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REGISTRATION NO. [ ]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NATIONSBANK CORPORATION
(name of registrant as specified in its charter)
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<S> <C> <C>
NORTH CAROLINA 6711 56-0906609
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Code Number) Identification No.)
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NATIONSBANK CORPORATE CENTER
100 NORTH TRYON STREET
CHARLOTTE, NORTH CAROLINA 28255
(704) 386-5000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
PAUL J. POLKING
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
NATIONSBANK CORPORATION
NATIONSBANK CORPORATE CENTER
100 NORTH TRYON STREET
CHARLOTTE, NORTH CAROLINA 28255
(704) 386-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
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R. DOUGLAS HARMON JOHN P. GREELEY
SMITH HELMS MULLISS & MOORE, L.L.P. SMITH, MACKINNON, GREELEY, BOWDOIN
214 NORTH CHURCH STREET & EDWARDS, P.A.
CHARLOTTE, NORTH CAROLINA 28202 255 SOUTH ORANGE AVENUE, SUITE 800
(704) 343-2000 ORLANDO, FLORIDA 32801
(407) 843-7300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box:
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER-
BE REGISTERED REGISTERED PER UNIT ING PRICE
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Common Stock................ 1,224,200 shares (1) $123,567,688 (2)
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TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO REGISTRATION
BE REGISTERED FEE
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Common Stock................ $37,445
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(1) Not applicable
(2) Computed in accordance with Rule 457(f) under the Securities Act of 1933, as
amended, based on the average of the high and low prices reported on The
Nasdaq Stock Market on January 15, 1997 of the securities to be received by
the Registrant in exchange for the securities registered hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION DATED JANUARY 22, 1997
PROXY STATEMENT-PROSPECTUS , 1997
PROSPECTUS
This Proxy Statement-Prospectus relates to the shares of common stock (the
"NationsBank Common Stock") of NationsBank Corporation, a North Carolina
corporation ("NationsBank"), offered hereby to the stockholders of First Federal
Savings Bank of Brunswick, Georgia, a federally chartered stock savings bank
organized and existing under the laws of the United States ("First Federal"),
upon consummation of a proposed merger (the "Merger") of Interim First Federal
Savings Bank of Brunswick, Charlotte, North Carolina, an interim federal stock
savings bank and wholly owned subsidiary of NationsBank ("Merger Sub"), with and
into First Federal. The Merger will be effected pursuant to a series of
agreements and amendments thereto between NationsBank (as successor to
C&S/Sovran Corporation, The Citizens and Southern Corporation, Citizens and
Southern Georgia Corporation and The Citizens and Southern National Bank
(collectively, "C&S/Sovran")) and First Federal, two orders issued by the
Superior Court of Glynn County, Georgia (the "Court") in connection with
litigation brought by First Federal against predecessors of NationsBank (the
"Litigation") and certain letters between NationsBank and First Federal
(collectively, the "Agreement"). The Agreement and the Litigation are more fully
described below in "SUMMARY -- General" and " -- Litigation" and "THE
MERGER -- Background of the Merger."
Upon completion of the Merger (the "Effective Date"), the outstanding
shares of First Federal common stock, $1.00 par value per share ("First Federal
Common Stock"), will be converted into the right to receive an aggregate of
1,224,200 shares of NationsBank Common Stock (assuming that all First Federal
Options (as defined below) are exercised prior to the Effective Date), which
equates to 0.80 shares of NationsBank Common Stock for each share of First
Federal Common Stock (the "Exchange Ratio"), based upon the calculations set
forth in the Share Calculation Letter (as defined below). Consummation of the
Merger is subject to several conditions, including, among others, the approval
of the stockholders of First Federal and the approval of appropriate regulatory
agencies. Upon consummation of the merger of Merger Sub with and into First
Federal, First Federal will be the surviving entity and will continue to conduct
its business and operations after the merger as a wholly owned subsidiary of
NationsBank and as a federal stock savings bank under the name of First Federal
Savings Bank of Brunswick, Georgia. See "THE MERGER -- Description of the
Merger" and " -- Conditions to the Merger."
NationsBank Common Stock is listed on the New York Stock Exchange, Inc.
(the "NYSE") and The Pacific Stock Exchange Incorporated (the "PSE") under the
trading symbol "NB." NationsBank Common Stock is also listed on the London Stock
Exchange (the "LSE") and certain shares of NationsBank Common Stock are listed
also on the Tokyo Stock Exchange. The last reported sales price of NationsBank
Common Stock on the NYSE Composite Transactions List on , 1997 was
$ per share and on October 10, 1996, the last trading day preceding the
final order of the Court related to the Litigation, was $87.50 per share. First
Federal Common Stock is traded on The Nasdaq Stock Market as a National Market
System security under the trading symbol "FFBG." The last reported sales price
per share of First Federal Common Stock as reported by The Nasdaq Stock Market
on , 1997 was $ per share and on October 10, 1996 was $72.00
per share. See "PRICE RANGE OF COMMON STOCK AND DIVIDENDS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH
CAROLINA (THE "COMMISSIONER") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION, THE COMMISSIONER OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF NATIONSBANK COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR BANK DEPOSITS, ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR
NON-BANKING AFFILIATE OF NATIONSBANK AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS OF
FIRST FEDERAL SAVINGS BANK
OF BRUNSWICK, GEORGIA TO BE HELD
APRIL 11, 1997
THIS PROXY STATEMENT-PROSPECTUS SERVES AS A PROXY STATEMENT OF FIRST FEDERAL IN
CONNECTION WITH THE SOLICITATION OF PROXIES TO BE USED AT THE SPECIAL MEETING OF
STOCKHOLDERS OF FIRST FEDERAL TO BE HELD ON APRIL 11, 1997 FOR THE PURPOSES
DESCRIBED HEREIN (THE "SPECIAL MEETING") AND IS FIRST BEING MAILED TO
STOCKHOLDERS OF FIRST FEDERAL ON OR ABOUT , 1997.
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No person is authorized to give any information or make any representation
other than those contained or incorporated in this Proxy Statement-Prospectus,
and, if given or made, such information or representation should not be relied
upon as having been authorized by NationsBank or First Federal. This Proxy
Statement-Prospectus does not constitute an offer to exchange or sell, or a
solicitation of an offer to exchange or purchase, the securities offered by this
Proxy Statement-Prospectus, or the solicitation of a proxy, in any jurisdiction
in which such offer or solicitation is not authorized or to or from any person
to whom it is unlawful to make such offer or solicitation. The information
contained in this Proxy Statement-Prospectus speaks as of the date hereof unless
otherwise specifically indicated. Information contained in this Proxy
Statement-Prospectus regarding NationsBank has been furnished by NationsBank,
and information herein regarding First Federal has been furnished by First
Federal.
TABLE OF CONTENTS
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</TABLE>
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AVAILABLE INFORMATION................................ 3
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE....................................... 3
SUMMARY.............................................. 5
THE SPECIAL MEETING OF STOCKHOLDERS
OF FIRST FEDERAL................................... 17
General............................................ 17
Proxies............................................ 17
Solicitation of Proxies............................ 17
Record Date and Voting Rights...................... 17
Recommendation of First Federal Board of
Directors....................................... 18
THE MERGER........................................... 18
Description of the Merger.......................... 18
Effective Date of the Merger....................... 19
Exchange of Certificates........................... 19
Background of the Merger........................... 19
NationsBank Reasons for the Merger................. 22
First Federal Reasons for the Merger............... 22
Opinion of First Federal's Financial Advisor....... 23
Effect on First Federal Options.................... 26
Conditions to the Merger........................... 27
Conduct of Business Prior to the Merger............ 28
Modification, Waiver and Termination;
Expenses........................................ 29
Certain Federal Income Tax Consequences............ 30
Interests of Certain Persons in the Merger......... 31
Absence of Dissenters' Rights...................... 32
Accounting Treatment............................... 32
Bank Regulatory Matters............................ 32
Restrictions on Resales by Affiliates.............. 33
Dividend Reinvestment and Stock
Purchase Plan................................... 34
PRICE RANGE OF COMMON STOCK AND
DIVIDENDS.......................................... 35
NationsBank........................................ 35
First Federal...................................... 35
INFORMATION ABOUT NATIONSBANK........................ 35
General............................................ 35
Management and Additional Information.............. 36
Supervision and Regulation......................... 36
INFORMATION ABOUT FIRST FEDERAL...................... 39
General............................................ 39
Management and Additional Information.............. 39
Supervision and Regulation......................... 39
COMPARISON OF NATIONSBANK COMMON
STOCK AND FIRST FEDERAL COMMON
STOCK.............................................. 42
NationsBank........................................ 42
First Federal...................................... 42
Comparison of Voting and Other Rights.............. 43
LEGAL OPINIONS....................................... 45
EXPERTS.............................................. 45
SHAREHOLDER PROPOSALS................................ 45
OTHER MATTERS........................................ 45
APPENDIX A -- Opinion of Interstate/Johnson
Lane Corporation................................... A-1
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2
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AVAILABLE INFORMATION
NationsBank has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the shares of NationsBank Common Stock to be issued in connection
with the Merger. For further information pertaining to the shares of NationsBank
Common Stock to which this Proxy Statement-Prospectus relates, reference is made
to such Registration Statement, including the exhibits and schedules filed as a
part thereof. As permitted by the rules and regulations of the Commission,
certain information included in the Registration Statement is omitted from this
Proxy Statement-Prospectus. In addition, NationsBank is subject to certain of
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files certain reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference room of the Commission, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and copies of such materials can be obtained by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. The Commission maintains an
Internet web site that contains reports, proxy and information statements and
other information regarding issuers who file electronically with the Commission.
The address of that site is http://www.sec.gov. In addition, copies of such
materials are available for inspection and reproduction at the public reference
facilities of the Commission at its New York Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048; and at its Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Reports, proxy statements and other information concerning
NationsBank also may be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10005 and at the offices of the PSE, 301 Pine Street, San
Francisco, California 94104.
First Federal is subject to certain of the informational requirements of
the Office of Thrift Supervision ("OTS") under Section 12 (i) of the Exchange
Act and, in accordance therewith, files certain reports, proxy statements and
other information with the OTS. Such reports, proxy statements and other
information can be inspected and copied at prescribed rates at the public
reference facilities maintained by the OTS at 1776 G Street, N.W., Washington,
D.C. 20552. Copies of such materials can be obtained at prescribed rates by
writing to the OTS, 1700 G Street, N.W., Washington, D.C. 20552.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference in this Proxy Statement-Prospectus: (a) the
NationsBank Annual Report on Form 10-K for the year ended December 31, 1995, as
filed March 29, 1996; (b) the NationsBank Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996, as filed May 10, 1996; June 30, 1996, as filed
August 14, 1996; and September 30, 1996, as filed November 13, 1996; (c) the
description of NationsBank Common Stock contained in the NationsBank
registration statement filed pursuant to Section 12 of the Exchange Act as
modified by the NationsBank Current Report on Form 8-K filed January 16, 1997;
(d) the Boatmen's Bancshares, Inc. Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996, as filed on May 15, 1996, June 30, 1996, as filed
on August 12, 1996, and September 30, 1996, as filed on November 13, 1996; and
(e) the NationsBank Current Reports on Form 8-K filed January 12, 1996; February
1, 1996; March 8, 1996; April 17, 1996; May 16, 1996; July 5, 1996; July 31,
1996; September 6, 1996 (as amended on September 11, 1996 and November 13,
1996); September 20, 1996 (as amended on September 23, 1996); October 25, 1996;
November 14, 1996; December 4, 1996; December 17, 1996 (two Forms 8-K); and
January 16, 1997.
The following documents previously filed by First Federal with the OTS are
hereby incorporated by reference in this Proxy Statement-Prospectus: the First
Federal Annual Report on Form 10-K for the year ended September 30, 1996, as
filed December 30, 1996; and the First Federal Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996, as filed February , 1997.
