock for each share of Boatmen's
common stock outstanding.
For Boatmen's shareholders, the merger will be structured as a
"cash election" merger, in which holders of Boatmen's common
stock will have the right to choose to receive either form of
consideration. At least 60 percent of the aggregate purchase
price paid to all holders will be in shares of NationsBank
common stock, and the balance of approximately 40 percent will
be paid in either cash or NationsBank common stock, or a mix of
the two. The transaction will be a tax-free exchange for
Boatmen's shareholders to the extent they receive shares of
NationsBank stock.
--MORE--<PAGE>
PAGE 4
NationsBank projects $335 million in annual cost savings from
the merger, fully realized by 1999. This represents a
reduction in the combined expenses of 5 percent. These cost
savings will come in the areas of operational consolidation,
delivery system optimization, business line consolidation and
vendor leverage.
The merger is subject to the approval of Boatmen's and
NationsBank shareholders and the appropriate regulatory
authorities.
At June 30, 1996, NationsBank had $192 billion in total assets,
ranking the Charlotte, N.C.-based company as the fifth-largest
U.S. commercial bank. The assets of St. Louis, Mo.-based
Boatmen's totaled $41 billion. The combined company is
expected to rank fourth in assets.
# # #
Editor's Note:
Executives of the two companies will answer questions from the
media at a news conference today at 1 p.m. CDT in the Regency
Ballroom of the Hyatt Regency at Union Station on Market Street
in St. Louis. Reporters wishing to participate in the news
conference by telephone may call 913 749-9362, ID code: NB 831.
A satellite uplink will be available at the following
coordinates: KU Band; Galaxy 7; Transponder 4; Full
transponder; Vertical polarization; Located 91 degrees West:
Downlink frequency 11780 MGH; Audio frequency 6.2/6.8; Not
encripted / in the clear.
Media contacts: NationsBank 314 621-5188
Analyst contacts: Jenny Repass, NationsBank 704 386-8465
Kevin Stitt, Boatmen's 314 466-7662
Exhibit 99.4
<TABLE>
BOATMEN'S BANCSHARES, INC. 1995 SUPPLEMENTAL FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
Consolidated Balance Sheet
<CAPTION>
December 31 (dollars in thousands) 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 2,611,765 $ 2,558,509
Short-term investments 83,166 45,216
Securities:
Held to maturity (market value $973,801 and $6,813,697, respectively) 923,130 7,175,158
Available for sale (amortized cost $10,330,233, and $5,389,615, respectively) 10,347,172 5,170,611
Trading 58,361 32,393
Federal funds sold and securities purchased under resale agreements 1,225,671 1,120,190
Loans (net of unearned income of $86,981, and $84,409 respectively) 24,050,903 22,717,562
Less reserve for loan losses 452,560 449,485
- -------------------------------------------------------------------------------------------------------------------------
Loans, net 23,598,343 22,268,077
- -------------------------------------------------------------------------------------------------------------------------
Property and equipment 800,502 796,385
Other assets 1,475,379 1,525,930
- -------------------------------------------------------------------------------------------------------------------------
Total assets $41,123,489 $40,692,469
=========================================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits $ 6,894,649 $ 6,294,793
Retail savings deposits and interest-bearing transaction accounts 13,510,720 12,253,259
Time deposits 11,572,768 12,560,617
- -------------------------------------------------------------------------------------------------------------------------
Total deposits 31,978,137 31,108,669
- -------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under repurchase agreements 2,902,973 2,987,315
Short-term borrowings 1,474,991 2,387,280
Capital lease obligations 39,076 40,408
Long-term debt 615,129 599,493
Other liabilities 512,436 403,732
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 37,522,742 37,526,897
- -------------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock 961 1,142
- -------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock 99,324 100,000
Common stock ($1 par value; 200,000,000 shares authorized;
158,067,758 and 156,084,081 shares issued, respectively) 158,068 156,084
Surplus 1,212,838 1,171,184
Retained earnings 2,137,176 1,886,119
Treasury stock (476,519 and 508,698 shares at cost, respectively) (18,096) (14,516)
Unrealized net appreciation (depreciation), available for sale securities 10,476 (134,521)
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,599,786 3,164,430
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $41,123,489 $40,692,469
=========================================================================================================================
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE> 2
<TABLE>
Consolidated Statement of Income
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans $2,107,749 $1,748,732 $1,549,786
Interest on short-term investments 4,787 3,569 2,334
Interest on Federal funds sold and securities purchased
under resale agreements 40,028 18,047 20,747
Interest on held to maturity securities
Taxable 357,753 348,264 623,173
Tax-exempt 56,108 60,488 81,844
- -----------------------------------------------------------------------------------------------------------------------
Total interest on held to maturity securities 413,861 408,752 705,017
Interest on available for sale securities 304,816 329,391 29,057
Interest on trading securities 2,049 2,629 2,705
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 2,873,290 2,511,120 2,309,646
- -----------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits 1,025,459 768,995 767,151
Interest on Federal funds purchased and other short-term borrowings 304,509 202,506 95,086
Interest on capital lease obligations 3,896 4,016 4,105
Interest on long-term debt 47,454 66,660 49,611
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 1,381,318 1,042,177 915,953
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 1,491,972 1,468,943 1,393,693
Provision for loan losses 59,756 26,176 70,922
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,432,216 1,442,767 1,322,771
- -----------------------------------------------------------------------------------------------------------------------
Noninterest income
Trust fees 200,242 186,081 178,055
Service charges 231,648 225,479 210,833
Mortgage banking revenues 80,702 63,349 71,022
Credit card 61,483 55,499 41,090
Investment banking revenues 42,158 42,318 48,073
Securities gains (losses), net (7,040) 9,832 9,903
Other 150,437 131,100 121,591
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest income 759,630 713,658 680,567
- -----------------------------------------------------------------------------------------------------------------------
Noninterest expense
Staff 726,472 718,592 687,318
Net occupancy 98,777 100,909 105,138
Equipment 116,704 116,187 113,447
FDIC insurance 39,288 65,723 65,302
Intangible amortization 43,755 45,306 48,814
Advertising 42,866 43,005 40,334
Other 382,963 321,359 340,196
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest expense 1,450,825 1,411,081 1,400,549
- -----------------------------------------------------------------------------------------------------------------------
Income before income tax expense 741,021 745,344 602,789
Income tax expense 261,010 254,418 174,315
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 480,011 $ 490,926 $ 428,474
=======================================================================================================================
Net income per share $3.02 $3.10 $2.74
=======================================================================================================================
Dividends declared per share $1.42 $1.30 $1.18
=======================================================================================================================
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE> 3
<TABLE>
Consolidated Statement of Changes in Stockholders' Equity
<CAPTION>
Unrealized Net
Appreciation,
Preferred Stock Common Stock Treasury Stock (Depreciation)
----------------- ---------------- Retained --------------- Available for
(in thousands) Shares Amount Shares Amount Surplus Earnings Shares Amount Sale Securities
Total
- ------------------------------------------------------------------------------------------------------------------------
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
December 31, 1992 1,222 $103,641 100,959 $100,959 $1,177,740 $1,306,679 -- -- --
$2,689,019
Net income -- -- -- -- -- 428,474 -- -- --
428,474
Cash dividends declared:
Common ($1.18 per share) -- -- -- -- -- (117,334) -- -- --
(117,334)
Redeemable preferred -- -- -- -- -- (85) -- -- --
(85)
By pooled companies prior
to merger--common -- -- -- -- -- (32,227) -- -- --
(32,227)
By pooled companies prior
to merger--preferred -- -- -- -- -- (7,000) -- -- --
(7,000)
Acquisition of treasury
stock -- -- -- -- -- -- (52) (3,102) --
(3,102)
Common stock issued
pursuant to employee
and shareholder stock
issuance plans -- -- 893 893 19,791 -- 52 3,102 --
23,786
Common stock issued upon
acquisition of subsidiary -- -- 359 359 8,939 -- -- -- --
9,298
Adjustment for purchase of
treasury stock--pooled
companies -- -- (118) (118) (3,290) -- -- -- --
(3,408)
Capital transactions--
pooled companies (972) (3,641) 1,049 1,049 3,418 -- -- -- --
826
Common stock issued upon
conversion of convertible
subordinated debentures -- -- 487 487 12,817 -- -- -- --
13,304
Common stock issued upon
2-for-1 stock split -- -- 51,867 51,867 (51,867) -- -- -- --
--
Adjustment of available for
sale securities to market
value -- -- -- -- -- -- -- -- 67,400
67,400
Other, net -- -- -- -- (751) (130) -- -- --
(881)
- ------------------------------------------------------------------------------------------------------------------------
- -----------
December 31, 1993 250 100,000 155,496 155,496 1,166,797 1,578,377 -- -- 67,400
3,068,070
Net income -- -- -- -- -- 490,926 -- -- --
490,926
Cash dividends declared:
Common ($1.30 per share) -- -- -- -- -- (135,920) -- -- --
(135,920)
Redeemable preferred -- -- -- -- -- (80) -- -- --
(80)
By pooled companies prior
to merger--common -- -- -- -- -- (40,187) -- -- --
(40,187)
By pooled companies prior
to merger--preferred -- -- -- -- -- (7,000) -- -- --
(7,000)
Acquisition of treasury
stock -- -- -- -- -- -- (538) (15,406) --
(15,406)
Common stock issued
pursuant to employee
and shareholder stock
issuance plans -- -- 446 446 6,364 -- 29 890 --
7,700
Common stock issued
upon acquisition
of subsidiaries -- -- 481 481 7,712 -- -- -- --
8,193
Adjustment for purchase of
treasury stock--pooled
companies -- -- (358) (358) (9,758) -- -- -- --
(10,116)
Common stock issued upon
conversion of convertible
subordinated debentures -- -- 19 19 280 -- -- -- --
299
Adjustment of available for
sale securities to market
value -- -- -- -- -- -- -- -- (201,921)
(201,921)
Other, net -- -- -- -- (211) 83 -- -- --
(128)
- ------------------------------------------------------------------------------------------------------------------------
- -----------
December 31, 1994 250 100,000 156,084 156,084 1,171,184 1,886,199 (509) (14,516) (134,521)
3,164,430
Net income -- -- -- -- -- 480,011 -- -- --
480,011
Cash dividends declared:
Common ($1.42 per share) -- -- -- -- -- (183,063) -- -- --
(183,063)
Redeemable preferred -- -- -- -- -- (75) -- -- --
(75)
By pooled companies prior
to merger--common -- -- -- -- -- (38,808) -- -- --
(38,808)
By pooled companies prior
to merger--preferred -- -- -- -- -- (6,970) -- -- --
(6,970)
Acquisition of treasury
stock -- -- -- -- -- -- (2,152) (76,479) --
(76,479)
Common stock issued
pursuant to employee
and shareholder stock
issuance plans -- -- 1,150 1,150 22,315 -- 769 24,270 --
47,735
Common stock issued
upon acquisition of
of subsidiaries -- -- 947 947 24,579 -- 1,413 48,574 --
74,100
Adjustment for purchase of
treasury stock--pooled
companies -- -- (125) (125) (3,921) -- -- -- --
(4,046)
Retirement of preferred
stock (1) (500) -- -- 15 (98) -- -- --
(583)
Common stock issued
upon conversion of
preferred stock (1) (176) 6 6 170 -- -- -- --
--
Common stock issued upon
conversion of convertible
subordinated debentures -- -- 6 6 52 -- 2 55 --
113
Adjustment of available
for sale securities
to market value -- -- -- -- -- -- -- -- 144,997
144,997
Other, net -- -- -- -- (1,556) (20) -- -- --
(1,576)
- ------------------------------------------------------------------------------------------------------------------------
- -----------
December 31, 1995 248 $ 99,324 158,068 $158,068 $1,212,838 $2,137,176 (477) $(18,096) $ 10,476
$3,599,786
========================================================================================================================
===========
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE> 4
<TABLE>
Consolidated Statement of Cash Flows
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income $ 480,011 $ 490,926 $ 428,474
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 59,756 26,176 70,922
Depreciation, amortization and accretion 174,616 193,533 176,297
Decrease in deferred loan fees (6,256) (1,080) (767)
Realized securities (gains) losses 7,040 (9,832) (9,903)
Net (increase) decrease in trading securities (25,968) 16,162 (6,517)
(Increase) decrease in interest receivable (16,432) (24,528) 8,572
Increase (decrease) in interest payable 23,199 15,889 (15,817)
Increase (decrease) in tax liability 57,802 (66,746) 27,023
Net gain on sales and writedowns of foreclosed property (2,629) (9,093) (3,782)
Other, net (34,070) 85,969 45,458
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 717,069 717,376 719,960
- ---------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Net (increase) decrease in Federal funds sold and
securities purchased under resale agreements (76,381) (607,147) 1,180,084
Net increase in loans (1,301,371) (2,058,258) (1,353,592)
Proceeds from the maturity of held to maturity securities 1,101,936 1,569,503 4,454,389
Proceeds from the sales of held to maturity securities 143,717
Purchases of held to maturity securities (556,268) (2,265,283) (6,012,696)
Proceeds from the maturity of available for sale securities 1,233,862 1,716,558 23,020
Proceeds from the sales of available for sale securities 706,693 680,318
Purchases of available for sale securities (876,761) (1,006,994) (61,199)
Net increase (decrease) in short-term investments (37,718) (15,821) 124,707
Increase in property and equipment (95,530) (140,214) (151,319)
Proceeds from the sale of foreclosed property 48,439 87,697 93,947
Net cash received from (paid for)purchase acquisitions 12,720 (87,818) 441,454
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 159,621 (2,127,459) (1,117,488)
- ---------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase (decrease) in Federal funds purchased and
securities sold under repurchase agreements (88,707) 370,569 504,769
Net increase (decrease) in deposits 409,105 762,453 (1,165,973)
Net increase (decrease) in short-term borrowings (912,514) 877,102 814,364
Payments on long-term debt (78,024) (20,964) (53,852)
Proceeds from the issuance of long-term debt 91,287 30,350 167,313
Payments on capital lease obligations (1,332) (1,101) (649)
Decrease in redeemable preferred stock (181) (13) (93)
Decrease in preferred stock (583)
Cash dividends paid (213,741) (179,877) (151,442)
Common stock issued pursuant to various employee and
shareholder stock issuance plans 47,735 7,700 23,786
Acquisition of treasury stock (76,479) (15,406) (3,102)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (823,434) 1,830,813 135,121
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and due from banks 53,256 420,730 (262,407)
Cash and due from banks at beginning of year 2,558,509 2,137,779 2,400,186
- ---------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $2,611,765 $2,558,509 $2,137,779
===========================================================================================================================
See accompanying notes to the consolidated financial statements.