In addition, all documents filed by NationsBank and First Federal with the
Commission and the OTS, respectively, pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the time at which
the Special Meeting has been finally adjourned are hereby deemed to be
incorporated by reference herein. Any statements contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement-Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement-Prospectus.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS RELATING TO
NATIONSBANK (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH EXHIBITS ARE NOT
SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE WITHOUT
CHARGE
3
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UPON REQUEST FROM JOHN E. MACK, SENIOR VICE PRESIDENT AND TREASURER, NATIONSBANK
CORPORATION, NATIONSBANK CORPORATE CENTER, CHARLOTTE, NORTH CAROLINA 28255,
TELEPHONE (704)386-5972. THE DOCUMENTS RELATING TO FIRST FEDERAL (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS WHICH EXHIBITS ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM
ROBERT B. SAMS, FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA, 777 GLOUCESTER
STREET, BRUNSWICK, GEORGIA 31520, TELEPHONE (912) 265-1410. NATIONSBANK OR FIRST
FEDERAL, AS THE CASE MAY BE, WILL SEND THE REQUESTED DOCUMENTS BY FIRST-CLASS
MAIL WITHIN ONE BUSINESS DAY OF THE RECEIPT OF THE REQUEST. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY APRIL 4, 1997.
Persons requesting copies of exhibits to such documents that are not
specifically incorporated by reference in such documents will be charged the
costs of reproduction and mailing.
4
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SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION SET FORTH ELSEWHERE
IN THIS PROXY STATEMENT-PROSPECTUS AND IS NOT INTENDED TO BE COMPLETE. IT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION CONTAINED
ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS, THE ACCOMPANYING APPENDIX AND THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
GENERAL
This Proxy Statement-Prospectus, notice of Special Meeting of First Federal
stockholders to be held on April 11, 1997 and form of proxy solicited in
connection therewith are first being mailed to First Federal stockholders on or
about , 1997. At the Special Meeting, the holders of First Federal
Common Stock will consider and vote on whether to approve the Agreement and the
transactions contemplated thereby.
For purposes of the Special Meeting and this Proxy Statement-Prospectus,
the Agreement is deemed to include the following documents, each of which is
filed as an exhibit to the Registration Statement of which this Proxy Statement-
Prospectus forms a part: Amended and Restated Agreement and Plan of
Reorganization, dated as of November 20, 1989, between NationsBank (as successor
to C&S/Sovran) and First Federal (the "Restated Agreement"); Amendment Number
One to the Amended and Restated Agreement and Plan of Reorganization, dated as
of August 20, 1990, between NationsBank (as successor to C&S/Sovran) and First
Federal ("Amendment No. 1"); Amendment Number Two to the Amended and Restated
Agreement and Plan of Reorganization, dated as of December 19, 1990, between
NationsBank (as successor to C&S/Sovran) and First Federal ("Amendment No. 2");
Order of the Court, dated December 16, 1994 (the "First Order"); Order of the
Court, dated October 11, 1996 (the "Second Order"); letter from First Federal to
NationsBank, dated November 12, 1996, regarding the calculation of the Exchange
Ratio (the "Share Calculation Letter"); and letter from First Federal to
NationsBank, dated January 17, 1997, regarding the waiver of certain provisions
of the Agreement (the "Waiver Letter").
THE COMPANIES
NATIONSBANK. NationsBank is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended (the "BHCA"), was organized under
the laws of the State of North Carolina in 1968 and has as its principal assets
the stock of its subsidiaries. Through its banking subsidiaries (the "Banks")
and its various non-banking subsidiaries, NationsBank provides banking and
banking-related services, primarily throughout the Southeast and Mid-Atlantic
states and Texas. As of December 31, 1996, NationsBank had total assets of
$185.79 billion. The principal executive offices of NationsBank are located at
NationsBank Corporate Center, 100 North Tryon Street, Charlotte, North Carolina
28255, and its telephone number is (704) 386-5000. All references herein to
NationsBank refer to NationsBank Corporation and its subsidiaries, unless the
context otherwise requires.
For additional information regarding NationsBank and the combined company
that would result from the Merger, see "THE MERGER," "INFORMATION ABOUT
NATIONSBANK" and "SUMMARY -- Recent Developments; Acquisition of Boatmen's
Bancshares, Inc."
FIRST FEDERAL. First Federal is a federally chartered stock savings bank,
originally chartered in 1926. First Federal is subject to supervision and
regulation by the OTS and the Federal Deposit Insurance Corporation ("FDIC"),
and its deposits are insured through the Savings Association Insurance Fund
("SAIF") of the FDIC. First Federal's operations are conducted from its
headquarters in Brunswick, Georgia, two branch offices in Brunswick, Georgia,
and two branch offices on St. Simon's Island, Georgia. As of December 31, 1996,
First Federal had total assets of $254 million, total deposits of $220 million,
and total stockholders' equity of $27 million. First Federal's principal
executive offices are located at 777 Gloucester Street, Brunswick, Georgia
31520, and its telephone number is (912) 265-1410.
For additional information regarding First Federal, see "THE MERGER" and
"INFORMATION ABOUT FIRST FEDERAL."
SPECIAL MEETING AND VOTE REQUIRED
The Special Meeting will be held on April 11, 1997, at which time the
stockholders of First Federal will be asked to approve the Agreement and the
transactions contemplated thereby. The record holders of First Federal Common
Stock at the close of business on (the "Record Date") are
entitled to notice of and to vote at the Special Meeting. On the Record Date,
there were approximately holders of record of First Federal Common Stock
and shares of First Federal Common Stock outstanding.
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of First Federal Common Stock is required to approve the
Agreement and the transactions contemplated thereby. As of the Record Date,
directors and executive
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officers of First Federal and their affiliates beneficially owned shares,
or %, of the First Federal Common Stock entitled to vote at the Special
Meeting. All such directors and officers have indicated that they intend to vote
such shares in favor of the Agreement, although they are not obligated to do so.
See "THE SPECIAL MEETING OF STOCKHOLDERS OF FIRST FEDERAL."
Shareholders of NationsBank are not required to approve the Agreement and
the transactions contemplated thereby.
THE MERGER
In the Merger, subject to the terms of the Agreement, Merger Sub will merge
with and into First Federal, which will be the surviving entity, and will
continue to conduct its business and operations after the Merger as a wholly
owned subsidiary of NationsBank and as a federal stock savings bank under the
name of First Federal Savings Bank of Brunswick, Georgia. Each executive officer
and each director of First Federal will resign as such, effective immediately
upon consummation of the Merger, and NationsBank will fill those positions, in
its discretion, immediately thereafter. All of the shares of NationsBank Common
Stock issued and outstanding on the Effective Date shall remain issued and
outstanding after the Effective Date and shall be unaffected by the Merger. Each
of the shares of Merger Sub common stock shall be converted into one share of
First Federal Common Stock. All of the shares of First Federal Common Stock
issued and outstanding on the Effective Date shall be converted into the right
to receive an aggregate of 1,224,200 shares of NationsBank Common Stock
(assuming that all First Federal Options are exercised prior to the Effective
Date), which equates to 0.80 shares of NationsBank Common Stock for each share
of First Federal Common Stock.
No fractional shares of NationsBank Common Stock will be issued as a result
of the Merger. Each holder of First Federal Common Stock who would otherwise be
entitled to receive a fraction of a share of NationsBank Common Stock (after
taking into account all of the shareholder's certificates) will receive, in lieu
thereof, the equivalent cash value of such fractional share based upon the
average closing price of a share of NationsBank Common Stock as reported by the
NYSE for the 20 trading days immediately preceding the five consecutive calendar
days immediately preceding the Effective Date (the "Base Period Trading Price"),
without interest.
There are currently outstanding options to acquire an aggregate of 5,111
shares of First Federal Common Stock (the "First Federal Options") pursuant to
the First Federal Savings Bank of Brunswick, Georgia 1984 Stock Option Plan (the
"First Federal Stock Option Plan"). The First Federal Options are held by Ben T.
Slade III, Chairman of the Board and President of First Federal (3,111 shares),
James H. Gash, Senior Vice President of First Federal (1,000 shares), and John
J. Rogers, Senior Vice President of First Federal (1,000 shares). Each of
Messrs. Slade, Gash and Rogers have notified First Federal in writing that he
intends to exercise all of his First Federal Options on or before the Effective
Date. Under the terms of the First Federal Stock Option Plan, no new First
Federal Options may be granted. Therefore, there will be no First Federal
Options outstanding on the Effective Date. See "THE MERGER -- Effect on First
Federal Options" and " -- Interests of Certain Persons in the Merger."
Consummation of the Merger is subject to several conditions, including,
among others, the approval of the stockholders of First Federal and the approval
of appropriate regulatory agencies. The Merger will be effected by filing the
Plan of Merger as part of the Articles of Combination executed by First Federal
and Merger Sub (the "Articles of Combination") with the OTS. See "THE
MERGER -- Conditions to the Merger."
For additional information relating to the Merger, see "THE MERGER."
LITIGATION
In September 1991, First Federal filed suit against C&S/Sovran alleging
that C&S/Sovran breached a merger agreement then in effect between them by
failing to use its best efforts to consummate the merger described therein and
further alleging that First Federal was entitled to damages and/or specific
performance of the agreement on terms unaffected by C&S/Sovran's alleged
breaches which, if granted, would result in an exchange of approximately one
share of C&S/Sovran stock for each share of First Federal stock. After extensive
discovery, the trial court split the case into two parts for separate
determinations of liability and, if necessary, damages. A jury trial was held on
the issue of liability in May 1994. That jury found that C&S/Sovran had breached
the merger agreement in March 1991. Following the jury trial, the Court issued
its First Order on December 16, 1994 requiring C&S/Sovran to specifically
perform the merger agreement. The issue remained as to when the transaction
would have closed but for C&S/Sovran's breach of the merger agreement, and this
issue was reserved for a second trial. The Georgia Supreme Court affirmed the
First Order in December 1995. In July 1996, a second jury found that the merger
would have closed on June 19, 1991 but for C&S/Sovran's breach of the merger
agreement. The Court then
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held an evidentiary hearing in August 1996 to determine certain issues relating
to the merger. On October 11, 1996, the Court issued its Second Order as a
result of which NationsBank (as successor to C&S/Sovran) is obligated to
specifically perform the terms of the merger agreement and to consummate the
merger as promptly as possible, consistent with applicable law, in accordance
with the merger agreement, as modified by the Second Order. The 1,224,200 shares
of NationsBank Common Stock to be offered to First Federal shareholders in the
Merger, as described above, was derived by the First Federal Board of Directors
from the Second Order.
The Second Order held that (a) the number of shares of NationsBank Common
Stock to be offered to First Federal's stockholders was 1,280,268 (subsequently
adjusted to 1,282,093 in accordance with the Share Calculation Letter) plus a
number of shares based on the difference between dividends paid on First Federal
Common Stock and dividends paid on C&S/Sovran common stock or NationsBank Common
Stock, as appropriate, since June 19, 1991 (the "Dividend Differential"); (b)
NationsBank may reduce the number of shares so offered by the amounts First
Federal is required to pay to its executive officers under certain change of
control agreements (the "Change in Control Agreements"); and (c) First Federal
may compensate its litigation attorneys at a rate of $200 per hour plus a lump
sum payment of $250,000, with the number of offered shares to be reduced by an
amount equal to any legal fees paid by First Federal in excess thereof,
including contingency fees First Federal believes it is obligated to pay under a
September 27, 1991 contingency agreement entered into by First Federal with its
litigation attorneys.
On November 12, 1996, First Federal sent to NationsBank the Share
Calculation Letter, which addresses the method by which the Second Order will be
implemented. Through a series of adjustments, the Share Calculation Letter
provides that $1,260,371 of the Dividend Differential will be paid in cash to
certain First Federal executive officers pursuant to the Change in Control
Agreements. The Share Calculation Letter provides further that First Federal
will pay its litigation attorneys the remaining Dividend Differential
($6,284,282) plus an amount equal to the fair market value of 57,893 shares of
NationsBank Common Stock in full satisfaction of the September 21, 1991
contingency fee agreement. As a result of these adjustments, an aggregate of
1,224,200 shares of NationsBank Common Stock will be offered to First Federal's
shareholders (assuming that all First Federal Options are exercised prior to the
Effective Date), which equates to 0.80 shares of NationsBank Common Stock for
each share of First Federal Common Stock.