For the years ended December 31, 1995, 1994 and 1993, interest
paid totaled $1,359,404, $1,020,492, and $917,133, respectively.
Income taxes paid totaled $222,849 in 1995, $250,456 in 1994, and
$205,360 in 1993. Additional common stock was issued upon the
conversion of $118 of the Corporation's convertible subordinated
debt for the year ended December 31, 1995, $311 for the year ended
December 31, 1994, and $13,748 for the year ended December 31,
1993. Securities transferred to available for sale securities
totaled approximately $5.7 billion in 1995 and $5.7 billion in
1993. Loans transferred to foreclosed property totaled $14 million
in 1995, $23 million in 1994, and $36 million in 1993. In 1995,
assets and liabilities of purchased subsidiaries at dates of
acquisition included investment securities of $185 million, loans
of $262 million, other assets of $86 million, deposits of $460
million and other liabilities of $9 million. In 1994,
assets and liabilities of purchased subsidiaries at dates of
acquisition included investment securities of $269 million, loans
of $291 million, other assets of $102 million, deposits of $548
million and other liabilities of $113 million. In 1993, assets and
liabilities of purchased subsidiaries at dates of acquisition
included investment securities of $298 million, loans of $1.1
billion, cash of $485 million, other assets of $502 million,
deposits of $2.3 billion and other liabilities of $41 million.
</TABLE>
<PAGE> 5
<TABLE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(amounts in thousands except per share data and when otherwise indicated)
1 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
Business Boatmen's Bancshares Inc. ("Corporation"), is a multi-bank holding
company, headquartered in St. Louis, Missouri. At December 31, 1995, the
Corporation owned substantially all of the capital stock of 57 subsidiary
banks, including a federal savings bank, and provided commercial, retail and
correspondent banking services from over 650 banking offices and over 1,300
ATM's in Missouri, Arkansas, Illinois, Iowa, Kansas, New Mexico, Oklahoma,
Tennessee and Texas. At December 31, 1995, the Corporation had consolidated
assets of $41.1 billion, making it one of the 25 largest bank holding
companies in the United States. The Corporation's largest banking subsidiary,
The Boatmen's National Bank of St. Louis, had total assets of $11.2 billion
at December 31, 1995. The Corporation's other businesses include a trust
company, a mortgage banking company, a credit life insurance company, a
credit card bank and an insurance agency. The Corporation, through its
subsidiary, Boatmen's Trust Company, is among the twenty largest providers of
personal trust services in the nation, providing personal trust services
within its banks' market areas and institutional and pension related trust
services on a national scale. The Corporation's mortgage banking activities
are conducted through Boatmen's National Mortgage, Inc., a full service
mortgage banking company which originates home loans through company operated
offices as well as through a network of over 300 correspondents located in
the southern and mid-western United States. Boatmen's National Mortgage, Inc.
presently services mortgage loans totaling approximately $23 billion. The
traditional banking line of business represents the primary source of
earnings for the Corporation, followed by the trust and mortgage banking
activities.
Basis of Presentation The accounting and reporting policies of the
Corporation and its subsidiaries conform to generally accepted accounting
principles. The preparation of financial statements requires management of
the Corporation to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. While the
financial statements reflect management's best estimates and judgment, actual
results could differ from estimates. The following is a description of the
Corporation's more significant policies.
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries after elimination of all material
intercompany balances and transactions. Certain amounts for 1994 and 1993 were
reclassified to conform with statement presentation for 1995. The
reclassifications have no effect on stockholders' equity or net income as
previously reported. Prior period financial statements are also restated to
include the accounts of companies which are acquired and accounted for as
poolings of interests. The Corporation consummated the acquisition of Fourth
Financial Corporation (Fourth Financial) on January 31, 1996, using the
pooling of interests method of accounting. The supplemental financial
statements included herein have been restated for all periods as if Fourth
Financial and the Corporation had always been combined. These supplemental
financial statements, in all material respects, will become the historical
financial statements of the Corporation. Results of operations of companies
which are acquired and subject to purchase accounting are included from the
dates of acquisition. In accordance with the purchase method of accounting,
the assets and liabilities of purchased companies are stated at estimated
fair values at the date of acquisition, and the excess of cost over fair
value of net assets acquired is being amortized on a straight-line basis
over periods benefitted.
Held to Maturity Securities These securities are purchased with the original
intent to hold to maturity and events which may be reasonably anticipated are
considered when determining the Corporation's intent and ability to hold to
maturity. Securities meeting such criteria at date of purchase and as of the
balance sheet date are carried at cost, adjusted for amortization of premiums
and accretion of discounts. Gains or losses on the disposition of held to
maturity securities, if any, are based on the adjusted book value of the
specific security.
Available for Sale Securities Debt and equity securities to be held for
indefinite periods of time and not intended to be held to maturity are
classified as available for sale and carried at market value with net
unrealized gains and losses, net of tax, reflected as a component of
stockholders' equity until realized. Securities held for indefinite periods
of time include securities that may be sold to meet liquidity needs or in
response to significant changes in interest rates or prepayment risks as part
of the Corporation's overall asset/liability management strategy.
Trading Securities Trading securities, which primarily consist of debt
securities, are held for resale within a short period of time and are stated
at market value. These securities are held in inventory for sale to
institutional and retail customers. Investment banking revenues, a component
of noninterest income, include the net realized gain or loss and market value
adjustments of the trading securities and commissions on bond dealer and
retail brokerage operations.
Interest and Fees on Loans Interest on loans is accrued based upon the
principal amount outstanding. It is the Corporation's policy to discontinue
the accrual of interest when full collectibility of principal or interest on
any loan is doubtful.
Interest income on such loans is subsequently recognized only in the
<PAGE> 6
period in which payments are received, and such payments are applied to reduce
principal when loans are unsecured or collateral values are deficient.
Nonrefundable loan fees are deferred and recognized as income over the life
of the loan as an adjustment of the yield. Direct costs associated with
originating loans are deferred and amortized as a yield adjustment over the
life of the loan. Commitment fees are deferred and recognized as noninterest
income over the commitment period.
Reserve for Loan Losses The reserve represents provisions charged to expense
less net loan charge-offs. The provision is based upon economic conditions,
historical loss and collection experience, risk characteristics of the
portfolio, underlying collateral values, credit concentrations, industry
risk, degree of off-balance sheet risk and other factors which, in
management's judgment, deserve current recognition.
Specific reserves are established for any impaired commercial, commercial
real estate, and real estate construction loan for which the recorded
investment in the loan exceeds the measured value of the loan. Loans subject
to impairment valuation are defined as nonaccrual loans, exclusive of smaller
balance homogenous loans such as home equity, credit card, installment and
1-4 family loans. The values of loans subject to impairment valuation are
determined based on the present value of expected future cash flows, the
market price of the loans, or the fair values of the underlying collateral
if the loan is collateral dependent.
The charge-off policy of the Corporation varies with respect to the
category of, and specific circumstances surrounding, each loan under
consideration. The Corporation's policy with respect to consumer loans is
generally to charge off all such loans when deemed to be uncollectible or 120
days past due, whichever comes first. With respect to commercial, real estate,
and other loans, charge-offs are made on the basis of management's ongoing
evaluation of nonperforming and criticized loans.
Foreclosed Property The maximum carrying value for real estate acquired
through foreclosure is the lower of the recorded investment in the loan for
which the property previously served as collateral or the current appraised
value of the foreclosed property, net of the estimated selling costs. Any
writedowns required prior to actual foreclosure are charged to the reserve
for loan losses. Subsequent to foreclosure, losses on the periodic
revaluation of the property are charged to current period earnings as
noninterest expense. Gains and losses resulting from the sale of foreclosed
property are recognized in current period earnings. Costs of maintaining and
operating foreclosed property are expensed as incurred and revenues related
to foreclosed property are recorded as an offset to operating expense.
Expenditures to complete or improve foreclosed properties are capitalized if
the expenditures are expected to be recovered upon ultimate sale of the
property.
Mortgage Banking Revenues Mortgage loans held for sale are valued at the
lower of cost or aggregate market value. Gains and losses on sales of
mortgage loans are recognized at settlement dates and are determined by the
difference between sales proceeds and the carrying value of the loans. The
Corporation generally sells mortgage loans without recourse.
Income from the servicing of mortgage loans is recognized in mortgage
banking revenues, a component of noninterest income, concurrent with the
receipt of the related mortgage payments on the loans serviced. Prior to 1995,
capitalization of mortgage servicing rights was limited to servicing purchased
from third parties. Effective with the Corporation's adoption of Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" in 1995, the value of purchased and originated mortgage servicing
rights is capitalized and amortized in proportion to, and over the period of
estimated net servicing income as a reduction of mortgage banking revenues.
The value of mortgage servicing rights is determined based on the present
value of estimated expected future cash flows, using assumptions as to current
market discount rate, prepayment speeds and servicing costs per loan. Mortgage
servicing rights are stratified by loan type and interest rate for purposes of
impairment measurement. Loan types include government, conventional, private,
and adjustable-rate mortgage loans. Impairment losses are recognized to the
extent the unamortized mortgage servicing right for each stratum exceeds the
current market value, as reductions in the carrying value of the asset,
through the use of a valuation allowance, with a corresponding reduction to
mortgage banking revenues. The Corporation recognizes gains or losses on the
sales of mortgage servicing rights when all risks and rewards have been
irrevocably passed to the purchaser.
Trust Assets and Fees The Corporation's trust function manages assets in a
fiduciary or agent capacity; accordingly, such assets are not included in the
consolidated balance sheet of the Corporation. Fee income derived from
managing trust assets is recognized on an accrual basis.
Segregated Assets Segregated assets represent loans acquired in an
FDIC assisted transaction that are covered under a loss sharing arrangement
with the FDIC and possess more than the normal risk of collectibility. These
assets consist of loans that at acquisition were or have since become
classified as nonperforming loans or foreclosed property and are segregated
from other performing assets covered under the loss sharing arrangement.
The Corporation's primary purpose in managing a portfolio of this nature
is to provide ongoing collection and control activities on behalf of the FDIC.
Accordingly, these assets do not represent loans made in the ordinary course
of business and, due to the underlying nature of this liquidating asset pool,
are excluded from the Corporation's nonperforming asset statistics. Income
from the segregated asset pool is generally recognized on a cash basis as a
component of noninterest income. If collection of the unguaranteed portion of
the segregated asset is doubtful, income payments are applied to reduce the
principal balance to the extent of the government guarantee.
<PAGE> 7
Interest Rate Swaps Interest rate swap transactions are utilized as part of
the Corporation's overall asset/liability management strategy to alter the
rate sensitivity characteristics of various assets and liabilities. Although
the notional amounts of these transactions are not reflected in the financial
statements, the interest differentials are recognized on an accrual basis
over the terms of the agreements as an adjustment to interest income or
interest expense of the related asset or liability. To qualify for accrual
accounting, the swaps must be designated to interest-bearing assets or
liabilities and alter their interest rate characteristics over the term of
the agreements. If an interest rate swap is terminated prior to maturity, any
realized gains and losses are deferred and amortized over the remaining life
of the contract. In the event the designated asset or liability is sold or
extinguished prior to maturity, fair value recognition is required and any
gains or losses are recognized in income.
Interest rate swaps entered into for trading purposes on the behalf of
customers are accounted for on a mark to market basis. Accordingly, realized
and unrealized gains and losses associated with this activity are reflected
as investment banking revenues, a component of noninterest income.
Foreign Exchange Contracts The Corporation's banking subsidiaries trade
foreign currencies on behalf of their customers and for their own account
and, by policy, do not maintain significant open positions. Foreign exchange
contracts are valued at the current prevailing rates of exchange and any
profit or loss resulting from such valuation is included in current
operations as a component of investment banking revenues.
Property and Equipment Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
recognized principally by the straight-line method applied over the estimated
useful lives of the assets, which are 10 to 50 years for buildings and 3 to
25 years for fixtures and equipment. Leasehold improvements are generally
amortized over the lease term, not to exceed 10 years.
Intangible Assets Goodwill arising from acquisitions consummated subsequent
to 1985 is being amortized on a straight-line basis over the periods
benefitted, ranging from 4-20 years. For acquisitions consummated in 1983 and
1985, goodwill is being amortized on a straight-line basis over 25 years, and
goodwill related to acquisitions prior to 1983 is being amortized on a
straight-line basis over 40 years. Core deposit intangibles and credit card
premiums are amortized over their useful economic lives on an accelerated
basis, not to exceed 10 years.
Income Taxes The Corporation accounts for income taxes under the asset and
liability method. Income tax expense is reported as the total of current income
taxes payable and the net change in deferred income taxes provided for
temporary differences. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying values of assets and liabilities for
financial reporting purposes and the values used for income tax purposes.
Deferred income taxes are recorded at the statutory Federal and state tax rates
in effect at the time that the temporary differences are expected to reverse.
The Corporation files a consolidated Federal income tax return which
includes all its subsidiaries except for the credit life insurance company.
Income tax expense is allocated among the parent company and its subsidiaries
as if each had filed a separate tax return.
Net Income Per Share Net income per share is calculated by dividing net
income (after deducting dividends on preferred stock) by the weighted
average number of common shares outstanding. Common stock equivalents
have no material dilutive effect.
The net income per share calculation for 1995, 1994 and 1993 is
summarized as follows:
<CAPTION>
=============================================================================================================
(in thousands except share data) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $480,011 $490,926 $428,474
Less preferred dividends declared 7,143 7,080 7,085
- ------------------------------------------------------------------------------------------------------------
Net income available to
common shareholders $472,868 $483,846 $421,389
=============================================================================================================
Average shares outstanding 156,663,791 155,881,515 153,943,841
- ------------------------------------------------------------------------------------------------------------
Net income per share $3.02 $3.10 $2.74
=============================================================================================================
</TABLE>
<TABLE>
2 CHANGES IN ACCOUNTING POLICIES
On January 1, 1995, The Corporation adopted Financial Accounting Standards
No. 114 (SFAS No. 114), "Accounting by Creditors for Impairment of a Loan"
and No. 118 (SFAS No. 118), "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures." These statements require that
certain impaired loans be measured based on either the present value of
expected future cash flows discounted at the loan's effective rate, the
market price of the loan, or the fair value of the underlying collateral if
the loan is collateral dependent. The statements further require that
<PAGE> 8
specific reserves be established for any impaired loan for which the recorded
investment exceeds the measured value of the loan. SFAS No. 114 and SFAS No.
118 do not apply to smaller balance, homogenous loans, which the Corporation
has identified as consumer loans, such as home equity, credit card,
installment and 1-4 family residential loans. Adoption of these standards had
no material impact on the Corporation's loan quality statistics or reserve
levels and had no effect on 1995 earnings.
In the second quarter of 1995, the Corporation adopted Statement of
Financial Accounting Standards No. 122 (SFAS No. 122), "Accounting for
Mortgage Servicing Rights." SFAS No. 122 requires capitalization of purchased
mortgage servicing rights as well as internally originated mortgage servicing
rights. These mortgage servicing rights are amortized in proportion to, and
over the period of estimated net servicing income. Adoption of SFAS No. 122
increased mortgage banking revenues in 1995 by approximately $5.8 million, net
of amortization, and increased net income by approximately $3.6 million.
In 1994, the Corporation adopted Financial Accounting Standards No. 112
(SFAS No. 112), "Employers' Accounting for Postemployment Benefits." SFAS No.
112 requires recognition of the cost to provide postemployment benefits on an
accrual basis. The Corporation's existing accounting policies were in general
compliance with the requirements of SFAS No. 112. Accordingly, adoption of
this standard had no material impact on the level of postemployment expense.
3 ACQUISITIONS
Purchase Acquisitions Results of operations of companies which are acquired
and subject to purchase accounting treatment are included from dates of
acquisition. Three purchase acquisitions were consummated in 1995. Disclosure
of pro forma condensed results of operations as if these acquisitions were
consummated as of the beginning of the period have been omitted due to the
immaterial effect on operations.
Other information regarding purchase acquisitions is summarized as
follows:
<CAPTION>
============================================================================================================
Core
Acquired Company Acquisition Purchase Deposit
(amounts in millions) Date Price Assets Goodwill Intangible
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Salem Community
Bancorp, Inc. 2/28/95 $ 8.4 $ 79.2 $ 4.0 $ .8
West Side Bancshares,
Inc. 4/1/95 17.5 142.4 4.5 1.3
Citizens Bancshares
Corporation 10/27/95 41.0 224.1 19.5
- ------------------------------------------------------------------------------------------------------------
Total $ 66.9 $ 445.7 $28.0 $ 2.1
============================================================================================================
1994
Eagle Management and
Trust Company 5/6/94 $ 3.4 $ 3.8 $ 2.3
============================================================================================================
1993
First City-El Paso
(FDIC assisted) 3/5/93 $ 14.0 $ 340.0 $ 9.6 $13.7
Missouri Bridge Bank, N.A.
(FDIC assisted) 4/23/93 15.8 1,100.0 18.9 20.0
Cimarron Federal Savings
(RTC assisted) 5/26/93 13.1 430.0 13.1
FCB Bancshares, Inc. 8/2/93 25.0 185.0 15.1 2.3
- ------------------------------------------------------------------------------------------------------------
Total $ 67.9 $2,055.0 $43.6 $49.1
============================================================================================================
</TABLE>
<TABLE>
Pooling Acquisitions When material, results of operations of
companies which are acquired and subject to pooling of interests
accounting are reflected on a combined basis from the earliest period
presented.
On January 31, 1996, the Corporation consummated the acquisition
of Fourth Financial Corporation (Fourth Financial), headquartered in
Wichita, Kansas, resulting in the issuance of approximately 28.5
million shares of common stock. In addition, the Corporation exchanged
one share of new preferred stock for each Fourth Financial preferred
share, resulting in the issuance of approximately 248,000 shares of
preferred stock. The preferred stock is convertible into approximately
3.4 million shares of common stock. Fourth Financial, subsequently renamed
BBI Kansas, Inc., was the largest banking company in Kansas, with approximately
$7.5 billion in assets, operating 87 retail banking offices in Kansas and 56 in
Oklahoma. Nonrecurring after-tax merger expenses related to this acquisition
totaled $29.3 million or $.19 per share, comprised primarily of
investment banking and other professional fees, severance costs,
obsolete equipment write-offs and estimated costs to close duplicate
branches, and were recognized in the first quarter of 1996. The
accompanying financial statements reflect the results of operations of
the Corporation and Fourth Financial on a combined basis from the
earliest period presented.
On January 31, 1995, the Corporation consummated the acquisition of
National Mortgage Company and certain affiliates (National Mortgage),
resulting in the issuance of approximately 5.0 million shares of common
stock. National Mortgage, subsequently renamed Boatmen's National Mortgage,
Inc., headquartered in Memphis, Tennessee, is a full-service mortgage
banking
<PAGE> 9
company and presently services mortgage loans totaling approximately $23
billion. Nonrecurring after-tax merger expenses related to this acquisition
totaled $7.0 million or $.04 per share, comprised primarily of investment
banking and other professional fees, severance costs and abandonment of
equipment and software, and were recognized in the first quarter of 1995.
On January 31, 1995, the Corporation consummated the acquisition of
Dalhart Bancshares, Inc. (Dalhart), resulting in the issuance of
approximately .7 million shares of common stock. Dalhart, with assets of
approximately $140 million, is located in north Texas and was merged into
the Corporation's Amarillo subsidiary.
On February 28, 1995, the Corporation consummated the acquisition of
Worthen Banking Corporation (Worthen), headquartered in Little Rock,
Arkansas, resulting in the issuance of approximately 17.1 million shares of
common stock. Worthen, subsequently renamed Boatmen's Arkansas, Inc., was
the second largest banking organization in Arkansas, with approximately
$3.5 billion in assets. Nonrecurring after-tax merger expenses related to
this acquisition totaled $12.3 million or $.08 per share, comprised
primarily of investment banking and other professional fees, severance
costs, obsolete equipment write-offs and estimated costs to close duplicate
branches, and were recognized in the first quarter of 1995.
On May 31, 1995, the Corporation consummated the acquisition of First
National Bank in Pampa (Pampa), resulting in the issuance of approximately
1.35 million shares of common stock. At acquisition, Pampa had
approximately $166 million in assets and was merged into the Corporation's
Amarillo subsidiary.
On March 31, 1994, the Corporation consummated the acquisition of
Woodland Bancorp, Inc. (Woodland), resulting in the issuance of
approximately .4 million shares of common stock. Woodland, a retail banking
organization with assets of approximately $65 million, is located in Tulsa,
Oklahoma and was merged into the Corporation's Oklahoma bank. The results
of operations of Woodland, which qualified as a pooling of interests, are
not included in the consolidated financial statements prior to January 1,
1994, due to the immaterial effect on the Corporation's financial results.
On November 30, 1993, the Corporation consummated the acquisition of
First Amarillo Bancorporation, Inc. (Amarillo), resulting in the issuance
of approximately 5.9 million shares of common stock. Amarillo, subsequently
renamed Boatmen's Texas, Inc., had approximately $.8 billion in assets at
acquisition, and is headquartered in Amarillo, Texas. Nonrecurring after-
tax merger expenses related to this acquisition totaled $3.8 million,
comprised primarily of investment banking fees, compensation-related
expense and abandonment of equipment and software.
Net interest income and net income as previously reported for the
Corporation and the five pooling-of-interests acquisitions completed in
1995 and 1996 are summarized as follows:
<CAPTION>
=====================================================================================
(in millions) 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net interest income:
Boatmen's Bancshares, Inc. $1,024.4 $ 974.5
Fourth Financial Corporation 280.6 268.1
Worthen Banking Corporation 141.3 132.8
Other pooling acquisitions 22.6 18.3
- -------------------------------------------------------------------------------------
Boatmen's Bancshares, Inc. restated $1,468.9 $1,393.7
- -------------------------------------------------------------------------------------
Net income:
Boatmen's Bancshares, Inc. $ 355.3 $ 317.4
Fourth Financial Corporation 83.1 78.1
Worthen Banking Corporation 47.6 32.3
Other pooling acquisitions 4.9 .7
- -------------------------------------------------------------------------------------
Boatmen's Bancshares, Inc. restated $ 490.9 $ 428.5
=====================================================================================
</TABLE>
<TABLE>
Pending Acquisition On August 30, 1995, the Corporation announced a
definitive agreement to acquire Tom Green National Bank, located in San
Angelo, Texas, in a stock transaction to be accounted for as a purchase.