See "THE MERGER -- Background of the Merger" for a more detailed
description of the Second Order and the Share Calculation Letter and " Interests
of Certain Persons in the Merger" for a more detailed description of the Change
in Control Agreements.
RECOMMENDATION OF BOARD OF DIRECTORS
First Federal's Board of Directors believes that the Merger is in the best
interests of First Federal and its stockholders and has unanimously approved the
Agreement and the transactions contemplated thereby. FIRST FEDERAL'S BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. FOR A DISCUSSION OF THE
FACTORS CONSIDERED BY THE FIRST FEDERAL BOARD OF DIRECTORS IN REACHING ITS
CONCLUSIONS, SEE "THE MERGER -- FIRST FEDERAL REASONS FOR THE MERGER."
OPINION OF FIRST FEDERAL'S FINANCIAL ADVISOR
Interstate/Johnson Lane Corporation ("Interstate/Johnson Lane"), which has
served as financial advisor to First Federal, has rendered its opinion to the
First Federal Board of Directors that the consideration to be received by
stockholders of First Federal upon consummation of the Merger is fair, from a
financial point of view, to the stockholders of First Federal. A copy of a
written confirmation of such opinion, dated the date hereof, is attached hereto
as Appendix A and should be read in its entirety with respect to assumptions
made, matters considered and limitations of the review undertaken by
Interstate/Johnson Lane in rendering such opinion. See "THE MERGER -- Opinion of
First Federal's Financial Advisor."
EFFECTIVE DATE OF THE MERGER
The Merger shall become effective on the date and at the time of
endorsement of the Articles of Combination filed with the OTS or on such other
date that the OTS declares the Merger effective. Unless otherwise mutually
agreed upon in writing by First Federal and NationsBank, the Effective Date
shall be as soon as practicable following the date that all of the conditions
precedent specified in the Agreement have been satisfied or waived by the party
permitted to do so pursuant to the terms of the Agreement. See "THE
MERGER -- Effective Date of the Merger" and " -- Conditions to the Merger."
7
<PAGE>
<PAGE>
COMPARISON OF NATIONSBANK COMMON STOCK AND FIRST FEDERAL COMMON STOCK
The rights of NationsBank shareholders and other corporate matters relating
to NationsBank Common Stock are controlled by the NationsBank Restated Articles
of Incorporation (the "NationsBank Articles") and Amended and Restated Bylaws
(the "NationsBank Bylaws") and by the North Carolina Business Corporation Act
(the "NCBCA"). The rights of First Federal stockholders and other corporate
matters relating to First Federal Common Stock are controlled by the Charter and
Bylaws of First Federal and by federal law. Upon consummation of the Merger,
stockholders of First Federal will become shareholders of NationsBank whose
rights will be governed by the NationsBank Articles and the NationsBank Bylaws
and by the provisions of the NCBCA. See "COMPARISON OF NATIONSBANK COMMON STOCK
AND FIRST FEDERAL COMMON STOCK."
MODIFICATION, WAIVER AND TERMINATION; EXPENSES
The Agreement provides that to the extent permitted by law, it may be
amended by a subsequent writing signed by NationsBank and First Federal upon the
approval of each of their respective Boards of Directors. However, the
provisions of the Agreement relating to the manner or basis in which shares of
First Federal Common Stock will be exchanged for NationsBank Common Stock shall
not be amended after the Special Meeting without the requisite approval of the
holders of the outstanding shares of First Federal Common Stock, and no
amendment to the Agreement shall modify the requirements relating to the
requisite regulatory approval and other action necessary to authorize the
execution, delivery and performance of the Agreement and the consummation of the
transactions contemplated thereby. See "THE MERGER -- Conditions to the Merger"
and " Bank Regulatory Matters." The Agreement provides that each party may waive
any default in the performance of any term of the Agreement, waive or extend the
time for the compliance or fulfillment of any obligations under the Agreement
and waive any of the conditions precedent to the Agreement, except any condition
which, if not satisfied, would result in the violation of any law or applicable
governmental regulation.
The Agreement may be terminated by majority vote of the Board of Directors
of both First Federal and NationsBank. The Agreement may also be terminated by
the majority vote of the Board of Directors of either First Federal or
NationsBank (i) in the event of a material breach of the Agreement by the other
party of any representation, warranty, covenant or agreement which cannot or has
not been cured within 30 days after written notice of such breach; (ii) if (a)
the approval of any governmental or other regulatory authority shall have been
denied by final non-appealable action or if any such action by such authority is
not appealed within the time limit for appeal or (b) the required approval of
the First Federal stockholders is not obtained; or (iii) in the event of the
acquisition of 40% or more of the outstanding shares of common stock of the
other party or the Board of Directors of the other party accepts or publicly
recommends acceptance of an offer from a third party to acquire 50% or more of
its common stock or consolidated assets.
In the Agreement, each of the parties has agreed to bear and pay all costs
and expenses incurred by it or on its behalf in connection with the transactions
contemplated by the Agreement, except for instances in which the Agreement is
terminated by First Federal for the reasons set forth in clauses (i) or (ii) (a)
of the preceding paragraph or by NationsBank for the reasons set forth in clause
(ii) (a) of the preceding paragraph, in which instances NationsBank shall
reimburse First Federal for any and all of the reasonable expenses incurred by
First Federal in attempting to effect the transactions contemplated by the
Agreement. Furthermore, if the Agreement is terminated by the willful breach of
a party, such party shall pay all reasonable expenses of the non-breaching party
incurred by such non-breaching party in attempting to effect the transactions
contemplated by the Agreement. Furthermore, the parties have agreed to each pay
one-half of the printing cost of this Proxy Statement-Prospectus and related
materials.
See "THE MERGER -- Modification, Waiver and Termination; Expenses."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization under Section
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"). King
& Spaulding, special tax counsel to First Federal, is expected to deliver an
opinion to the effect that no gain or loss will be recognized by the First
Federal stockholders as a result of the Merger to the extent that they receive
NationsBank Common Stock solely in exchange for their First Federal Common
Stock.
For a more complete description of the federal income tax consequences, see
"THE MERGER -- Certain Federal Income Tax Consequences."
8
<PAGE>
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of First Federal's management and Board of Directors may be
deemed to have interests in the Merger in addition to their interests, if any,
as stockholders of First Federal generally. Those interests include the Change
in Control Agreements, which provide for severance pay and other benefits to be
paid to Ben T. Slade III, Chairman of the Board and President of First Federal,
James H. Gash, Senior Vice President, John J. Rogers, Senior Vice President, and
Robert B. Sams, Vice President, upon the occurrence of a merger or other change
in control, including the Merger.
Messrs. Slade, Gash and Rogers hold First Federal Options to acquire 3,111
shares, 1,000 shares and 1,000 shares of First Federal Common Stock,
respectively. Each of Messrs. Slade, Gash and Rogers has notified First Federal
in writing that he will exercise all of his First Federal Options on or before
the Effective Date.
See "THE MERGER -- Interests of Certain Persons in the Merger."
ABSENCE OF DISSENTERS' RIGHTS
Holders of First Federal Common Stock are not entitled to any rights of
appraisal or other dissenters' rights with respect to the Merger. See "THE
MERGER -- Absence of Dissenters' Rights."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for by the purchase method
of accounting under generally accepted accounting principles. See "THE
MERGER -- Accounting Treatment."
REGULATORY APPROVALS
The Merger is subject to the approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), the OTS and the Georgia
Department of Banking and Finance (the "State Authority"). The Merger may not be
consummated until expiration of applicable regulatory waiting periods.
NationsBank and First Federal have filed all required applications for
regulatory review and approval or notice with the Federal Reserve Board, the OTS
and the State Authority in connection with the Merger. There can be no assurance
that such approvals will be obtained or as to the date of any such approvals.
See "THE MERGER -- Conditions to the Merger" and " -- Bank Regulatory Matters."
RESALES BY AFFILIATES
The Agreement provides that First Federal will use its best efforts to
cause each person who is identified by it as an affiliate to deliver to
NationsBank written agreement providing that such person will not sell, pledge,
transfer or otherwise dispose of the shares of First Federal Common Stock held
by such person except as contemplated by such agreement and will not sell,
pledge, transfer or otherwise dispose of the shares of NationsBank Common Stock
to be received by such person upon consummation of the Merger except in
compliance with applicable provisions of the Securities Act and the rules and
regulations thereunder and until such time as the financial results covering at
least 30 days of combined operations of First Federal and NationsBank have been
published within the meaning of Section 201.01 of the Securities and Exchange
Commission's Codification of Financial Reporting Policies. NationsBank shall not
be required to maintain the effectiveness of the Registration Statement under
the Securities Act for the purposes of resale of NationsBank Common Stock by
such affiliates. See "THE MERGER -- Restrictions on Resales by Affiliates."
SHARE INFORMATION AND MARKET PRICES
The NationsBank Common Stock is listed on the NYSE and the PSE under the
symbol "NB." The NationsBank Common Stock is also listed on the LSE and certain
shares are listed on the Tokyo Stock Exchange. As of December 31, 1996, there
were 286,746,154 shares of NationsBank Common Stock outstanding held by
approximately 106,345 holders of record. The First Federal Common Stock is
included for quotation in The Nasdaq Stock Market as a National Market System
security under the trading symbol "FFBG." As of the Record Date, there were
shares of First Federal Common Stock outstanding held by approximately
holders of record.
The following table sets forth the last sales price reported on the NYSE
Composite Transactions List for shares of NationsBank Common Stock on October
10, 1996, the last trading day preceding the Second Order, and on ,
1997. It also sets forth the last reported sales price per share reported by The
Nasdaq Stock Market for shares of First Federal Common Stock on October 10, 1996
and on , 1997. The First Federal Equivalent represents the last
sales price of a share of NationsBank Common Stock on such date multiplied by
the Exchange Ratio.
9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL
NATIONSBANK FIRST FEDERAL EQUIVALENT
<S> <C> <C> <C>
October 10, 1996.................................................................... $ 87.50 $ 72.00 $ 70.00
, 1997................................................................... $ $ $
</TABLE>
For additional information regarding the market prices of the NationsBank
Common Stock and First Federal Common Stock during the previous two years, see
"PRICE RANGE OF COMMON STOCK AND DIVIDENDS."
RECENT DEVELOPMENTS
ACQUISITION OF BOATMEN'S BANCSHARES, INC. On January 7, 1997, NationsBank
completed the acquisition of Boatmen's Bancshares, Inc., a corporation organized
and existing under the laws of the State of Missouri and registered as a bank
holding company under the BHCA. Pursuant to an Agreement and Plan of Merger
dated August 29, 1996, Boatmen's was merged into a wholly owned subsidiary of
NationsBank (the "Boatmen's Acquisition"). As permitted by the terms of the
Boatmen's Acquisition, common shareholders of Boatmen's elected to receive an
aggregate of approximately 98 million shares of NationsBank Common Stock (96% of
total consideration paid by NationsBank) and an aggregate of approximately $372
million in cash (4% of total consideration) in exchange for the shares of
Boatmen's common stock. NationsBank intends to continue its program of
repurchasing shares of NationsBank Common Stock so that the net shares of
NationsBank Common Stock issued in connection with the Boatmen's Acquisition
represent 60% of the total consideration paid by NationsBank in the Boatmen's
Acquisition.