The acquisition of Tom Green National Bank, with assets of approximately
$80 million, will result in the issuance of approximately .2 million shares
of common stock from treasury stock acquired in the open market. This
transaction is expected to be completed in the first quarter of 1996.
<PAGE> 10
4 HELD TO MATURITY SECURITIES
The amortized cost and approximate market value of held to maturity
securities are summarized as follows:
<CAPTION>
==============================================================================================================
Unrealized
December 31, 1995 Amortized ----------------------------- Market
(in thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury $ 2,505 $ 21 $ (5) $ 2,521
Federal agencies 250 (2) 248
- --------------------------------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 2,755 21 (7) 2,769
State and municipal 912,348 51,606 (949) 963,005
Other debt securities 8,027 8,027
- --------------------------------------------------------------------------------------------------------------
Total held to maturity
securities $923,130 $51,627 $(956) $973,801
==============================================================================================================
<CAPTION> Unrealized
December 31, 1994 Amortized ----------------------------- Market
(in thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury $ 974,982 $ 507 $ (37,678) $ 937,811
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 1,938,899 207 (145,182) 1,793,924
Adjustable-rate mortgages 1,273,577 429 (61,182) 1,212,824
Fixed rate pass-through 742,943 698 (39,778) 703,863
- --------------------------------------------------------------------------------------------------------------
Total mortgage-backed 3,955,419 1,334 (246,142) 3,710,611
Other agencies 919,074 118 (52,096) 867,096
- --------------------------------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 5,849,475 1,959 (335,916) 5,515,518
State and municipal 870,251 28,535 (10,281) 888,505
Other debt securities 455,432 19 (45,777) 409,674
- --------------------------------------------------------------------------------------------------------------
Total held to maturity
securities $7,175,158 $30,513 $(391,974) $6,813,697
==============================================================================================================
</TABLE>
<TABLE>
Effective December 15, 1995, the Corporation transferred approximately
$5.7 billion of held to maturity securities to available for sale as
permitted under the Statement of Financial Accounting Standards Board
Special Report, "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities," issued in November
1995. The amortized cost of such securities exceeded fair value by
approximately $16.8 million, resulting in an after-tax decrease to
stockholders' equity of $10.4 million. The transfer had no effect on 1995
earnings.
The maturity distribution of held to maturity securities at December
31, 1995 is summarized as follows:
<CAPTION>
=================================================================================
(in thousands) Amortized Cost Market Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 46,114 $ 46,481
Due after one year through five years 168,940 174,857
Due after five years through ten years 417,471 447,179
Due after ten years 290,605 305,284
- ---------------------------------------------------------------------------------
Total held to maturity securities $923,130 $973,801
=================================================================================
</TABLE>
<TABLE>
There were no sales of held to maturity securities in 1995 or 1994. Gross
realized gains in 1993 totaled $9.9 million and gross realized losses were
$1.3 million.
<PAGE> 11
5 AVAILABLE FOR SALE SECURITIES
The amortized cost and approximate market value of available for sale
securities are summarized as follows:
<CAPTION>
=======================================================================================
Unrealized
December 31, 1995 Amortized ----------------------- Market
(in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury $ 1,504,451 $16,640 $ (2,688) $ 1,518,403
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 2,533,134 8,684 (31,971) 2,509,847
Adjustable-rate mortgages 3,101,001 14,498 (17,287) 3,098,212
Fixed rate pass-through 822,447 12,748 (2,715) 832,480
- ---------------------------------------------------------------------------------------
Total mortgage-backed 6,456,582 35,930 (51,973) 6,440,539
Other agencies 1,282,320 10,889 (1,707) 1,291,502
- ---------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 9,243,353 63,459 (56,368) 9,250,444
State and municipal 98,472 6,224 (97) 104,599
Other debt securities 841,497 7,162 (6,143) 842,516
- ---------------------------------------------------------------------------------------
Total debt securities 10,183,322 76,845 (62,608) 10,197,559
Equity securities 146,911 3,314 (612) 149,613
- ---------------------------------------------------------------------------------------
Total available for sale
securities $10,330,233 $80,159 $(63,220) $10,347,172
=======================================================================================
<CAPTION>
Unrealized
December 31, 1994 Amortized ---------------------- Market
(in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury $1,178,465 $ 1,805 $ (35,278) $1,144,992
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 835,012 87 (51,762) 783,337
Adjustable-rate mortgages 2,106,221 280 (98,053) 2,008,448
Fixed rate pass-through 278,672 3,587 (8,602) 273,657
- ---------------------------------------------------------------------------------------
Total mortgage-backed 3,219,905 3,954 (158,417) 3,065,442
Other agencies 362,906 25 (18,096) 344,835
- ---------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 4,761,276 5,784 (211,791) 4,555,269
State and municipal 167,811 7,883 (888) 174,806
Other debt securities 341,110 90 (21,195) 320,005
- ---------------------------------------------------------------------------------------
Total debt securities 5,270,197 13,757 (233,874) 5,050,080
Equity securities 119,418 1,277 (164) 120,531
- ---------------------------------------------------------------------------------------
Total available for sale
securities $5,389,615 $15,034 $(234,038) $5,170,611
=======================================================================================
</TABLE>
<TABLE>
The maturity distribution of available for sale securities at December 31,
1995 is summarized as follows:
<CAPTION>
======================================================================================
(in thousands) Amortized Cost Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 797,797 $ 799,842
Due after one year through five years 1,956,601 1,979,844
Due after five years through ten years 157,932 161,257
Due after ten years 76,411 78,146
Mortgage-backed securities 7,194,581 7,178,470
- --------------------------------------------------------------------------------------
Total debt securities 10,183,322 10,197,559
Equity securities 146,911 149,613
- --------------------------------------------------------------------------------------
Total available for sale securities $10,330,233 $10,347,172
======================================================================================
</TABLE>
<TABLE>
Available for sale securities at December 31, 1995 include mortgage-backed
government guaranteed agency securities of $6.5 billion and private issue
mortgage-backed securities totaling $.7 billion.
<PAGE> 12
Sales and redemptions of available for sale securities resulted in
realized gains and losses as follows:
<CAPTION>
==========================================================================
Year ended December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Debt securities:
Realized gains $ 7,968 $11,158
Realized losses (23,338) (4,931)
- --------------------------------------------------------------------------
Net realized gains (losses) $(15,370) $ 6,227
==========================================================================
Equity securities:
Realized gains $ 8,052 $ 3,527
Realized losses (10)
- --------------------------------------------------------------------------
Net realized gains $ 8,042 $ 3,527
==========================================================================
</TABLE>
<TABLE>
Held to maturity and available for sale securities with book values
totaling $5,699,399 and $6,279,181 at December 31, 1995 and 1994,
respectively, were pledged to secure public deposits, trust deposits, and
for other purposes required by law.
6 LOANS
A summary of loan categories is as follows:
<CAPTION>
==========================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Domestic:
Commercial $11,834,507 $10,883,440
Real estate-mortgage 4,565,326 4,519,791
Real estate-construction 1,107,692 1,003,837
Consumer 6,284,103 6,137,128
Lease financing 325,380 238,641
- --------------------------------------------------------------------------
Total domestic 24,117,008 22,782,837
Foreign loans 20,876 19,134
- --------------------------------------------------------------------------
Total loans 24,137,884 22,801,971
Less unearned income 86,981 84,409
- --------------------------------------------------------------------------
Total loans, net $24,050,903 $22,717,562
==========================================================================
</TABLE>
<TABLE>
Nonperforming assets, consisting of nonperforming loans and foreclosed
property, are summarized as follows:
<CAPTION>
==========================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual $165,440 $141,147
Restructured 7,996 7,593
Past due 90 days or more 37,349 30,194
- --------------------------------------------------------------------------
Total nonperforming loans 210,785 178,934
Foreclosed property 35,149 67,224
- --------------------------------------------------------------------------
Total nonperforming assets $245,934 $246,158
==========================================================================
</TABLE>
<TABLE>
Gross interest income which would have been recorded, if all nonaccrual
and restructured loans at year end had been current in accordance with
original terms, amounted to $14.6 million in 1995 and $15.3 million in 1994.
Actual interest recorded amounted to $5.7 million in 1995 and $4.0 million in
1994.
At December 31, 1995, the recorded investment in loans that are considered
to be impaired under SFAS No. 114 and SFAS No. 118 totaled approximately $138.2
million, and the reserve for loan losses included approximately $7.1 million
allocated to $20.9 million of impaired loans. In 1995, impaired loans averaged
$109.7 million and cash basis interest recognition on these loans, during the
time that they were impaired, totaled less than $1 million.
Following is a summary of activity for 1995 regarding loans extended to
directors and executive officers of the Corporation and its largest
subsidiaries or to enterprises in which said individuals had beneficial
interests. Such loans were made in the normal course of business on
substantially the same terms, including interest rates and collateral, as
<PAGE> 13
those prevailing at the same time for comparable transactions with other
persons.
<CAPTION>
=========================================================================================================================
(in thousands)
- -------------------------------------------------------------------------------------------------------------------------
Outstanding Net change from changes Outstanding
at 12/31/94 Additions Repayments in director status at 12/31/95
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$267,288 $125,849 $(96,054) $(62,253) $234,830
=========================================================================================================================
</TABLE>
<TABLE>
The following summarizes activity in the reserve for loan losses:
<CAPTION>
==========================================================================================================================
December 31 (in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 449,485 $ 444,492 $ 409,775
Loans charged off (118,639) (86,899) (107,415)
Recoveries on loans
previously charged off 54,152 59,394 54,195
- --------------------------------------------------------------------------------------------------------------------------
Net charge-offs (64,487) (27,505) (53,220)
Provision for loan losses 59,756 26,176 70,922
Loan reserve from acquisitions 7,806 6,322 17,015
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 452,560 $ 449,485 $ 444,492
==========================================================================================================================
</TABLE>
<TABLE>
7 PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<CAPTION>
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 114,935 $ 111,341
Buildings 625,534 584,693
Buildings under capital leases 48,666 48,666
Furniture, fixtures and equipment 683,545 633,043
Leasehold improvements 103,768 104,299
Construction in progress 13,903 31,676
- --------------------------------------------------------------------------------------
Total 1,590,351 1,513,718
Less accumulated depreciation/amortization 789,849 717,333
- --------------------------------------------------------------------------------------
Net property and equipment $ 800,502 $ 796,385
======================================================================================
</TABLE>
<TABLE>
Depreciation and amortization charged to expense in 1995, 1994 and 1993
amounted to $97,340, $92,481, and $82,955, respectively.
At December 31, 1995, the Corporation was obligated under long-term
leases, principally related to the use of land, buildings, and equipment in
banking operations. The following table summarizes future minimum rental
payments required under leases which have initial or remaining noncancellable
lease terms in excess of one year.
<CAPTION>
======================================================================================
(in thousands)
- --------------------------------------------------------------------------------------
Period Capital leases Operating leases
- --------------------------------------------------------------------------------------
<S> <C> <C>
1996 $ 4,974 $ 29,498
1997 4,974 25,767
1998 4,954 21,250
1999 4,895 18,793
2000 4,959 15,318
After 2000 50,295 73,072
- --------------------------------------------------------------------------------------
Total minimum lease payments 75,051 $183,698
========
Less amount representing interest 35,975
- -------------------------------------------------------------
Present value of minimum lease payments $39,076
=============================================================
</TABLE>
<TABLE>
<PAGE> 14
Lease provisions that would cause rentals to vary from those reflected
above are not material. Property taxes, insurance, and maintenance expense
related to property under lease are principally paid by the Corporation. Total
rental expense for all operating leases amounted to $33,610, $35,616, and
$42,515 in 1995, 1994, and 1993, respectively.
In March, 1995, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of." This statement requires that long-lived assets and
certain identifiable intangibles to be held and used by a company be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If such conditions exist,
companies must estimate the future cash flows from use of the asset and, if
the sum of the undiscounted estimated future cash flows is less than the
carrying amount of the asset, an impairment loss would be recognized. This
pronouncement becomes effective in 1996 and is not expected to have a
material effect on the Corporation's financial results.