In addition, (i) each share of Cumulative Convertible Preferred Stock,
Series A, of Boatmen's (the "Boatmen's Series A Preferred Stock") was converted
into one share of NationsBank's Cumulative Convertible Preferred Stock, Series A
(the "NationsBank New Series A Preferred Stock"); (ii) each share of 7%
Cumulative Redeemable Preferred Stock, Series B, of Boatmen's (the "Boatmen's
Series B Preferred Stock") was converted into one share of NationsBank's 7%
Cumulative Redeemable Preferred Stock, Series B (the "NationsBank New Series B
Preferred Stock"); and (iii) each depositary share relating to the Boatmen's
Series A Preferred Stock (the "Boatmen's Depositary Shares") was converted into
one depositary share of NationsBank (the "NationsBank Depositary Shares"). The
NationsBank New Series A Preferred Stock, NationsBank New Series B Preferred
Stock and NationsBank Depositary Shares have rights, preferences and terms
substantially identical to the rights, preferences and terms of the Boatmen's
Series A Preferred Stock, Boatmen's Series B Preferred Stock and Boatmen's
Depositary Shares, respectively.
The Boatmen's Acquisition constituted a tax-free reorganization under the
Code and was accounted for as a purchase. At December 31, 1996, Boatmen's had
total assets of $41 billion and had over 600 banking offices in Missouri,
Kansas, Arkansas, Oklahoma, New Mexico, Texas, Iowa, Illinois and Tennessee.
For additional information regarding the Boatmen's Acquisition, see
NationsBank's Current Report on Form 8-K filed September 6, 1996, as amended by
Form 8-K/A-1 filed September 11, 1996, Form 8-K/A-2 filed November 13, 1996, and
Form 8-K filed December 17, 1996, incorporated herein by reference.
RECENT NATIONSBANK FINANCIAL INFORMATION. NationsBank had net income for
1996 of $2.38 billion, a 22% increase over 1995 net income of $1.95 billion.
Earnings per share of common stock for 1996 were $8.00, compared to $7.13 per
share in 1995. For the fourth quarter of 1996, the net income was $632 million,
or $2.19 per share, as compared to $510 million, or $1.87 per share, in the
fourth quarter of 1995.
Taxable-equivalent net interest income increased 16% in 1996 to $6.42
billion. The net interest yield in 1996 was 3.62%, compared to 3.33% in 1995.
Noninterest income increased 18% to $3.65 billion in 1996, compared to $3.08
billion in 1995, due primarily to higher income from investment banking, deposit
accounts and mortgage-related activities. Noninterest expense was $5.67 billion
in 1996, compared to $5.16 billion in 1995, an increase of 10%.
The provision for credit losses increased to $605 million in 1996, compared
to $382 million in 1995. Net charge-offs were $598 million in 1996, or .48% of
average net loans, leases and factored accounts receivable, compared to $421
million, or .38% of average levels in 1995. The allowance for credit losses was
$2.32 billion at December 31, 1996, or 1.89% of net loans, leases and factored
accounts receivable, compared to $2.16 billion at December 31, 1995, or 1.85% of
net loans, leases and factored accounts receivable. The allowance represented
260% of nonperforming loans at December 31, 1996, compared to 306% at December
31, 1995. Total nonperforming assets were $1.04 billion on December 31, 1996, or
.85% of net loans, leases and factored accounts receivables and other real
estate owned, compared to $853 million on December 31, 1995, or .73% of net
levels.
10
<PAGE>
<PAGE>
Average loans and leases were $122.3 billion in 1996, a 12% increase over
1995, driven primarily by a 19% increase in average consumer loans. Average
deposits in 1996 were $107.59 billion, compared to $99.28 billion in 1995. On
December 31, 1996, total earning assets were $165.28 billion, of which net loans
and leases were $121.58 billion and securities were $14.39 billion.
Total shareholders' equity was $13.71 billion at December 31, 1996, or
7.38% of total assets. Return on average common shareholder equity was 18.53% in
1996, compared to 17.01% in 1995. Revenue growth outpaced expense growth,
improving the efficiency ratio in 1996 to 56.3%, compared to 59.8% in 1995.
At December 31, 1996, the NationsBank Tier 1 and total risk-based capital
ratios were 7.76% and 12.66%, respectively. The NationsBank's leverage ratio was
7.09% at December 31, 1996. NationsBank and its subsidiaries had issued an
outstanding $16.56 billion of senior debt instruments and $6.13 billion of
subordinated debt instruments at December 31, 1996.
COMPARATIVE UNAUDITED PER SHARE DATA
The following tables set forth (i) selected comparative per share data for
each of NationsBank and First Federal on an historical basis and (ii) selected
unaudited pro forma comparative per share data reflecting the consummation by
NationsBank of (a) the Merger, (b) the Boatmen's Acquisition and (c) the Merger
and the Boatmen's Acquisition. The unaudited pro forma comparative per share
data assume the Merger and the Boatmen's Acquisition had been consummated at the
beginning of the periods presented. The Merger and the Boatmen's Acquisition are
reflected in the unaudited pro forma data using the purchase method of
accounting. For a description of the effect of purchase accounting on the Merger
and the historical financial statements of NationsBank, see "THE
MERGER -- Accounting Treatment." The First Federal pro forma equivalent amounts
are presented with respect to each set of pro forma information, and have been
calculated by multiplying the corresponding pro forma combined amounts per share
of NationsBank Common Stock by the Exchange Ratio.
The unaudited pro forma comparative per share data reflect the Merger and
the Boatmen's Acquisition based upon preliminary purchase accounting
adjustments. Actual adjustments, which may include adjustments to additional
assets, liabilities and other items, will be made on the basis of appraisals and
evaluations as of the Effective Date and, therefore, are likely to differ from
those reflected in the unaudited pro forma comparative per share data.
The unaudited pro forma comparative per share data do not reflect any
direct costs, potential savings or revenue enhancements which are expected to
result from the consolidation of operations of NationsBank, First Federal and
Boatmen's and, therefore, do not purport to be indicative of the results of
future operations.
11
<PAGE>
<PAGE>
The comparative per share data presented are based on and derived from, and
should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of each of NationsBank, Boatmen's and
First Federal incorporated by reference herein. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Results of each of
NationsBank and Boatmen's for the nine months ended September 30, 1996 are not
necessarily indicative of results expected for the entire year, nor are pro
forma amounts necessarily indicative of results of operations or combined
financial position that would have resulted had the Merger and the Boatmen's
Acquisition been consummated at the beginning of the period indicated. All
adjustments, consisting of only normal recurring adjustments, necessary for a
fair statement of results of interim periods have been included.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
<S> <C> <C>
NATIONSBANK HISTORICAL
Earnings per common share (primary)...................................................... $ 5.82 $ 7.13
Cash dividends per common share.......................................................... 1.74 2.08
Shareholders' equity per common share (period end)....................................... 45.77 46.52
NATIONSBANK PRO FORMA COMBINED
Earnings per common share (1)
Pro forma combined for the Merger..................................................... 5.80 7.11
Pro forma combined for the Boatmen's Acquisition (2).................................. 4.82 5.77
Pro forma combined for the Merger and the Boatmen's Acquisition (2)................... 4.81 5.76
Cash dividends per common share (3)
Pro forma combined for the Merger..................................................... 1.74 2.08
Pro forma combined for the Boatmen's Acquisition (2).................................. 1.74 2.08
Pro forma combined for the Merger and the Boatmen's Acquisition (2)................... 1.74 2.08
Shareholders' equity per common share (period end)
Pro forma combined for the Merger..................................................... 45.67 46.42
Pro forma combined for the Boatmen's Acquisition (2).................................. 54.38 54.51
Pro forma combined for the Merger and the Boatmen's Acquisition (2)................... 54.27 54.39
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1996
<S> <C>
FIRST FEDERAL HISTORICAL
Earnings per common share.................................................................................... $ 1.42
Cash dividends per common share.............................................................................. .93
Shareholders' equity per common share (period end)........................................................... 17.29
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER YEAR ENDED
30, DECEMBER 31,
1996 1995
<S> <C> <C>
FIRST FEDERAL PRO FORMA EQUIVALENT (4)
Earnings per common share
Pro forma equivalent for the Merger........................................................ $ 4.64 $ 5.69
Pro forma equivalent for the Boatmen's Acquisition (2)..................................... 3.86 4.62
Pro forma equivalent for the Merger and the Boatmen's Acquisition (2)...................... 3.85 4.61
Cash dividends per common share
Pro forma equivalent for the Merger........................................................ 1.39 1.66
Pro forma equivalent for the Boatmen's Acquisition (2)..................................... 1.39 1.66
Pro forma equivalent for the Merger and the Boatmen's Acquisition (2)...................... 1.39 1.66
Shareholders' equity per common share (period end)
Pro forma equivalent for the Merger........................................................ 36.54 37.14
Pro forma equivalent for the Boatmen's Acquisition (2)..................................... 43.50 43.61
Pro forma equivalent for the Merger and the Boatmen's Acquisition (2)...................... 43.42 43.51
</TABLE>
(1) For purposes of preparing pro forma combined per share information, First
Federal's operating results for the nine months ended September 30, 1996 and
the year ended September 30, 1995 were combined with NationsBank's operating
results for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively.
12
<PAGE>
<PAGE>
(2) A cash election of 40% in the Boatmen's Acquisition has been assumed. An
actual cash election of approximately 4% was made by the holders of
Boatmen's common stock. However, NationsBank currently expects to repurchase
shares of NationsBank Common Stock from time to time so that the pro forma
impact of the Boatmen's Acquisition will be the issuance of approximately
60% of the aggregate consideration in NationsBank Common Stock and 40% of
the aggregate consideration in cash. See "SUMMARY -- Recent Developments;
Acquisition of Boatmen's Bancshares, Inc."
(3) Pro forma combined dividends per share represent historical dividends per
share paid by NationsBank.
(4) Pro forma equivalent amounts for the Merger are calculated by multiplying
the pro forma combined amounts by the Exchange Ratio. See "THE
MERGER -- Background of The Merger; Share Calculation Letter."
SELECTED FINANCIAL DATA
The following tables present (i) summary selected financial data for each
of NationsBank and First Federal on an historical basis and (ii) summary
unaudited pro forma selected financial data reflecting the consummation of the
Boatmen's Acquisition. The unaudited pro forma selected financial data have been
prepared giving effect to the Boatmen's Acquisition using the purchase method of
accounting.
The summary unaudited pro forma selected financial data for NationsBank
reflecting the acquisition of Boatmen's is based on and derived from, and should
be read in conjunction with, the historical consolidated financial statements
and the related notes thereto of each of NationsBank and Boatmen's, which are
incorporated herein by reference.
The summary unaudited pro forma selected financial data reflect the
Boatmen's Acquisition based upon preliminary purchase accounting adjustments.
Actual adjustments, which may include adjustments to additional assets,
liabilities and other items, will be made on the basis of appraisals and
evaluations as of the effective date thereof and, therefore, is likely to differ
from those reflected in the summary unaudited pro forma selected financial data.
NationsBank and Boatmen's expect that the combined company will achieve
substantial benefits from the Boatmen's Acquisition, including operating costs
savings and revenue enhancements. However, the summary unaudited pro forma
selected financial data does 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 and, therefore, does not purport to be
indicative of the results of future operations.
The summary selected financial data are based on and derived from, and
should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of each of NationsBank and First
Federal incorporated by reference herein. Results of NationsBank for the nine
months ended September 30, 1996 and for First Federal for the three months ended
December 31, 1996 are not necessarily indicative of results expected for the
entire year, nor are pro forma amounts necessarily indicative of results of
operations or combined financial position that would have resulted had the
Boatmen's Acquisition been consummated at the beginning of the period indicated.
All adjustments, consisting of only normal recurring adjustments, necessary for
a fair statement of results of interim periods have been included.
13
<PAGE>
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF NATIONSBANK
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE INFORMATION AND RATIOS)
Income statement
Income from earning assets......................... $ 10,438 $ 9,859 $ 13,220 $ 10,529 $ 8,327 $ 7,780 $ 9,398
Interest expense................................... 5,699 5,825 7,773 5,318 3,690 3,682 5,599
Net interest income................................ 4,739 4,034 5,447 5,211 4,637 4,098 3,799
Provision for credit losses........................ 455 240 382 310 430 715 1,582
Gains (losses) on sales of securities.............. 34 8 29 (13) 84 249 454
Noninterest income................................. 2,688 2,232 3,078 2,597 2,101 1,913 1,742
Merger-related charge.............................. 118 -- -- -- 30 -- 330
Noninterest expense (including OREO expense)....... 4,212 3,831 5,181 4,930 4,371 4,149 3,974
Income before income taxes and effect of change in
method of accounting for income taxes............ 2,676 2,203 2,991 2,555 1,991 1,396 109
Income tax expense (benefit)....................... 933 763 1,041 865 690 251 (93)
Net income......................................... 1,743 1,440 1,950 1,690 1,501(1) 1,145 202
Net income applicable to common shareholders....... 1,732 1,434 1,942 1,680 1,491(1) 1,121 171
Per common share
Net income (primary)............................... $ 5.82 $ 5.26 $ 7.13 $ 6.12 $ 5.78(1) $ 4.60 $ .76
Net income (fully diluted)......................... 5.73 5.19 7.04 6.06 5.72(1) 4.52 .75
Cash dividends paid................................ 1.74 1.50 2.08 1.88 1.64 1.51 1.48
Shareholders' equity (period end).................. 45.77 44.00 46.52 39.70 36.39 30.80 27.03
Balance sheet (period end)
Total assets....................................... $187,671 $182,138 $187,298 $169,604 $157,686 $118,059 $110,319
Total loans, leases and factored accounts
receivable, net of unearned income............... 122,078 114,601 117,033 103,371 92,007 72,714 69,108
Total deposits..................................... 108,132 97,870 100,691 100,470 91,113 82,727 88,075
Long-term debt..................................... 22,034 15,741 17,775 8,488 8,352 3,066 2,876
Common shareholders' equity........................ 13,186 11,904 12,759 10,976 9,859 7,793 6,252
Total shareholders' equity......................... 13,304 11,941 12,801 11,011 9,979 7,814 6,518
Common shares outstanding at period end
(in thousands)..................................... 288,112 270,544 274,269 276,452 270,905 252,990 231,246
Performance ratios
Return on average assets........................... 1.15%(2) 1.03%(2) 1.03% 1.02% .97% 1.00% .17%
Return on average common shareholders' equity
(3).............................................. 17.58(2) 17.02(2) 17.01 16.10 15.00 15.83 2.70
Risk-based capital ratios
Tier 1............................................. 7.05 7.16 7.24 7.43 7.41 7.54 6.38
Total.............................................. 12.05 11.23 11.58 11.47 11.73 11.52 10.30
Leverage capital ratio............................... 6.30 5.96 6.27 6.18 6.00 6.16 5.07
Total equity to total assets......................... 7.09 6.56 6.83 6.49 6.33 6.62 5.91
Asset quality ratios Allowance for credit losses as a
percentage of total loans, leases and factored
accounts receivable, net of unearned income (period
end)............................................... 1.90 1.89 1.85 2.11 2.36 2.00 2.32
Allowance for credit losses as a percentage of
nonperforming loans (period end)................. 235.64 255.57 306.49 273.07 193.38 103.11 81.82
Net charge-offs as a percentage of average loans,
leases and factored accounts receivable, net of
unearned income.................................. .48(2) .33(2) .38 .33 .51 1.25 1.86
Nonperforming assets as a percentage of net loans,
leases, factored accounts receivable, net of
unearned income, and other real estate owned
(period end)..................................... .93 .90 .73 1.10 1.92 2.72 4.01
</TABLE>
(1) Includes cumulative effect benefit of $200 million for the adoption of SFAS
109. The effect on primary and fully diluted earnings per share was $.78 and
$.77, respectively, for the year ended December 31, 1993.
(2) Annualized.
(3) Average common shareholders' equity does not include the effect of market
value adjustments to securities available for sale and marketable equity
securities.
14
<PAGE>
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF FIRST FEDERAL
<TABLE>
<CAPTION> THREE MONTHS
ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
1996 1995 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE INFORMATION)
Income statement
Income from earning assets...................................... $ 5 $ 5 $ 20 $ 19 $ 17 $ 17 $ 19
Interest expense................................................ 2 3 10 9 8 8 11
Net interest income.......................................... 3 2 10 10 9 9 8
Noninterest income.............................................. 1 1 3 2 2 2 3
Noninterest expense............................................. 2 2 10 7 7 7 7
Income before income taxes...................................... 2 1 3 5 4 4 4
Income tax expense.............................................. 1 -- 1 2 1 1 2
Net income...................................................... 1 1 2(1) 3 3 3 2
Per common share
Net income (loss)............................................... $ .64 $ .47 $1.42(1) $2.05 $2.17 $1.77 $1.50
Cash dividends declared......................................... .19 .36 .93 .89 .75 .61 .58
Balance sheet (period end)
Total assets.................................................... $ 254 $ 264 $ 249 $ 253 $ 232 $ 228 $ 221
Total loans, net of unearned discount........................... 219 195 210 187 179 173 158
Total deposits.................................................. 220 222 218 223 201 197 192
Long-term debt.................................................. 2 2 2 2 4 5 3
Shareholders' equity............................................ 27 26 26 26 24 22 20
Common shares outstanding at period end (in thousands)............ 1,500 1,500 1,500 1,500 1,498 1,497 1,497
</TABLE>
(1) Fiscal year 1996 results included a charge of approximately $1.4 million,
representing a provision made for the payment of a special assessment
imposed by Congress for the purpose of recapitalizing the thrift portion of
the Federal Deposit Insurance Fund. This charge reduced fiscal year 1996 net
income by approximately $1 million, or $.58 per share.
15
<PAGE>
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA FOR NATIONSBANK
REFLECTING THE BOATMEN'S ACQUISITION (1)
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE INFORMATION AND RATIOS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
<S> <C> <C>
INCOME STATEMENT
Income from earning assets.................................................................... $ 12,110 $ 15,450
Interest expense.............................................................................. 6,445 8,838
Net interest income......................................................................... 5,665 6,612
Provision for credit losses................................................................... 520 442
Gains on sales of securities.................................................................. 36 22
Noninterest income............................................................................ 3,320 3,840
Merger-related charge......................................................................... 178 --
Noninterest expense (including OREO expense).................................................. 5,525 6,924
Income before income taxes.................................................................... 2,798 3,108
Income tax expense............................................................................ 1,043 1,161
Net income.................................................................................... 1,755 1,947
Net income applicable to common shareholders.................................................. 1,739 1,932
Per common share
Net income (primary).......................................................................... $ 4.82 $ 5.77
Net income (fully diluted).................................................................... 4.77 5.72
Cash dividends paid (2)....................................................................... 1.74 2.08
Shareholders' equity (period end)............................................................. 54.38 54.51
Balance sheet (period end)
Total assets.................................................................................. $ 224,756 $ 224,803
Total loans, leases and factored accounts receivable, net of unearned income.................. 146,393 141,084
Total deposits................................................................................ 138,694 132,669
Long-term debt................................................................................ 26,533 22,285
Common shareholders' equity................................................................... 18,973 18,263
Total shareholders' equity.................................................................... 19,182 18,682
Common shares outstanding period end (in thousands)............................................. 348,895 335,052
Performance ratios
Return on average assets...................................................................... 0.98%(2) 0.86%
Return on average common shareholders' equity (4)............................................. 12.19(3) 11.37
Risk-based capital ratios (5)
Tier 1........................................................................................ 5.57 5.64
Total......................................................................................... 10.20 10.26
Leverage capital ratio.......................................................................... 5.03 4.94
Total equity to total assets.................................................................... 8.53 8.31
Asset quality ratios
Allowance for credit losses as a percentage of total loans, leases and factored accounts
receivable, net of unearned income (period end)............................................. 1.91 1.85
Allowance for credit losses as a percentage of nonperforming loans (period end)............... 242.60 297.50
Net charge-off's as a percentage of average loans, leases and factored accounts receivable,
net of unearned income...................................................................... 0.45(3) 0.36
Nonperforming assets as a percentage of net loans, leases, factored accounts receivable, net
of unearned income, and other real estate owned (period end)................................ 0.91 0.75
</TABLE>
(1) A cash election of 40% in the Boatmen's Acquisition has been assumed. An
actual cash election of approximately 4% was made by the holders of
Boatmen's common stock. However, NationsBank currently expects to repurchase
shares of NationsBank Common Stock from time to time so that the pro forma
impact of the Boatmen's Acquisition will be the issuance of approximately
60% of the aggregate consideration in NationsBank Common Stock and 40% of
the aggregate consideration in cash. See "SUMMARY -- Recent Developments;
Acquisition of Boatmen's Bancshares, Inc."
(2) Pro forma combined dividends per common share represent the historical
dividends per common share paid by NationsBank.
(3) Annualized.
(4) Average common shareholders' equity does not include the effect of market
value adjustments to securities available for sale and marketable equity
securities.
(5) NationsBank and Boatmen's expect the combined company to be well capitalized
under regulatory guidelines. Not included in the above capital ratios are
fourth quarter earnings net of dividends and the issuance of approximately
$1 billion of qualifying Tier 1 capital. See "SUMMARY -- Recent
Developments; Recent NationsBank Financial Information."
16
<PAGE>
<PAGE>
THE SPECIAL MEETING OF STOCKHOLDERS OF FIRST FEDERAL
GENERAL
This Proxy Statement-Prospectus is first being mailed to the holders of
First Federal Common Stock on or about , 1997, and is accompanied by
the notice of Special Meeting and a form of proxy that is solicited by the Board
of Directors of First Federal for use at the Special Meeting of Stockholders of
First Federal to be held on April 11, 1997 and at any adjournments or
postponements thereof. The purpose of the Special Meeting is to take action with
respect to the approval of the Agreement and the transactions contemplated
thereby.
PROXIES
A stockholder of First Federal may use the accompanying proxy if such
stockholder is unable to attend the Special Meeting in person or wishes to have
his or her shares voted by proxy even if such stockholder does attend the
meeting. A stockholder may revoke any proxy given pursuant to this solicitation
by delivering to the President of First Federal, prior to or at the Special
Meeting, a written notice revoking the proxy or a duly executed proxy relating
to the same shares bearing a later date, or by voting in person at the Special
Meeting. All written notices of revocation and other communications with respect
to the revocation of First Federal proxies should be addressed to First Federal
Savings Bank of Brunswick, Georgia, 777 Gloucester Street, Brunswick, Georgia
31520, Attention: Ben T. Slade III, President. For such notice of revocation or
later proxy to be valid, however, it must actually be received by First Federal
prior to the vote of the stockholders.
All shares represented by valid proxies received pursuant to the
solicitation, and not revoked before they are exercised, will be voted in the
manner specified therein. If no specification is made, the proxies will be voted
in favor of approval of the Agreement. The Board of Directors of First Federal
is unaware of any other matters that may be presented for action at the Special
Meeting. If other matters do properly come before the Special Meeting, however,
it is intended that shares represented by proxies in the accompanying form will
be voted or not voted by the persons named in the proxies in their discretion.
If there are not sufficient votes to approve the Agreement at the Special
Meeting, the proxy holder may vote in favor of a proposal to adjourn the Special
Meeting to permit further solicitation of proxies.
SOLICITATION OF PROXIES
Solicitation of proxies may be made in person or by mail, telephone or
facsimile, by directors, officers and employees of First Federal, who will not
be specially compensated for such solicitation. Nominees, fiduciaries and other
custodians will be requested to forward solicitation materials to beneficial
owners and to secure their voting instructions, if necessary, and will be
reimbursed for the expenses incurred in sending proxy materials to beneficial
owners. All costs of solicitation of proxies from First Federal stockholders
will be borne by First Federal; provided, however, that NationsBank and First
Federal have each agreed to pay one-half of the printing cost of this Proxy
Statement-Prospectus and related materials.
RECORD DATE AND VOTING RIGHTS
First Federal's Board of Directors has fixed the close of business on
, 1997, as the Record Date for determination of stockholders of
First Federal entitled to receive notice of and to vote at the Special Meeting.
At the close of business on the Record Date, there were outstanding shares
of First Federal Common Stock held by approximately holders of record.