8 INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization are summarized as
follows:
<CAPTION>
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $277,983 $264,997
Core deposit premium 69,552 87,431
Mortgage servicing rights 67,461 41,043
Credit card premium 20,601 11,231
- --------------------------------------------------------------------------------------
Total intangible assets, net $435,597 $404,702
======================================================================================
</TABLE>
<TABLE>
Intangible assets amortization charged to noninterest expense in 1995,
1994, and 1993 amounted to $44,313, $45,306, and $46,654, respectively.
Amortization of mortgage servicing rights charged to mortgage banking
revenues in 1995, 1994, and 1993 totaled $9,839, $17,166, and $19,244,
respectively. In 1995, the Corporation capitalized approximately $40 million
of mortgage servicing rights, and sold mortgage servicing rights with a net
book value of approximately $4 million. The fair value of mortgage
servicing rights at December 31, 1995 was approximately $87.1 million. At
December 31, 1995, no impairment writedown was required as the fair value of
the mortgage servicing rights exceeded carrying value.
9 SEGREGATED ASSETS
Included in other assets at December 31, 1995 are segregated assets
totaling $103.3 million net of a valuation allowance of $13.3 million. As part
of the regulatory assisted acquisition of Missouri Bridge Bank, N.A. (Bridge
Bank), on April 23, 1993, the Corporation entered into a five-year
loss-sharing arrangement with the FDIC with respect to approximately $950
million in multi-family residential, commercial real estate, construction and
commercial loans. During the five-year period, the FDIC will reimburse the
Corporation for 80 percent of the first $92.0 million of net charge-offs on
these loans, after which the FDIC will increase its reimbursement coverage to
95 percent of additional charge-offs. During this period and for two years
thereafter, the Corporation is obligated to pay the FDIC 80 percent of all
recoveries on charged off loans.
Segregated assets are those loans acquired from the Bridge Bank and
covered under the loss-sharing arrangement with the FDIC that possess more
than the normal risk of collectibility. These assets consist of loans that at
acquisition were or have since become classified as nonperforming loans or
foreclosed property.
The Corporation's primary purpose in managing a portfolio of this nature
is to provide ongoing collection and control activities on behalf of the FDIC.
Accordingly, these assets do not represent loans made in the ordinary course
of business and, due to the underlying nature of this liquidating asset pool,
are excluded from the Corporation's nonperforming asset statistics.
A summary of activity regarding the segregated asset pool for the years
ended December 31, 1995 and 1994, is provided below.
<PAGE> 15
<CAPTION>
=============================================================================================================
Principal Allowance Principal
(in millions) balance for losses balance, net
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1993 $266.6 $18.4 $248.2
Charge-offs (14.9) (3.0)
Recoveries 1.3
Net transfers 40.9
Payments on segregated assets (98.7)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 193.9 16.7 177.2
Charge-offs (27.7) (5.5)
Recoveries 2.1
Net transfers (17.2)
Payments on segregated assets (32.4)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $116.6 $13.3 $103.3
=============================================================================================================
</TABLE>
<TABLE>
10 DEPOSITS
Deposits are summarized as follows:
<CAPTION>
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Demand deposits $ 6,894,649 $ 6,294,793
Savings deposits 1,906,996 2,275,440
Interest-bearing transaction accounts 11,603,724 9,977,819
Time deposits $100,000 and over 1,819,633 3,072,574
Retail time deposits 9,753,135 9,488,043
- --------------------------------------------------------------------------------------
Total deposits $31,978,137 $31,108,669
======================================================================================
</TABLE>
<TABLE>
11 RESERVES ON DEPOSITS
Required reserves on deposits, included in the caption "Cash and due from
banks," were $487,835 and $754,741 at December 31, 1995 and 1994,
respectively.
12 FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Federal funds purchased and securities sold under repurchase agreements
generally represent borrowings with overnight maturities. Information
relating to these borrowings is summarized as follows:
<CAPTION>
==================================================================================================
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance:
Average $2,912,944 $3,497,345 $2,267,945
Year end 2,902,973 2,987,315 2,616,746
Maximum month-end
balance during year 3,315,915 4,427,373 3,181,996
==================================================================================================
Interest rate:
Average 5.58% 4.32% 2.84%
==================================================================================================
Year end 5.31% 5.44% 2.66%
==================================================================================================
</TABLE>
<TABLE>
13 SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<CAPTION>
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Short-term bank notes $1,265,000 $1,550,000
Commercial paper 49,497 43,531
Other 160,494 793,749
- --------------------------------------------------------------------------------------
Total $1,474,991 $2,387,280
======================================================================================
</TABLE>
<TABLE>
<PAGE> 16
Information relating to short-term bank notes is summarized as follows:
<CAPTION>
======================================================================================
(in thousands) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Average balance $1,648,178 $ 921,878
Maximum month-end
balance during year 2,015,000 1,650,000
======================================================================================
Interest rate:
Average 6.29% 4.19%
======================================================================================
Year end 6.10% 5.80%
======================================================================================
</TABLE>
<TABLE>
In 1995, approximately $.9 million of the short-term bank notes were
converted to fixed rate debt through the use of interest rate swaps.
Commercial paper is issued by the parent company in maturities not to
exceed nine months. The short-term bank notes are issued by the Corporation's
banking subsidiaries generally with maturities of less than one year. Other
short-term funds consisted principally of treasury, tax and loan accounts. At
December 31, 1995, the parent company had available additional credit totaling
$100 million under a revolving credit agreement, all of which was unused. The
revolving credit agreement is a three year facility extending to September,
1997.
14 LONG-TERM DEBT
Long-term debt is summarized as follows:
<CAPTION>
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Parent Company:
7-5/8% notes due 2004 $100,000 $100,000
6-3/4% notes due 2003 100,000 100,000
8-5/8% notes due 2003 50,000 50,000
9-1/4% notes due 2001 150,000 150,000
6-1/4% convertible subordinated
debentures due 2011 772 904
12% note due 1998 25,000 25,000
- --------------------------------------------------------------------------------------
Total Parent Company 425,772 425,904
- --------------------------------------------------------------------------------------
Subsidiaries:
Senior notes due 1998-2000 43,000 43,000
9-7/8% senior notes due April 15, 1995 35,000
Federal Home Loan Bank notes:
6.28%-6.39% notes due 1999-2001 90,000
4.9%-5.2% notes due 1997-1998 25,000 25,000
Other notes due 1999-2016 4,867 1,500
Other notes due through 1997 33,953
6.55% mortgage note due through 2009 26,430 27,679
8.60% term loan due 1995 4,375
7.41% notes payable 3,077
Other 60 5
- --------------------------------------------------------------------------------------
Total subsidiaries 189,357 173,589
- --------------------------------------------------------------------------------------
Total long-term debt $615,129 $599,493
======================================================================================
</TABLE>
<TABLE>
The 7-5/8% subordinated notes and the 6-3/4% subordinated notes have been
effectively converted to variable rate debt for a portion of the term through
the use of interest rate swaps. The average interest rates paid on these notes
in 1995 and 1994 were 8.53% and 6.77%, respectively. These notes, and the
8-5/8% and 9-1/4% subordinated notes, are not redeemable by the holders or the
Corporation prior to maturity.
The 6-1/4% convertible subordinated debentures are redeemable at the option
of the holder without payment of premium by the Corporation. Redemption rights
are subject to an annual noncumulative principal limitation of $25 thousand
per holder and $1.2 million in the aggregate. Prepayments in whole or in part
may be made at the option of the Corporation with payment of premium. The
debentures are convertible into common stock of the Corporation at a
conversion price of $16.71 per share, subject to adjustments under certain
circumstances. During 1995, 1994 and 1993, $.1 million, $.3 million and $.2
million of the debentures, respectively, were converted into common stock.
The 12% note due in 1998 may not be prepaid at the option of the
Corporation.
The senior notes due 1998-2000 are unsecured and provide for payment of
interest semi-annually with principal payable at maturity. Maturities are $10
million due in 1998 priced to yield 7.21%, $10 million due in 1999 priced to
yield 7.56%, and $23 million due in 2000 priced to yield 7.81%.
The Federal Home Loan Bank notes may be prepaid at the option of the
Corporation with payment of premium.
The other notes due through 1997 were prepaid in full in 1995 and
represented long-term debt obligations of the Corporation's mortgage banking
subsidiary acquired in 1995.
<PAGE> 17
The 6.55% mortgage note requires monthly principal and interest payments
of $252 thousand. The Corporation may prepay the note without payment of
premium.
The 8.60% term note and 7.41% notes payable were paid in full in 1995
and represented long-term debt obligations of Fourth Financial Corporation,
acquired in 1996.
Several of the note agreements contain various financial covenants
pertaining to minimum levels of net worth, limitations on additional
indebtedness, and limitations on repurchases of common stock and dividend
payments. The Corporation was in compliance with all such covenants at
December 31, 1995.
Obligations of the parent company included above are unsecured, and to a
large extent are subordinated in right of payment to any other indebtedness of
the Corporation. The indebtedness of the banking subsidiaries is subordinated
to rights of depositors.
Scheduled principal payments on total long-term debt in each of the five
years subsequent to December 31, 1995 are as follows:
<CAPTION>
=================================================
(in thousands)
- -------------------------------------------------
Year Parent Company Consolidated
- -------------------------------------------------
<S> <C> <C>
1996 $ 772 $ 2,652
1997 11,986
1998 25,000 52,099
1999 42,220
2000 55,318
=================================================
</TABLE>
<TABLE>
15 PREFERRED STOCK
At December 31, 1995, there were outstanding 9,609 shares of 7%
Cumulative Redeemable Preferred Stock, Series B, $100 per share stated
value. Dividends are payable quarterly. The stock is redeemable at the
stated value at the option of the holders and has equal voting rights
with each share of common stock.
At December 31, 1995, there were outstanding 248,310 shares of
nonvoting Class A Cumulative Convertible Preferred Stock. This
preferred stock was issued in the form of 4,000,000 depositary shares,
each representing a 1/16 interest in a share of preferred stock and each
having a liquidation preference of $25. Dividends are payable quarterly
at an annual rate of $1.75 per depositary share. The depositary shares
are not redeemable by the Corporation prior to March 1, 1997. However,
they may be converted at the election of shareholders into shares of the
Corporation's common stock at a conversion price of $29 per common
share. At December 31, 1995, there were 3,972,960 depositary shares
outstanding which could be converted into 3,424,972 shares of the
Corporation's common stock.
16 COMMON STOCK
On August 10, 1993, the Corporation declared a two-for-one stock
split, which was effected as a 100% stock dividend to stockholders of
record on August 31, 1993 and paid on October 1, 1993. The Corporation
maintains various stock option plans which provide for the issuance of
stock to certain key employees of the Corporation. Under certain plans,
stock appreciation rights may be granted. The option price under these
plans is equivalent to the fair market value of the common stock at the
date of grant. The Corporation accounts for its stock options in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees."
Prior to the merger, Fourth Financial had stock option plans
under which options were granted. Options may no longer be granted under
these plans. Such options outstanding upon consummation were generally
converted into options to purchase the Corporation's common stock under
conversion terms stipulated in the merger agreement.
The following table summarizes the status of the various plans.
<CAPTION>
=======================================================================================================================
1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Shares Price Per Share Shares Price Per Share
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options granted 1,849,932 $26.56 to $33.00 1,703,834 $23.74 to $31.63
Options
exercised 1,314,635 5.76 to 31.50 515,625 5.76 to 28.75
Stock
appreciation
rights
exercised 24,726 15.86 to 27.00 29,030 15.63 to 27.75
Options lapsed 313,598 5.76 to 30.88 242,830 5.76 to 27.75
Options
outstanding 5,800,977 5.76 to 33.00 5,604,004 5.76 to 31.63
Options
exercisable 3,795,653 5.76 to 33.00 2,506,179 5.76 to 30.38
=======================================================================================================================
</TABLE>
<TABLE>
<PAGE> 18
A summary of the Corporation's common stock related plans is provided
below. Compensation expense related to the common stock plans totaled $18.2
million in 1995, $15.0 million in 1994, and $13.8 million in 1993.
1990 Stock Purchase Plan for Employees This Plan provides eligible employees
of the Corporation and its subsidiaries with the opportunity to purchase, at
market value, with the Corporation providing a one-third matching
contribution, common stock of the Corporation through regular payroll
deductions. The aggregate number of shares issuable under this Plan is limited
to 2,000,000 shares, and as of December 31, 1995, approximately 6,390
employees were participating in the Plan.
Dividend Reinvestment and Stock Purchase Plan 1,600,000 shares of the
Corporation's common stock have been reserved for sale, at market value,
pursuant to this plan, to holders of record of shares of common stock who
elect to use quarterly dividends or optional cash contributions to purchase
additional shares.
Thrift Incentive 401(k) Plan This is a savings plan for the benefit of
employees of the Corporation and its subsidiaries. Participation by eligible
employees is voluntary, and participants may contribute at least 2% and up to
12% of their salary, up to certain limits, by regular payroll deductions. All
participants' contributions are invested by the trustee, as directed by the
participant, in various investment funds, one of which consists solely of the
Corporation's common stock. The Corporation matches the contribution made by
the employee, in full, up to 3%, which is invested in a separate fund
consisting solely of the Corporation's common stock.
Shareholder Rights Plan In 1990, the Board of Directors of the Corporation
declared a dividend of one preferred share purchase right (a "Right") for each
outstanding share of common stock. The Rights trade automatically with shares
of common stock and become exercisable only under certain circumstances. The
Rights are designed to protect the interests of the Corporation and its
shareholders against coercive takeover tactics. The purpose of the Rights is
to encourage potential acquirers to negotiate with the Corporation's Board of
Directors prior to attempting a takeover and to give the Board leverage in
negotiating on behalf of all shareholders the terms of any proposed takeover.
17 REGULATORY CAPITAL
The Corporation's regulatory capital is summarized as follows:
<CAPTION>
==============================================================================================================
December 31 (in millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier I capital $ 3,242.5 $ 2,949.5
Tier II capital 770.1 752.9
- ------------------------------------------------------------------------------------------------------------
Total capital $ 4,012.6 $ 3,702.4
============================================================================================================
Risk-adjusted assets $28,721.2 $27,020.2
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Regulatory Minimums
-----------------------------
Adequately Well
December 31 Capitalized Capitalized 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-based capital ratios:
Tier I 4% 6% 11.29% 10.92%
Total 8 10 13.97 13.70
Tier I leverage ratio 4 5 7.95 7.29
==============================================================================================================
</TABLE>
<TABLE>
The Corporation's risk-based capital and Tier I leverage ratios
substantially exceed the regulatory required minimums and, at December 31,
1995, all of the Corporation's subsidiaries were considered "well capitalized"
based on regulatory defined minimums.
18 RETIREMENT BENEFITS
Substantially all employees of the Corporation and its subsidiaries are
covered by the Boatmen's Bancshares, Inc. Retirement Plan for Employees, a
noncontributory defined benefit plan, or in the case of Fourth Financial
employees, the Fourth Financial Plan, which is in the process of being
merged with the Boatmen's Retirement Plan. Pension benefits are based upon
the employee's length of service and compensation during the final years of
employment. Normal service costs are funded currently using the projected
unit credit method.
An amendment was made to the Plan as of December 31, 1995 to standardize
credited service, which had the effect of increasing the projected benefit
obligation by approximately $22.8 million.
Contributions to the Plan totaled $7.9 million in 1995, $8.0 million in
1994, and $13.8 million in 1993.
<PAGE> 19
Net pension expense for 1995, 1994 and 1993 was comprised of the
following:
<CAPTION>
=================================================================================================
Year ended December 31 (in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $17,219 $16,413 $14,129
Interest cost on projected
benefit obligation 20,787 19,656 17,661
(Return) loss on plan assets (61,712) 1,022 (31,961)
Net amortization and deferral 37,376 (24,319) 11,395
- -------------------------------------------------------------------------------------------------
Net pension expense $13,670 $12,772 $11,224
=================================================================================================
</TABLE>
<TABLE>
The following table sets forth the retirement plan's funded status and
amounts recognized in the Corporation's consolidated financial statements:
<CAPTION>
December 31 (in thousands) 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value, primarily listed
stocks and bonds $314,798 $259,914
- -------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefits 240,504 182,596
Non-vested benefits 16,499 10,762
- -------------------------------------------------------------------------------------
Accumulated benefit obligation 257,003 193,358
Effect of projected future salary increases 78,589 52,300
- -------------------------------------------------------------------------------------
Projected benefit obligation 335,592 245,658
- -------------------------------------------------------------------------------------
Plan assets in excess of (lower than)
projected benefit obligation $(20,794) $ 14,256
=====================================================================================
Comprised of:
Unrecognized net asset being amortized
over 17 years $ 13,684 $ 16,018
Unrecognized net gain (loss) from past
experience different from that assumed
and effects of changes in assumptions (4,835) 238
Unrecognized prior service benefit (loss) (20,626) 1,176
Prepaid pension cost (liability) (9,017) (3,176)
- -------------------------------------------------------------------------------------
$(20,794) $ 14,256
=====================================================================================
</TABLE>
<TABLE>
Assumptions used in computing pension expense were:
<CAPTION>
===============================================================================================================
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 8-8-1/2% 7-7-1/2% 7-8%
Rate of increase in future
compensation levels 4-3/4-5-1/2% 4-3/4-5% 4-3/4-5-1/2%
Expected long-term rate of
return on assets 8-3/4% 8-3/4% 8-9-1/4%
===============================================================================================================
</TABLE>
<TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.25% and 4.70%-5.00%, respectively, at
December 31, 1995 and 8.50%-8.75% and 4.70%-5.50% respectively, at December
31, 1994.
The Corporation provides postemployment life and contributory medical
benefits to retired employees. The liability for such benefits is unfunded and
costs of such benefits are accrued in a manner similar to actual pension
costs.
<PAGE> 20
The following table presents the status of the plans:
<CAPTION>
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $52,371 $39,300
Fully eligible active plan participants 13,962 12,326
Other active plan participants 19,492 17,272
- --------------------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 85,825 68,898
- --------------------------------------------------------------------------------------
Unrecognized net gain 21,867 10,913
Unrecognized transition obligation 38,289 40,560
- --------------------------------------------------------------------------------------
Accrued postretirement
benefit cost $25,669 $17,425
======================================================================================
</TABLE>
<TABLE>
Net postretirement benefit cost included the following components:
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1,230 $ 1,460 $1,238
Interest cost 6,049 4,924 4,586
Amortization of transition
obligation over 20 years 2,906 4,338 2,396
- -------------------------------------------------------------------------------------------------------
Net postretirement benefit cost $10,185 $10,722 $8,220
=======================================================================================================
</TABLE>
<TABLE>
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits for the medical plan is 9.00% for 1996 (compared to
10.00% assumed for 1995) and is assumed to decrease gradually to 5.00% in 2003
and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care trend rates by one percentage point in each
year would increase the accumulated postretirement benefit obligation for the
medical plan as of December 31, 1995 by $6.7 million, and the aggregate of the
service and interest cost components of net periodic postretirement benefit
cost for 1995 by $.7 million. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.25% at
December 31, 1995 and 8.50% at December 31, 1994.
19 INCOME TAXES
Income tax expense is summarized as follows:
<CAPTION>
=====================================================================================================
Year ended December 31 (in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $221,860 $211,920 $182,897
State 36,299 34,806 30,803
- -----------------------------------------------------------------------------------------------------
Total current 258,159 246,726 213,700
- -----------------------------------------------------------------------------------------------------
Deferred:
Federal 3,970 10,778 (30,176)
State (1,119) (3,086) (9,209)
- -----------------------------------------------------------------------------------------------------
Total deferred 2,851 7,692 (39,385)
- -----------------------------------------------------------------------------------------------------
Income tax expense $261,010 $254,418 $174,315
=====================================================================================================
</TABLE>
<TABLE>
<PAGE> 21
A reconciliation of the statutory Federal income tax rate with the
effective tax rate is as follows:
<CAPTION>
======================================================================================================
Percent of pre-tax income
- ------------------------------------------------------------------------------------------------------
Year ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
Tax-exempt securities interest
and other income (4.0) (4.1) (5.3)
State taxes, net of Federal benefit 2.9 2.8 2.3
Deferred taxes at applicable rates (2.8)
Other, net 1.3 .4 (.3)
- ------------------------------------------------------------------------------------------------------
Effective rate 35.2% 34.1% 28.9%
======================================================================================================
</TABLE>
<TABLE>
The Corporation's deferred tax asset account was comprised of the
following:
<CAPTION>
===================================================================================
Year ended December 31 (in thousands) 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Lease financing $ (49,793) $ (29,657)
Net unrealized gain on
available for sale securities (6,463)
Depreciation (36,767) (33,168)
Purchase accounting adjustment (15,111) (20,412)
Other (36,083) (40,481)
- -----------------------------------------------------------------------------------
Total deferred tax liabilities (144,217) (123,718)
- -----------------------------------------------------------------------------------
Deferred tax assets:
Net unrealized loss on
available for sale securities 84,483
Provision for loan loss 182,620 174,809
Other real estate owned losses 11,496 17,800
Intangibles 18,697 14,790
Net operating loss carryforwards 22,976 29,926
Other 50,024 37,304
- -----------------------------------------------------------------------------------
Total deferred tax assets 285,813 359,112
- -----------------------------------------------------------------------------------
Net deferred tax asset $141,596 $235,394
===================================================================================
</TABLE>
<TABLE>
At December 31, 1995, the Corporation had net operating loss carryforwards
of $48,798, all of which relate to net operating losses of acquired companies.
Net operating loss carryforwards expire in years 1999 through 2007.
The Corporation has determined that it is not required to establish a
valuation allowance for the deferred tax asset since it is more likely than
not that the deferred asset of $141,596 will be realized through either
carryback to taxable income in prior years, future reversals of existing
taxable temporary differences and, to a lesser extent, future taxable income.
20 FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported fair values of financial instruments are based on a variety
of factors. Where possible, fair values represent quoted market prices for
identical or comparable instruments. In other cases, fair values have been
estimated based on assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates reflecting varying degrees of
risk. Intangible values assigned to customer relationships are not reflected
in the reported fair values. Accordingly, the fair values may not represent
actual values of the financial instruments that could have been realized as of
year end or that will be realized in the future.
The carrying amounts reported in the balance sheet for cash and due from
banks, short-term investments, Federal funds sold and securities purchased
under resale agreements approximate fair value.
Fair values for held to maturity securities, available for sale
securities, and trading securities are based on quoted market prices or dealer
quotes. If quoted prices are not available for the specific security, fair
values are based on quoted market prices of comparable instruments.
The fair values of 1-4 family residential loans, home equity and other
homogeneous categories of consumer loans are estimated using quoted market
prices for similar traded loans or securities backed by such loans, adjusted
for differences between the quoted instruments and the instrument being
valued. The fair values for other loans are estimated using a discounted cash
flow analysis, based on interest rates currently offered for loans with
similar terms to borrowers of similar credit quality or in some situations,
due to the variable rate nature of the instrument, carrying value and fair
value are considered one and the same.
Fair values for nonperforming loans are estimated using assumptions
regarding current assessments of collectibility and historical loss
experience.
By definition fair values of deposits with no stated maturities, such as
demand deposits, savings and NOW accounts and money market deposit accounts,
are equal to the amounts payable on demand at the reporting date. The fair
values of all other fixed rate deposits are based on discounted cash flows
<PAGE> 22
using rates currently offered for deposits of similar remaining maturities.
The carrying amounts of variable rate deposits approximate fair value at the
reporting date.
The carrying amounts of Federal funds purchased and other short-term
borrowings approximate their fair values as of the reporting date.
The fair value of long-term debt is based on quoted market prices for
similar issues, or current rates offered to the Corporation for debt of the
same remaining maturity.
The fair values of interest rate swaps and foreign exchange contracts are
estimated using dealer quotes. These values represent the costs to replace all
outstanding contracts at current market rates, taking into consideration the
current credit worthiness of the counterparties. The fair values of loan
commitments, commercial letters of credit and standby letters of credit are
determined using estimated fees currently charged to enter into similar
agreements. The fair value of loan commitments totaled approximately $1.9
million and $1.1 million at December 31, 1995 and 1994, respectively. The fair
value of commercial and standby letters of credit totaled approximately $1.5
million and $1.3 million at December 31, 1995 and 1994, respectively.