Each share of First Federal Common Stock outstanding on the Record Date is
entitled to one vote as to (i) the approval of the Agreement and the
transactions contemplated thereby, and (ii) any other proposal that may properly
come before the Special Meeting. Approval of the Agreement will require the
affirmative vote of the holders of at least two-thirds of the issued and
outstanding First Federal Common Stock entitled to vote at the Special Meeting.
As of the Record Date, the directors and executive officers of First Federal and
their affiliates beneficially owned an aggregate of shares, or
%, of First Federal Common Stock entitled to vote at the Special Meeting.
All such directors and executive officers have indicated that they intend to
vote such shares in favor of the Agreement, although they are not obligated to
do so. Included in the shares of First Federal Common Stock beneficially owned
by First Federal's directors and executive officers and their affiliates are
shares held by First Federal's profit sharing plan. The voting power over
those shares is held by three of First Federal's directors in their capacities
as trustees for the plan. These directors have indicated that they intend to
vote those shares in favor of the Agreement. None of the directors or executive
officers, or their affiliates, of NationsBank owned any shares of First Federal
Common Stock as of the Record Date.
BECAUSE APPROVAL OF THE AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF THE
HOLDERS OF AT LEAST TWO-THIRDS OF THE OUTSTANDING SHARES OF FIRST FEDERAL COMMON
STOCK, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS NEGATIVE
VOTES. ACCORDINGLY,
17
<PAGE>
<PAGE>
THE BOARD OF DIRECTORS OF FIRST FEDERAL URGES ITS STOCKHOLDERS TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
RECOMMENDATION OF FIRST FEDERAL BOARD OF DIRECTORS
First Federal's Board of Directors believe that the Merger is in the best
interests of First Federal and its stockholders and has unanimously approved the
Agreement and the transactions contemplated thereby. FIRST FEDERAL'S BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. See "THE
MERGER -- Background of the Merger" and " -- First Federal Reasons for the
Merger."
THE MERGER
THE FOLLOWING SUMMARY OF CERTAIN TERMS AND PROVISIONS OF THE AGREEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE AGREEMENT, WHICH IS INCORPORATED
HEREIN BY REFERENCE AND IS INCLUDED IN THE EXHIBITS FILED WITH THE REGISTRATION
STATEMENT, OF WHICH THIS PROXY STATEMENT-PROSPECTUS IS A PART.
DESCRIPTION OF THE MERGER
At the Effective Date, subject to the terms of the Agreement, Merger Sub
will merge with and into First Federal, the separate corporate existence of
Merger Sub will cease and First Federal will survive and continue to exist and
to be governed by the laws of the United States as a federal stock savings bank
operating under the name First Federal Savings Bank of Brunswick, Georgia and as
a wholly owned subsidiary of NationsBank. Each executive officer and each
director of First Federal has submitted his resignation as such, effective
immediately upon consummation of the Merger, and NationsBank is expected to fill
those positions, in its discretion, immediately thereafter. The Merger is
subject to the approvals of the Federal Reserve Board, the OTS and the State
Authority. See "THE MERGER -- Bank Regulatory Matters."
All of the shares of NationsBank Common Stock issued and outstanding on the
Effective Date shall remain issued and outstanding after the Effective Date and
shall be unaffected by the Merger. Each outstanding share of Merger Sub common
stock shall be converted into one share of First Federal Common Stock. The
outstanding shares of First Federal Common Stock will be converted into an
aggregate of 1,224,200 shares of NationsBank Common Stock (assuming the exercise
of all First Federal Options prior to the Effective Date), which equates to an
Exchange Ratio of 0.80 shares of NationsBank Common Stock for each share of
First Federal Common Stock. Cash will be paid in lieu of any resulting
fractional shares of NationsBank Common Stock.
There are currently outstanding options to acquire an aggregate of 5,111
shares of First Federal Options pursuant to the First Federal Stock Option Plan.
The First Federal Options are held by Ben T. Slade III (3,111 shares), James H.
Gash (1,000 shares), and John J. Rogers (1,000 shares). Each of Messrs. Slade,
Gash and Rogers have notified First Federal in writing that he intends to
exercise all of his First Federal Options on or before the Effective Date. Under
the terms of the First Federal Stock Option Plan, no new First Federal Options
may be granted. Therefore, there will be no First Federal Options outstanding on
the Effective Date. See "THE MERGER -- Effect on First Federal Options" and
" -- Interests of Certain Persons in the Merger."
No fractional shares of NationsBank Common Stock will be issued as a result
of the Merger. Each holder of First Federal Common Stock who would otherwise be
entitled to receive a fraction of a share of NationsBank Common Stock (after
taking into account all of the stockholder's certificates) will receive, in lieu
thereof, the equivalent cash value of such fractional share based upon the
average closing price of a share of NationsBank Common Stock as reported by the
NYSE for the 20 trading days immediately preceding the five consecutive calendar
days immediately preceding the Effective Date.
In the event NationsBank changes the number of shares of NationsBank Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, or similar recapitalization, the Exchange Ratio will be
adjusted to appropriately adjust the ratio under which shares of First Federal
Common Stock will be converted into and exchanged for shares of NationsBank
Common Stock.
Consummation of the Merger is subject to several conditions, including,
among others, the approval of the stockholders of First Federal and the approval
of appropriate regulatory agencies. The Merger will be effected by filing the
Plan of Merger as part of the Articles of Combination executed by First Federal
and Merger Sub with the OTS. See "THE MERGER -- Conditions to the Merger."
18
<PAGE>
<PAGE>
EFFECTIVE DATE OF THE MERGER
The Merger shall become effective on the date and at the time of
endorsement of the Articles of Combination filed with the OTS or on such other
date that the OTS declares the Merger effective. Unless otherwise mutually
agreed upon in writing by First Federal and NationsBank, the Effective Date
shall be as soon as practicable following the date that all of the conditions
precedent specified in the Agreement have been satisfied or waived by the party
permitted to do so pursuant to the terms of the Agreement.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Date, but in no event later than
two business days after the Effective Date, a form of transmittal letter
("Transmittal Letter") pursuant to which each holder of shares of First Federal
Common Stock may transmit certificates representing shares of First Federal
Common Stock in exchange for shares of NationsBank Common Stock in accordance
with the Exchange Ratio, and any other appropriate materials, shall be mailed by
NationsBank or the exchange agent selected by NationsBank, to each holder of
record of First Federal Common Stock as of the Effective Date.
After the Effective Date, each holder of shares of First Federal Common
Stock issued and outstanding on the Effective Date shall surrender the
certificate or certificates representing such shares, together with a properly
completed Transmittal Letter, to the exchange agent selected by NationsBank and
shall promptly upon surrender receive in exchange therefor shares of NationsBank
Common Stock in accordance with the Exchange Ratio. The certificate or
certificates of First Federal Common Stock so surrendered shall be duly endorsed
as NationsBank or the exchange agent may require. No fractional shares of
NationsBank Common Stock will be issued as a result of the Merger. Each holder
of shares of First Federal Common Stock issued and outstanding on the Effective
Date also shall receive, upon surrender of the certificate or certificates
representing such shares, cash, without interest, in lieu of any fractional
share of NationsBank Common Stock to which such holder may be entitled.
NationsBank shall not be obligated to deliver the consideration to which any
former holder of First Federal Common Stock is entitled as a result of the
Merger until such holder surrenders his certificate or certificates representing
the shares of First Federal Common Stock for exchange as provided in the
Agreement. In addition, no dividend or other distribution payable to the holders
of record of NationsBank Common Stock as of any time subsequent to the Effective
Date shall be paid to the holder of any certificate representing shares of First
Federal Common Stock issued and outstanding on the Effective Date until such
holder surrenders such certificate for exchange as provided in the Agreement.
Upon surrender of the First Federal Common Stock certificate, however, both the
NationsBank Common Stock certificates (together with all such withheld dividends
or other distributions) and any withheld cash payments (each without interest)
shall be delivered and paid with respect to each share represented by such
certificate. In the event a holder of shares of First Federal Common Stock has
lost such holder's certificate or certificates representing the shares of First
Federal Common Stock held by such holder, such holder shall comply with the
policies and procedures of the exchange agent for lost certificates prior to
receiving the consideration to which the holder is entitled as provided in the
Agreement. After the Effective Date each outstanding certificate that
represented shares of First Federal Common Stock prior to the Effective Date
shall be deemed for all corporate purposes (other than the payment of dividends
and other distributions to which the former stockholders of First Federal may be
entitled) to evidence only the right of the holder thereof to receive the
consideration in exchange therefor provided for in the Agreement.
BACKGROUND OF THE MERGER
GENERAL. In late 1987, First Federal had discussions concerning the
possible acquisition of First Federal with another thrift institution located in
the State of Georgia, with The Citizens and Southern Corporation, predecessor to
C&S/Sovran ("C&S"), and with one other regional interstate bank holding company.
After the significant decline in market prices that occurred in the stock market
during October 1987, discussions with the thrift institution were terminated.
Thereafter, First Federal pursued merger discussions with C&S and the other
regional interstate bank holding company. First Federal received a written offer
in the form of a letter of intent from C&S and an oral proposal from the other
bank holding company in response to a request for its best and final proposal.
First Federal's Board of Directors determined that the offer from C&S was
financially superior to the oral proposal from the other bank holding company.
C&S and First Federal entered into a letter of intent for the acquisition of
First Federal on February 16, 1988, and began negotiating the terms of a
definitive agreement, which was executed by the parties as of April 19, 1988
(the "Original Agreement").
When the Original Agreement was entered into on April 19, 1988, the parties
thereto contemplated that First Federal would be acquired by C&S through a
merger of First Federal with and into The Citizens and Southern National Bank, a
wholly owned subsidiary of C&S ("CSNB"), after the conversion of First Federal
from a federal stock savings bank to a state-chartered stock savings and loan
association. That structure would have required that First Federal also convert
its
19
<PAGE>
<PAGE>
insurance of accounts from the Federal Savings and Loan Insurance Corporation
(the "FSLIC") (which then was the insurance fund for federally chartered thrift
institutions) to the FDIC (which then insured only commercial banks). The
acquisition was so structured because statutes and policies then applicable
would not permit C&S to acquire First Federal as a separate thrift institution,
but would permit C&S to so acquire First Federal if First Federal, in effect,
converted to a commercial bank through a merger with CSNB.
Although the structure originally contemplated by the parties would have
permitted C&S to acquire First Federal, the acquisition could not have been
consummated until the expiration of a then one-year moratorium on insurance fund
conversions from the FSLIC to the FDIC, which moratorium was scheduled to expire
on August 10, 1988, but was later extended until August 10, 1989. Congress then
enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), which extended the insurance fund conversion moratorium until August
10, 1994. Thus, the structure originally contemplated by the parties for
acquiring First Federal was no longer feasible.
On September 26, 1989, C&S entered into a definitive agreement with Sovran
Financial Corporation ("Sovran"), which provided for the reorganization of C&S
and Sovran into a single entity (I.E., C&S/Sovran) (the "C&S/Sovran
Reorganization"). In light of the enactment of FIRREA and the C&S/Sovran
Reorganization, First Federal and C&S amended and restated the Original
Agreement pursuant to the terms of the Restated Agreement dated as of November
20, 1989, to provide for the acquisition of First Federal by C&S or C&S/Sovran
pursuant to a structure which contemplated that First Federal would remain a
separate thrift subsidiary of C&S or C&S/Sovran. Due to various operational
considerations, the parties further amended, as of August 20, 1990, the Restated
Agreement pursuant to Amendment No. 1 to restructure the proposed acquisition
such that First Federal would be a wholly owned bank subsidiary of C&S/Sovran,
with its deposits insured by the SAIF. As of December 19, 1990, the parties
further amended the Agreement pursuant to Amendment No. 2 to extend the time for
completing the transaction to September 30, 1991. With the exception of
substituting C&S/Sovran common stock for C&S common stock, none of the
amendments to the Original Agreement affected the exchange ratio in the
transaction; they merely changed the structure used to acquire First Federal as
the applicable statutes changed. On July 21, 1991, NationsBank and C&S/Sovran
entered into an agreement pursuant to which C&S/Sovran would become a wholly
owned subsidiary of NationsBank through a stock-for-stock merger. This
acquisition was consummated on December 31, 1991, whereupon NationsBank became a
party to the Litigation as the successor to C&S/Sovran.