The estimated fair values of the Corporation's financial instruments were
as follows:
<CAPTION>
======================================================================================
December 31, 1995 (in millions) Carrying amount Fair value
- --------------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and due from banks and
short-term investments $ 3,920.6 $ 3,920.6
Held to maturity securities 923.1 973.8
Available for sale securities 10,347.2 10,347.2
Trading securities 58.4 58.4
Loans 23,598.3 23,939.7
Financial liabilities:
Deposits 31,978.1 32,065.2
Short-term borrowings 4,378.0 4,378.0
Long-term debt 615.1 660.5
Off-balance sheet financial instruments:
Interest rate swaps:
Asset/liability management (1.1) (5.2)
Customer swaps held in trading portfolio 1.6 1.6
Foreign exchange contracts held in
trading portfolio .5 .5
======================================================================================
<CAPTION>
December 31, 1994 (in millions) Carrying amount Fair value
- --------------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and due from banks and
short-term investments $ 3,723.9 $ 3,723.9
Held to maturity securities 7,175.2 6,813.7
Available for sale securities 5,170.6 5,170.6
Trading securities 32.4 32.4
Loans 22,268.1 22,079.6
Financial liabilities:
Deposits 31,108.7 31,096.4
Short-term borrowings 5,374.6 5,374.6
Long-term debt 599.5 585.3
Off-balance sheet financial instruments:
Interest rate swaps:
Asset/liability management (.5) (174.3)
Customer swaps held in trading portfolio .4 .4
Foreign exchange contracts held in
trading portfolio 2.3 2.3
======================================================================================
</TABLE>
<TABLE>
21 FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Corporation utilizes a variety of
off-balance sheet financial instruments to service the financial needs of
customers and to manage the Corporation's overall asset/liability position.
This activity includes commitments to extend credit, standby and commercial
letters of credit, securities lending, interest rate swaps and foreign
exchange contracts. Each of these instruments involve varying degrees of risk.
As such, the contract or notional amounts of these instruments may or may not
be an appropriate indicator of the credit or market risk associated with these
instruments.
Generally accepted accounting principles recognize these instruments as
contingent obligations or off-balance sheet items and accordingly, the
contract or notional amounts are not reflected in the consolidated financial
statements.
<PAGE> 23
A summary of the Corporation's off-balance sheet financial instruments at
December 31, 1995 and 1994 is presented as follows.
<CAPTION>
======================================================================================
Financial instruments held for other than trading purposes
whose credit risk is represented by contract amounts
- --------------------------------------------------------------------------------------
December 31 (in millions) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $10,742.6 $10,186.7
Standby letters of credit 1,162.1 1,003.4
Commercial letters of credit 111.1 167.9
Forward commitments 86.6 155.9
Securities lent 2,719.4 2,968.2
- --------------------------------------------------------------------------------------
Total $14,821.8 $14,482.1
======================================================================================
<CAPTION>
Financial instruments whose credit risk is represented by
other than notional or contract amounts
- --------------------------------------------------------------------------------------
December 31 (in millions) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Foreign exchange contracts held
in trading portfolio:
Commitments to purchase $ 344.3 $ 549.1
Commitments to sell 426.9 595.8
Interest rate swaps:
Asset/liability management 2,803.6 2,531.6
Customer swaps held in trading portfolio 852.2 649.2
- --------------------------------------------------------------------------------------
Total $4,427.0 $4,325.7
======================================================================================
</TABLE>
<TABLE>
A loan commitment represents a contractual agreement to lend up to a
specified amount, over a stated period of time as long as there is no
violation of any condition established in the contract, and generally requires
the payment of a fee. Standby letters of credit are issued to improve a
customer's credit standing with third parties, whereby the Corporation agrees
to honor a financial commitment by issuing a guarantee to third parties in the
event the Corporation's customer fails to perform. Since loan commitment
amounts generally exceed actual funding requirements and virtually all of the
standby letters of credit are expected to expire unfunded, the total
commitment amounts do not represent future cash requirements. The
Corporation's exposure to credit loss from loan commitments, standby letters
of credit and commercial letters of credit is measured by the contract amount
of these instruments. This credit risk is minimized by subjecting these
off-balance sheet instruments to the same credit policies and underwriting
standards used when making loans. The Corporation evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary, is based on such evaluations. Acceptable collateral
includes cash or cash equivalents, marketable securities, deeds of trust,
receivables, inventory, fixed assets and financial guarantees. Interest rates,
in the event funding of the aforementioned commitments are required, are
predominantly based on floating rates or prevailing market rates at the time
such commitments are funded. Substantially all of these commitments expire in
1-2 years unless renewed by the Corporation. Commercial letters of credit are
short-term commitments issued for trade purposes, primarily to finance the
movement of goods between a buyer and seller dealing in international markets.
The Corporation, through its mortgage banking subsidiary, obtains mandatory
forward commitments of up to 120 days to sell mortgage backed securities to
hedge the market risk associated with a substantial portion of the mortgage
loan commitments that are expected to close (mortgage loan pipeline), and all
mortgage loans held for sale. The Company's risk management function closely
monitors the mortgage loan pipeline to determine appropriate forward
commitment coverage on a daily basis in order to manage the risk inherent in
these off-balance-sheet financial instruments.
The Corporation, through its trust subsidiary, is involved in off-balance
sheet securities lending. In this capacity, the Corporation, acting as agent,
lends securities on behalf of its customers to third party borrowers. The
Corporation indemnifies its customers against losses in the event of
counterparty default, and minimizes this risk through collateral requirements
and limiting transactions to pre-approved borrowers. Collateral policies
require each borrower to initially deliver cash or securities equal to or
exceeding 102% of the market value of the securities lent. Additional
collateral is required through the term of the lending agreement to ensure
that the value of collateral exceeds the market value of the securities lent.
Interest rate risk associated with securities lending activities arises from
rate movements affecting the spread between the rebate rate paid to the
borrower on his collateral and the rate earned on that collateral. This risk
is controlled through policies that limit the level of interest rate risk
which can be undertaken.
The Corporation enters into interest rate swap transactions primarily as
part of its asset/liability management strategy to manage interest-rate risk.
These transactions involve the exchange of interest payments based on a
notional amount. The notional amounts of interest rate swaps express the
volume of transactions and are not an appropriate indicator of the off-balance
sheet market risk or credit risk. The credit risk associated with interest
rate swaps arises from the counterparties' failure to meet the terms of the
agreements and is limited to the fair value of contracts in a gain (favorable)
position. The Corporation manages this risk by maintaining a well-diversified
portfolio of highly-rated counterparties in addition to imposing limits as to
types, amounts and degree of risk the portfolio can undertake. The limits are
<PAGE> 24
approved by senior management and positions are monitored to ensure compliance
with such limits. The credit risk exposure at December 31, 1995 is minimal as
virtually all contracts were in an unfavorable position.
An effective asset/liability management function is required to address
the interest rate risk inherent in the Corporation's core banking activities.
If no other management action is taken, these core banking activities, which
include lending and deposit products, result in an asset-sensitive position.
Accordingly, the Corporation utilizes a variety of discretionary on- and
off-balance sheet strategies to prudently manage the overall interest rate
sensitivity position. The Corporation's interest rate risk exposure is
currently limited, by policy, to 5% of projected annual net income. Adherence
to these risk limits is controlled and monitored through simulation modeling
techniques that consider the impact alternative interest rate scenarios will
have on the Corporation's financial results.
In 1995, $850 million of new swaps were added and $578 million matured
such that at December 31, 1995, interest rate swaps totaled $2.8 billion. The
most recent swaps were executed as a means to convert a portion of the
Corporation's variable rate bank notes to fixed rate instruments. Interest
rate swaps executed in prior years were undertaken to modify the interest rate
sensitivity of subordinated debt as well as alter the interest rate
sensitivity of the Corporation's prime-based loan portfolio, converting a
portion of these loans to fixed rate instruments. Additionally, the
Corporation has utilized swaps to convert a portion of its long-term fixed
rate debt to a floating rate basis. Periodic correlation assessments are
performed to ensure that the swap instruments are effectively modifying the
interest rate characteristics of the respective balance sheet items.
As summarized in the following table, the swap portfolio is primarily
comprised of contracts wherein the Corporation receives a fixed rate of
interest while paying a variable rate. As such, the income contribution from
the swap portfolio will decrease in a rising rate environment and increase in
a falling rate environment. The average rate received at December 31, 1995,
was 5.71% compared to an average rate paid of 6.09%, and the average remaining
maturity of the total portfolio was less than one year. The variable rate
component of the interest rate swaps is based on LIBOR as of the most recent
reset date. The interest rate swaps are not leveraged in that they reset in
step with rate movements in the underlying index.
A summary of the interest rate swap activity for the years ended December
31, 1995 and December 31, 1994 is provided below.
<CAPTION>
========================================================================================================================
Asset/Liability Management Swaps Receive Pay Basis
(in millions) Fixed Fixed Swaps Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Notional amount,
December 31, 1993 $1,501 $231 $300 $2,032
Additions 1,100 50 1,150
Maturities (450) (100) (100) (650)
- ------------------------------------------------------------------------------------------------------------------------
Notional amount,
December 31, 1994 2,151 131 250 2,532
Additions 850 850
Maturities (323) (102) (153) (578)
- ------------------------------------------------------------------------------------------------------------------------
Notional amount,
December 31, 1995 $1,828 $879 $ 97 $2,804
========================================================================================================================
At December 31, 1995:
Average remaining
maturity (years) .9 .5 .2 .7
Weighted average rate received 5.58% 5.88% 6.76% 5.71%
Weighted average rate paid 5.99 6.29 6.06 6.09
========================================================================================================================
At December 31, 1994:
Average remaining
maturity (years) 2.2 .6 1.1 2.0
Weighted average rate received 5.56% 5.92% 5.55% 5.57%
Weighted average rate paid 6.05 5.33 5.72 5.98
========================================================================================================================
</TABLE>
<TABLE>
<PAGE> 25
Summarized below is the unrealized gain (loss) of the swap portfolio at
December 31, 1995 and 1994.
<CAPTION>
========================================================================================================================
December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
Asset/Liability Management Swaps Notional Unrealized Notional Unrealized
(in millions) Amount Gain (loss) Amount Gain (loss)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Loan Swaps:
Receive fixed $1,505 $(2.0) $1,800 $(155.6)
Basis swaps 97 .2 200 (3.8)
- ------------------------------------------------------------------------------------------------------------------------
Total prime loan swaps 1,602 (1.8) 2,000 (159.4)
Long-term debt swaps 200 (.7) 200 (8.6)
Bank note liability swaps 850 (2.5)
Other 152 (.2) 332 (6.3)
- ------------------------------------------------------------------------------------------------------------------------
Total $2,804 $(5.2) $2,532 $(174.3)
========================================================================================================================
</TABLE>
<TABLE>
Interest income and expense on interest rate swaps used to manage the
Corporation's overall interest rate sensitivity position is recorded on an
accrual basis as an adjustment of the yield of the related asset or liability
over the periods covered by the contracts.
The swap portfolio decreased net interest income by approximately $13
million in 1995, resulting in a reduction in the net interest margin of
approximately 4 basis points. In 1994, the swap portfolio increased net
interest income by $16 million adding approximately 5 basis points to the
margin. Based on interest rates at December 31, 1995, it is anticipated that
the swap portfolio will reduce net interest income by approximately $5 million
in 1996 and approximately $1 million in 1997; however, it is anticipated that
these declines will be offset by a higher contribution from core banking
activities. The estimated fair value of the swap portfolio, based on dealer
quotes, was an unrealized loss of $5.2 million at December 31, 1995, compared
to an unrealized loss of $174.3 million at December 31, 1994. The
Corporation's operating and liquidity position is not expected to be
materially impacted by the unrealized loss inherent in the swap portfolio.