LITIGATION. In September 1991, First Federal commenced the Litigation
against C&S/Sovran alleging that C&S/Sovran had breached a merger agreement then
in effect between the parties by failing to consummate the transaction in a
timely fashion. First Federal sought alternative remedies of damages and
specific performance of the agreement unaffected by the alleged breach. Prior to
filing suit, First Federal entered into a contingency fee agreement on September
27, 1991 with the law firm of McAlpin & Henson. This contingency agreement
obligated First Federal to pay a contingency fee to McAlpin & Henson based on
the gross value of the amount recovered from the defendants in excess of a base
value of First Federal. The base value used the definition of "Per Share
Purchase Price" that was included in the original agreement to value First
Federal Common Stock. The contingency percentages were 0% for the first $5
million recovered over the base value, 10% for $5 million to $15 million
recovered, 15% for $15 million to $25 million recovered, and 20% for all amounts
recovered in excess of $25 million over the base value.
As part of the original suit, First Federal sought to have the Defendants
pay the full amount of the contingency under principles of Georgia law. The
Court declined, however, in the Second Order to require NationsBank to pay the
contingent fees and further specified how the payment could be made by First
Federal, as described below.
On December 16, 1994, after a civil jury trial in May 1994 determined that
C&S/Sovran had breached the Agreement, the Court issued the First Order, which
ordered NationsBank to specifically perform under the terms of the Agreement. In
December 1995, the Georgia Supreme Court affirmed the jury verdict and the First
Order. On October 11, 1996, after an advisory jury trial in July 1996 determined
that the transaction should have closed on June 19, 1991 but for the breach of
the Agreement, and following a hearing before the Court in August 1996, the
Court issued the Second Order, which ordered NationsBank to consummate the
merger of NationsBank and First Federal on the basis of a June 1991 closing date
as promptly as possible, consistent with applicable law, and in accordance with
the terms of the Restated Agreement, Amendment No. 1, and Amendment No. 2, as
modified by the Second Order.
The Second Order resolved three issues remaining in the Litigation. First,
it held that the number of shares of NationsBank Common Stock to be offered to
First Federal's stockholders was 1,280,268, plus that number of shares of
NationsBank Common Stock that can be purchased for an amount equal to the
difference between dividends paid on First Federal Common Stock and dividends
paid on C&S/Sovran common stock or NationsBank Common Stock, as appropriate,
20
<PAGE>
<PAGE>
since June 19, 1991. The Second Order also held that NationsBank may reduce the
number of shares of NationsBank Common Stock to be offered to First Federal's
stockholders by the amounts paid by First Federal to Messrs. Ben T. Slade, III,
John J. Rogers, James H. Gash and Robert B. Sams under the Change in Control
Agreements. See "THE MERGER -- Interests of Certain Persons in the Merger."
Finally, the Second Order held that First Federal could not recover any of the
contingency payment for its litigation legal fees from NationsBank. The Second
Order did permit First Federal to compensate its litigation attorneys for fees
in connection with the Litigation at a rate of $200 per hour plus a lump sum
enhancement of $250,000 without affecting the number of shares of NationsBank
Common Stock to be offered to First Federal stockholders in the Merger. The
Second Order further provided that the number of shares of NationsBank Common
Stock to be offered to First Federal's stockholders would be reduced by an
amount equal to legal fees paid by First Federal in excess of the foregoing,
including fees paid pursuant to the September 27, 1991 contingency agreement
between First Federal and McAlpin & Henson.
SHARE CALCULATION LETTER. On November 12, 1996, First Federal sent to
NationsBank the Share Calculation Letter, which addresses the method by which
the Second Order will be implemented and advises NationsBank how shares of
NationsBank Common Stock should be paid in the Merger. The Share Calculation
Letter provides as follows:
(a) Because of a computation error, the Second Order incorrectly set
the number of shares of NationsBank Common Stock to be offered to
First Federal stockholders at 1,280,268. The correct number of
shares is 1,282,093.
(b) The aggregate additional amount of legal fees of Whelchel Brown
Readdick & Bumgartner and of McAlpin & Henson (the "Litigation
Attorneys"), calculated at a rate of an additional $25 per hour
above the $175 per hour fee in accordance with the Second Order,
is $213,350. The Court also authorized First Federal to pay the
Litigation Attorneys a lump sum enhancement of $250,000, or an
aggregate of $463,350. Pursuant to the Second Order, payment by
First Federal of this amount does not reduce the number of shares
of NationsBank Common Stock offered to First Federal stockholders.
(c) The Dividend Differential is $7,544,653.
(d) The First Federal Board of Directors determined that the aggregate
amount to be paid to Messrs. Slade, Rogers, Gash and Sams under
the Change in Control Agreements is $1,260,371 and that this
amount will be paid from the proceeds of the Dividend
Differential. The First Federal Board of Directors further
determined that the remainder of the Dividend Differential,
$6,284,282, will be paid to the Litigation Attorneys as additional
compensation.
(e) The amount of the contingency obligation under the September 27,
1991 contingency agreement fluctuates with the market value of
NationsBank Common Stock. On November 12, 1996, the approximate
value of the contingency was $14.9 million. McAlpin & Henson has
agreed to reduce this to an amount equal to the amount described
in paragraph (b) above, plus the remaining Dividend Differential
($6,284,282), plus an amount equal to the market value of 57,893
shares of NationsBank Common Stock (using the average trading
price described in the calculation of the Base Period Trading
Price). On November 12, 1996, the approximate value of the sum of
these amounts was $12.1 million.
(f) Based on the above paragraphs (a) through (e), the First Federal
Board of Directors determined that the First Federal stockholders
will receive 1,224,200 shares of NationsBank Common Stock
(assuming that all First Federal Options are exercised prior to
the Effective Date), which equates to 0.80 shares of NationsBank
Common Stock for each share of First Federal Common Stock.
Neither NationsBank nor its agents have endorsed or participated in any way
in the determinations by the First Federal Board of Directors set forth in the
Share Calculation Letter, as described above in paragraphs (b), (d), (e) and
(f), which were solely the determinations of the First Federal Board of
Directors.
On January 17, 1997, NationsBank and First Federal executed the Waiver
Letter, which provides as follows:
(a) The provisions of Amendment No. 1 are waived in their entirety. As
a result, the Merger will be structured as provided in the
Restated Agreement and as described above in "THE
MERGER -- Description of the Merger."
(b) The provisions of Amendment No. 2 are waived in their entirety in
order to make the timing of the Effective Date consistent with the
Second Order, which provides that NationsBank and First Federal
shall consummate the Merger as promptly as possible consistent
with applicable law.
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(c) Except as to those matters specifically addressed in the Waiver
Letter, the waivers contained therein shall not prejudice any
rights of First Federal or NationsBank under the Agreement,
including without limitation the First Order or the Second Order.
NATIONSBANK REASONS FOR THE MERGER
As previously noted, First Federal commenced litigation in September 1991
over whether C&S/Sovran must perform under the Agreement. As a result of its
acquisition of C&S/Sovran on December 31, 1991, NationsBank became a party to
the Litigation as the successor to C&S/Sovran. Therefore, NationsBank is bound
by the First Order and Second Order to perform the Agreement. See "THE
MERGER -- Background of the Merger."
FIRST FEDERAL REASONS FOR THE MERGER
The First Federal Board of Directors approved the Restated Agreement in
1989 and Amendment No. 1 and Amendment No. 2 in 1990, which provided for the
receipt of C&S/Sovran common stock by First Federal stockholders in the Merger.
In doing so, First Federal's Board of Directors considered a number of factors.
The First Federal Board of Directors did not assign any relative or specific
weights to the factors considered. Among the material factors considered by the
First Federal Board of Directors were the value of the C&S/Sovran common stock
to be received in the Merger relative to the then book value of First Federal
Common Stock; that the Merger afforded First Federal's stockholders an enhanced
opportunity to receive cash dividends; and that the Merger also provided First
Federal's stockholders with the opportunity for greater liquidity for their
First Federal Common Stock given the larger capitalization and more established
trading market for the shares to be received by First Federal's stockholders in
the Merger. First Federal's Board of Directors also considered the oral opinion
of Interstate/Johnson Lane presented to the Board of Directors in 1990 that the
terms of the Merger were fair, from a financial point of view, to First
Federal's stockholders.
As a result of the acquisition by NationsBank of C&S/Sovran in 1991, the
Agreement provides for First Federal stockholders to receive shares of
NationsBank Common stock in the Merger. First Federal's Board of Directors
believes that the proposed Merger is in the best interests of First Federal and
its stockholders. In reaching that conclusion, the First Federal Board of
Directors considered various factors, including the following:
(Bullet) ADVICE OF FINANCIAL ADVISOR AND FAIRNESS OPINION. The opinion
of Interstate/Johnson Lane that, as of the date hereof, the
consideration to be received by stockholders of First Federal
upon consummation of the Merger is fair, from a financial
point of view, to the stockholders of First Federal. See "THE
MERGER -- Opinion of First Federal's Financial Advisor."
(Bullet) THE FINANCIAL TERMS OF THE MERGER. The information presented
by Interstate/Johnson Lane to First Federal's Board of
Directors included transaction multiples for selected
comparable mergers and acquisitions. The Board of Directors
determined that the transaction multiples to be received by
First Federal stockholders, based on the Exchange Ratio in
the Merger and the NationsBank Common Stock price on December
31, 1996, compared favorably with such multiples. See "THE
MERGER -- Opinion of First Federal's Financial Advisor."
(Bullet) THE EFFECT ON STOCKHOLDER VALUE OF FIRST FEDERAL REMAINING
INDEPENDENT COMPARED TO THE EFFECT OF ITS COMBINING WITH
NATIONSBANK. In this respect, the Board of Directors
considered several matters. First, the Board of Directors
considered whether it was reasonable to anticipate that First
Federal, as an independent enterprise, could meet the
earnings projections necessary to produce a value comparable
to the value to be received in the Merger. Second, there is
no reliable evidence to suggest that another strategic
alternative would produce better value for the First Federal
stockholders. Third, a decision to remain independent in the
context of the NationsBank proposal would likely have a
material adverse effect on the market price of First Federal
Common Stock.
(Bullet) THE OPPORTUNITY TO PROVIDE FIRST FEDERAL'S STOCKHOLDERS WITH
ENHANCED LIQUIDITY FOR THEIR SHARES. The Board of Directors
also considered that the Merger will enable First Federal
stockholders to exchange their shares of First Federal Common
Stock for shares of common stock of a larger and more
diversified entity, the stock of which is more widely held
and more actively traded.
(Bullet) THE TAX-FREE NATURE OF THE TRANSACTION AND CERTAIN
NON-FINANCIAL INFORMATION. The Board of Directors took into
account that it is expected that the Merger will be a
tax-free transaction (other than with respect to cash paid in
lieu of fractional shares) to First Federal stockholders for
federal income tax purposes. The Board of Directors also took
into consideration that the Merger would trigger certain
change in control provisions of the Change in
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Control Agreements previously entered into with several of
First Federal's executives. See "THE MERGER -- Interests of
Certain Persons in the Merger."
(Bullet) REGULATORY APPROVALS. The likelihood of obtaining the
regulatory approvals that would be required with respect to
the Merger. See "THE MERGER -- Bank Regulatory Matters."
The foregoing discussion of the information and factors considered by the
First Federal Board of Directors is not intended to be exhaustive but is
believed to include all material factors considered by the First Federal Board
of Directors. The First Federal Board of Directors did not assign any relative
or specific weights to the foregoing factors, and individual directors may have
given different weights to different factors.