Approximately 60% of the portfolio is comprised of indexed amortizing
swaps, whereby the maturity distribution could lengthen if interest rates
increase from current levels. Assuming interest rates were to increase 200
basis points from their current levels, the average maturity distribution of
the swap portfolio would extend by approximately 1.2 years, but in no event
would any component of the swap portfolio extend beyond 4.4 years. The
decision to use indexed amortizing swaps rather than some other financial
instrument is analogous to choices made between using on-balance sheet
instruments such as mortgage-backed securities and Treasury securities. While
both instruments can be effective at reducing the risk associated with the
asset sensitive profile of the core banking activities, the Corporation
frequently chooses to assume some modest extension/contraction characteristics
associated with investing in a mortgage-backed security. Indexed amortizing
swaps and mortgage-backed securities are similar in nature in that the
notional or principal values decline over time and changes in market rates
impact the degree to which the underlying instrument amortizes. The specific
indexed amortizing swaps used by the Corporation have a minimum term which can
potentially lengthen to a specified final maturity depending on the level of
movement in interest rates. While the underlying characteristics of the
specific indexed amortizing swaps used by the Corporation are similar to
on-balance sheet mortgage-backed securities, prepayment and other risk factors
are more predictable due to the structural features inherent in the swaps. Any
future utilization of off-balance sheet financial instruments will be
determined based upon the Corporation's overall interest rate sensitivity
position and asset/liability management strategies.
The Corporation has not terminated any of its interest rate swap
positions. Accordingly, there have been no deferred gains/losses associated
with this activity.
While the Corporation is primarily an end-user of derivative instruments,
it does act as an intermediary to meet the financial needs of its customers.
In this capacity, the Corporation executes foreign exchange transactions and
interest rate swaps to provide customers with capital markets products to
meet their financial objectives. All positions are reported at fair value and
changes in fair values are reflected in investment banking revenues as they
occur. Interest rate risk associated with the customer swap portfolio is
controlled by entering into offsetting positions with third parties. Including
these offsetting positions, the notional amount of the customer swap portfolio
at December 31, 1995 totaled approximately $852.2 million. Credit risk
associated with this activity is minimized by limiting transactions to highly
rated counterparties and through collateral agreements. Collateral is required
to be delivered when the credit risk exceeds acceptable thresholds, for
certain counterparties. Collateral thresholds are established based on the
creditworthiness of the counterparty and are bilateral. Acceptable collateral
includes U.S. Treasury and Federal agency securities. Foreign exchange
activity, which is marked to market based on prevailing rates of exchange, can
expose the Corporation to market risk, particularly when open positions exist,
and, to a lesser extent, credit risk associated with counterparties and their
ability to meet the terms of the foreign exchange contracts. The Corporation
minimizes market risk associated with foreign exchange activity by
establishing limits which prohibit traders from maintaining significant open
positions on a daily basis. The Corporation's exposure to credit risk on
foreign exchange contracts and customer swap contracts is measured as the cost
of replacing the contract in the event of default by the counterparty which is
limited to the market value of all contracts in a gain position. The
Corporation controls this credit risk by maintaining a well diversified
portfolio of highly rated counterparties and imposing counterparty limits and
<PAGE> 26
collateral protection which is monitored by a credit committee for compliance.
In addition, counterparty credit risk for all derivative activity is managed
by subjecting these transactions to credit policies and underwriting standards
consistent with that used when making commitments to extend credit. At
December 31, 1995, the Corporation's credit exposure from interest rate and
foreign exchange contracts totaled $8.4 million and $10.7 million,
respectively. The following summarizes the fair value at period end and the
average fair value for the years ended December 31, 1995 and 1994 for
derivatives held or issued for trading purposes.
<CAPTION>
======================================================================================================================
Derivatives Held or Issued for Trading Purposes--Fair Value
1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(in millions) Period end Average Period end Average
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-rate swap contracts:
Assets $ 8.4 $ 4.9 $ 4.7 $ 4.1
Liabilities (6.8) (3.9) (4.3) (3.6)
Foreign exchange contracts:
Assets 10.7 19.4 19.1 21.0
Liabilities (10.2) (18.2) (16.8) (18.9)
======================================================================================================================
</TABLE>
<TABLE>
Net trading gains recognized in earnings on interest rate contracts
outstanding totaled $1.3 million in 1995, $.2 million in 1994 and $.8 million
in 1993. Net trading gains from foreign exchange contracts totaled $6.9
million in 1995, $5.9 million in 1994 and $5.4 million in 1993.
22 PARENT COMPANY CONDENSED
FINANCIAL STATEMENTS
Following are the condensed financial statements of Boatmen's Bancshares,
Inc. (Parent Company only) for the periods indicated:
<CAPTION>
Balance Sheet
=======================================================================================
December 31 (in thousands) 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 834 $ 33
Short-term investments 2,398 4,063
Investment in subsidiaries:
Banks and bank holding companies 3,504,291 3,044,242
Nonbanks 239,750 215,851
- ---------------------------------------------------------------------------------------
Total investment in subsidiaries 3,744,041 3,260,093
- ---------------------------------------------------------------------------------------
Advances to subsidiaries:
Bank 257,901 286,239
Nonbanks 57,163 38,466
- ---------------------------------------------------------------------------------------
Total advances to subsidiaries 315,064 324,705
- ---------------------------------------------------------------------------------------
Goodwill 84,413 89,874
Other assets 55,544 46,070
- ---------------------------------------------------------------------------------------
Total assets $4,202,294 $3,724,838
=======================================================================================
Liabilities:
Accounts payable and accrued liabilities $ 78,342 $ 54,275
Dividends payable 47,936 35,556
Short-term borrowings 49,497 43,531
Long-term debt 425,772 425,904
- ---------------------------------------------------------------------------------------
Total liabilities 601,547 559,266
- ---------------------------------------------------------------------------------------
Redeemable preferred stock 961 1,142
- ---------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 99,324 100,000
Common stock 158,068 156,084
Surplus 1,212,838 1,171,184
Unrealized net appreciation (depreciation),
available for sale securities 10,476 (134,521)
Retained earnings 2,137,176 1,886,199
Treasury stock (18,096) (14,516)
- ---------------------------------------------------------------------------------------
Total stockholders' equity 3,599,786 3,164,430
- ---------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $4,202,294 $3,724,838
=======================================================================================
</TABLE>
<TABLE>
<PAGE> 27
<CAPTION>
Statement of Income
=========================================================================================================
Year ended December 31 (in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries:
Banks and bank holding companies $276,654 $219,676 $216,425
Nonbanks 18,118 26,019 23,855
- ---------------------------------------------------------------------------------------------------------
Total dividends from subsidiaries 294,772 245,695 240,280
- ---------------------------------------------------------------------------------------------------------
Fees from subsidiaries 14,436 15,177 33,316
Interest on short-term investments 146 829 988
Interest on advances to subsidiaries 16,114 11,545 6,713
Other 5,912 760 791
- ---------------------------------------------------------------------------------------------------------
Total income 331,380 274,006 282,088
- ---------------------------------------------------------------------------------------------------------
Expense:
Interest expense 41,116 35,924 32,062
Staff expense 40,523 29,691 31,120
Other 34,143 23,971 30,139
- ---------------------------------------------------------------------------------------------------------
Total expense 115,782 89,586 93,321
- ---------------------------------------------------------------------------------------------------------
Income before income tax benefit
and equity in undistributed
income of subsidiaries 215,598 184,420 188,767
Income tax benefit 23,499 18,465 14,932
- ---------------------------------------------------------------------------------------------------------
Income before equity in undistributed
income of subsidiaries 239,097 202,885 203,699
Equity in undistributed income
of subsidiaries 240,914 288,041 224,775
- ---------------------------------------------------------------------------------------------------------
Net income $480,011 $490,926 $428,474
=========================================================================================================
</TABLE>
<TABLE>
Retained earnings include $1,887,309 and $1,692,270 of equity in
undistributed income of subsidiaries at year-end 1995 and 1994, respectively.
Annual dividend distributions to the Corporation from its banking
subsidiaries are subject to certain limitations by applicable banking
regulatory authorities. In the aggregate, the statutory maximum available
dividends which may be paid to the Corporation without prior regulatory
approval is $725,319, resulting in $2,991,210 or 80.0% of the total equity of
the subsidiaries being potentially restricted as of December 31, 1995.
<PAGE> 28
<CAPTION>
Statement of Cash Flows
=========================================================================================================
Year ended December 31 (in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 480,011 $ 490,926 $ 428,474
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 4,458 4,435 4,127
Equity in undistributed income
of subsidiaries (240,914) (288,041) (224,775)
(Gain) loss on sale of assets (5,049) 30 237
Increase (decrease) in taxes
payable (5,311) (3,435) 105
Other, net 26,374 14,452 (6,796)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities 259,569 218,367 201,372
- ---------------------------------------------------------------------------------------------------------
Cash flows from investment activities:
Purchase of net assets and increase in
investment in subsidiaries (57,985) (26,524) (125,364)
Net change in advances to subsidiaries 9,641 (54,903) (141,054)
Net change in short-term investments 1,665 12,340 78,597
Net change in property and equipment (183) 50 (3,595)
- ---------------------------------------------------------------------------------------------------------
Net cash used for
investing activities (46,862) (69,037) (191,416)
- ---------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in short-term borrowings 5,966 (6,103) (6,390)
Repayments of long-term debt (14) (1) (5,003)
Proceeds from issuance of
long-term debt 99,281
Cash dividends paid (170,757) (132,690) (112,216)
Common stock issued pursuant to
various employee and shareholder
stock issuance plans 29,561 4,530 16,993
Acquisition of treasury stock (76,479) (15,406) (3,102)
Decrease in redeemable preferred stock (183) (13) (93)
- ---------------------------------------------------------------------------------------------------------
Net cash used for
financing activities (211,906) (149,683) (10,530)
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 801 (353) (574)
Cash at beginning of year 33 386 960
- ---------------------------------------------------------------------------------------------------------
Cash at end of year $ 834 $ 33 $ 386
=========================================================================================================
23 LEGAL PROCEEDINGS
Various claims and lawsuits, incidental to the ordinary course of
business, are pending against the Corporation and its subsidiaries. In the
opinion of management, after consultation with legal counsel, resolution of
these matters is not expected to have a material effect on the consolidated
financial statements.
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Boatmen's Bancshares, Inc.
We have audited the accompanying supplemental consolidated balance
sheets of Boatmen's Bancshares, Inc. (formed as a result of the
consolidation of Boatmen's Bancshares, Inc. and Fourth Financial
Corporation) as of December 31, 1995 and 1994, and the related
supplemental consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. The supplemental consolidated financial statements
give retroactive effect to the merger of Boatmen's Bancshares, Inc. and
Fourth Financial Corporation on January 31, 1996, which has been
accounted for using the pooling of interests method as described in the
notes to the supplemental consolidated financial statements. These
supplemental financial statements are the responsibility of the
management of Boatmen's Bancshares, Inc. Our responsibility is to
express an opinion on these supplemental 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 supplemental
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the supplemental consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Boatmen's Bancshares, Inc. at
December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1995, after giving retroactive effect to the merger
with Fourth Financial Corporation, as described in the notes to the
supplemental consolidated financial statements, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 18, 1996 (except for the pooling of
interests with Fourth Financial Corporation
as of January 31, 1996, and Note 3, for
which the date is January 31, 1996)
</TABLE>
EXHIBIT 99.5
Consent of Independent Auditors
We consent to the incorporation by reference in this Current
Report (Form 8-K) of NationsBank Corporation of our report
dated January 18, 1996 (except for the pooling of interest with
Fourth Financial Corporation as of January 31, 1996, and Note
3, for which the date is January 31, 1996) with respect to the
supplemental consolidated financial statements of Boatmen's
Bancshares, Inc. for the years ended December 31, 1995, 1994,
and 1993, which are incorporated by reference in this Current
Report (Form 8-K).
We also consent to the incorporation by reference into each
NationsBank Corporation registration statement listed below of
our report referred to above.
Registration Statements on Form S-3
Number Description
33-44826 Dividend Reinvestment and Stock
Purchase Plan
33-57533 $3 billion shelf
33-63097 $3 billion shelf
333-7229 $3 billion shelf
Registration Statements on Form S-8
Number Description
2-91958 1978 KESOP (additional shares)
2-73761 1978 KESOP
2-80406 Stock Thrift Plan
33-45279 C&S/Sovran Plan
33-48883 1992 Associates' Stock Option
Award Plan
33-60695 Key Employee Stock Purchase Plan
33-43125 C&S/Sovran Plans
33-55145 RHNB Plans
33-63351 Bank South Plans
33-62069 ICBK Plans
33-62208 MNC ESP Shares
333-02875 Directors Stock Plan
333-07105 1996 Associates' Stock Option
Award Plan
/s/ Ernst & Young LLP
St. Louis, Missouri
September 5, 1996