FOR THE REASONS DESCRIBED ABOVE, THE FIRST FEDERAL BOARD OF DIRECTORS
BELIEVES THE MERGER IS FAIR TO, AND IS IN THE BEST INTERESTS OF, THE FIRST
FEDERAL STOCKHOLDERS. ACCORDINGLY, THE FIRST FEDERAL BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE FIRST FEDERAL STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF FIRST FEDERAL'S FINANCIAL ADVISOR
Interstate/Johnson Lane was retained by First Federal to act as its
financial advisor in connection with the Merger. Interstate/Johnson Lane
delivered to the First Federal Board of Directors its written opinion dated the
date hereof (the "Interstate/Johnson Lane Opinion") to the effect that, as of
the date thereof, based on the matters set forth therein, the consideration to
be received by stockholders of First Federal upon consummation of the Merger is
fair, from a financial point of view, to the stockholders of First Federal.
Interstate/Johnson Lane has consented to the inclusion of the
Interstate/Johnson Lane Opinion in this Proxy Statement-Prospectus.
THE FULL TEXT OF THE INTERSTATE/JOHNSON LANE OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX A TO THIS PROXY STATEMENT-PROSPECTUS
AND IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE
INTERSTATE/JOHNSON LANE OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPENDIX A. FIRST FEDERAL'S STOCKHOLDERS ARE URGED TO READ THE
INTERSTATE/JOHNSON LANE OPINION IN ITS ENTIRETY.
Interstate/Johnson Lane is a nationally recognized investment banking firm
and was selected by First Federal based on the firm's reputation and experience
in investment banking in general, based on its recognized expertise in the
valuation of banking businesses and because of its familiarity with, and prior
work for, First Federal. Interstate/Johnson Lane, as part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
In connection with rendering its opinion dated as of the date hereof,
Interstate/Johnson Lane, among other things, (i) reviewed the Agreement; (ii)
reviewed annual audited financial statements for First Federal and NationsBank,
interim unaudited financial statements through September 30, 1996 for
NationsBank and the interim unaudited financial statements through December 31,
1996 for First Federal; (iii) reviewed publicly available information including
recent OTS and Commission filings and stockholder communications for First
Federal and for NationsBank, respectively; (iv) met with members of the senior
managements of First Federal and NationsBank to discuss their respective
businesses, financial conditions and operating results; (v) considered the pro
forma effects of the Merger and the Boatmen's Acquisition on NationsBank's
financial results and the pro forma equivalent for the Merger and the Boatmen's
Acquisition on First Federal's financial results; (vi) compared certain
financial and stock market data for First Federal and for NationsBank with
similar data for selected publicly held savings banks and banks; (vii) reviewed
the financial terms of certain recent business combinations in the commercial
banking industry; (viii) reviewed historical market price and volume data for
the First Federal Common Stock and the NationsBank Common Stock; (ix) reviewed
various published research reports and investment opinions on NationsBank; and
(x) performed such other financial studies and analyses as it deemed
appropriate.
In rendering the Interstate/Johnson Lane Opinion, Interstate/Johnson Lane
relied without independent verification upon the accuracy and completeness of
all the financial and other information furnished to it by or on behalf of First
Federal and NationsBank, and other published information that it considered in
its review. Interstate/Johnson Lane relied upon the reasonableness of all
projections and forecasts provided to it by First Federal and assumed that they
were prepared in accordance
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with accepted practice on a basis reflecting the best currently available good
faith judgments and estimates of First Federal's management and that such
forecasts would be realized in the amounts and at the times contemplated
thereby. Interstate/Johnson Lane's opinion is based on the circumstances
existing and known to it as of the date of the Interstate/Johnson Lane Opinion.
Interstate/Johnson Lane is not an expert in the evaluation of loan and lease
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and has assumed, with First Federal's consent, that such
allowances for each of First Federal and NationsBank are in the aggregate
adequate to cover all such losses. In addition, Interstate/Johnson Lane has not
reviewed individual credit files nor has it made any independent evaluations or
appraisals of the assets and liabilities (contingent or otherwise) of First
Federal and NationsBank or any of their respective subsidiaries or been
furnished with any such evaluation or appraisal. Interstate/Johnson Lane does
not express any opinion regarding the value of any of First Federal's or
NationsBank's specific individual assets. Interstate/Johnson Lane has also
assumed, with First Federal's consent, that obtaining any necessary regulatory
approvals and third party consents for the Merger or otherwise will not have an
adverse effect on First Federal, NationsBank or the combined company pursuant to
the Merger.
The following is a summary of the material financial analyses presented by
Interstate/Johnson Lane to the First Federal Board of Directors in connection
with providing its opinion to the First Federal Board of Directors, and does not
purport to be a complete description of the analyses performed by
Interstate/Johnson Lane.
COMPARABLE COMPANIES ANALYSIS. Based on publicly available information,
First Call and IBES consensus earnings estimates and First Federal's fiscal 1997
budget, Interstate/Johnson Lane reviewed and compared actual and estimated
selected financial, operating and stock market information and financial ratios
of First Federal and NationsBank to groups of six and seven additional banking
organizations, respectively. (First Call and IBES compile earnings estimates
published by selected research analysts for use by the investment community.)
First Federal was compared to a group of six Georgia savings banks consisting of
CCF Holding Company, Eagle Bancshares, Inc., First Georgia Holding, Inc., First
Liberty Financial Corp., FLAG Financial Corporation and Bank of Newnan ("the
Selected Georgia Savings Banks"). NationsBank was compared to a group of seven
national and super-regional banks consisting of BankAmerica Corporation,
Citicorp, First Union Corporation, The Chase Manhattan Corporation, BancOne
Corporation, Norwest Corporation and Wells Fargo & Co. (the "Selected National
Banks"). The historical financial information and ratios analyzed for the
companies are as of their respective most recent reported periods.
Interstate/Johnson Lane's observations included, among other things, the
following: First Federal had a ratio of common stockholders' equity to assets of
10.4% compared with median common stockholders' equity to assets for the
Selected Georgia Savings Banks of 8.9%. First Federal had a return on average
assets and a return on average common stockholders' equity of 0.9% and 8.4%,
respectively, compared with a median return on assets and a median return on
common stockholders' equity for the Selected Georgia Savings Banks of -0.1% and
- -0.4%, respectively. First Federal had an efficiency ratio of 71.0% compared
with a median efficiency ratio for the Selected Georgia Savings Banks of 69.6%.
First Federal had a stock price to book value ratio of 448% compared to a median
stock price to book value ratio for the Selected Georgia Savings Banks of 140%.
The analysis reflected a deposit premium and price to earnings multiples for
1995, 1996 and 1997 for First Federal of 41.4%, 37.8 times, 54.6 times and 34.0
times, respectively, compared to a deposit premium and price to earnings
multiples for 1995, 1996 and 1997 for the Selected Georgia Savings Banks of
4.4%, 13.6 times, 12.3 times and 11.2 times, respectively.
Interstate/Johnson Lane's observations also included, among other things,
the following: NationsBank had a ratio of common stockholders' equity to assets
of 7.1% compared with a median common stockholders' equity to assets for the
Selected National Banks of 7.6%. NationsBank had a return on average assets and
a return on average common stockholders' equity of 1.2% and 17.6%, respectively,
compared with a median return on assets and a median return on common
stockholders' equity for the Selected National Banks of 1.0% and 11.4%,
respectively. NationsBank had an efficiency ratio of 55.5% compared with a
median efficiency ratio for the Selected National Banks of 59.2%. NationsBank
had a stock price to book value ratio of 215% compared to a median stock price
to book value ratio for the Selected National Banks of 226%. The analysis
reflected a deposit premium and price to earnings multiples for 1995, 1996 and
1997 for NationsBank of 13.9%, 13.8 times, 12.1 times and 11.4 times,
respectively, compared to a deposit premium and price to earnings multiples for
1995, 1996 and 1997 for the Selected National Banks of 13.0%, 15.0 times, 13.5
times and 12.1 times, respectively.
COMPARABLE TRANSACTIONS ANALYSIS. Interstate/Johnson Lane reviewed certain
information relating to 32 announced or completed mergers since December 1, 1995
in which a United States savings bank having assets between $100 million and
$500 million was acquired or merged into another entity (the "Selected U.S.
Savings Bank Mergers"). Such analysis indicated that the median values of the
price paid as a percentage of the seller's stock price (calculated 30 days prior
to the public announcement of a possible acquisition of the acquired banking
organization or the acquiror's interest in the transaction) was
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123.5% for the Selected U.S. Savings Bank Mergers compared to a price of
approximately 142.9% to be paid pursuant to the Merger. Such analysis also
indicated that the median values of the price paid to book value, to tangible
book value and to the latest 12-month earnings per share for the Selected U.S.
Savings Bank Mergers were 143.5%, 144.3% and 17.8 times, respectively, compared
with the Merger multiples of the price paid to book value, to tangible book
value and to the latest 12-month earnings per share of 462.2%, 462.2% and 55.4
times, respectively. The median values of the price paid to assets and the
tangible book premium to core deposits for the Selected U.S. Savings Bank
Mergers were 13.2% and 5.4%, respectively, compared to a price of 48.3% of
assets and a tangible book premium to deposits of 43.2% to be paid pursuant to
the Merger.
Interstate/Johnson Lane reviewed certain information relating to five
announced or completed mergers since December 1, 1995 in which a Southeastern
savings bank having assets between $100 million and $500 million was acquired or
merged into another entity (the "Selected Southeastern Savings Bank Mergers").
Such analysis indicated that the median values of the price paid as a percentage
of the seller's stock price (calculated 30 days prior to the public announcement
of a possible acquisition of the acquired banking organization or the acquiror's
interest in the transaction) was 114.8% for the Selected Southeastern Savings
Bank Mergers compared to a price of approximately 142.9% to be paid pursuant to
the Merger. Such analysis also indicated that the median values of the price
paid to book value, to tangible book value and to the latest 12-month earnings
per share for the Selected Southeastern Savings Bank Mergers were 143.5%, 143.5%
and 14.2 times, respectively, compared with the Merger multiples of the price
paid to book value, to tangible book value and to the latest 12-month earnings
per share of 462.2%, 462.2% and 55.4 times, respectively. The median values of
the price paid to assets and the tangible book premium to core deposits for the
Selected Southeastern Savings Bank Mergers were 8.7% and 3.1%, respectively,
compared to a price of 48.3% of assets and a tangible book premium to deposits
of 43.2% to be paid pursuant to the Merger.
Interstate/Johnson Lane reviewed certain information relating to four
announced or completed mergers since December 1, 1995 in which a Georgia bank
having assets between $100 million and $500 million was acquired or merged into
another entity (the "Selected Georgia Bank Mergers"). Such analysis indicated
that the median values of the price paid to book value, to tangible book value
and to the latest 12-month earnings per share for the Selected Georgia Bank
Mergers were 195.5%, 201.8% and 14.0 times, respectively, compared with the
Merger multiples of the price paid to book value, to tangible book value and to
the latest 12-month earnings per share of 462.2%, 462.2% and 55.4 times,
respectively. The median values of the price paid to assets and the tangible
book premium to core deposits for the Selected Georgia Bank Mergers were 15.3%
and 9.4%, respectively, compared to a price of 48.3% of assets and a tangible
book premium to deposits of 43.2% to be paid pursuant to the Merger.
Interstate/Johnson Lane reviewed certain information relating to six
announced or completed mergers since January 1, 1995 in which a Georgia savings
bank, of any asset size, was acquired or merged into another entity (the
"Selected Georgia Savings Bank Mergers"). Such analysis indicated that the
median values of the price paid as a percentage of the seller's stock price
(calculated 30 days prior to the public announcement of a possible acquisition
of the acquired banking organization or the acquiror's interest in the
transaction) was 231.1% for the Selected Georgia Savings Bank Mergers, compared
to a price of approximately 142.9% to be paid pursuant to the Merger. Such
analysis also indicated that the median values of the price paid to book value,
to tangible book value and to the latest 12-month earnings per share for the
Selected Georgia Savings Bank Mergers were 146.1%, 150.7% and 12.4 times,
respectively, compared with the Merger multiples of the price paid to book
value, to tangible book value and to the latest 12-month earnings per share of
462.2%, 462.2% and 55.4 times, respectively. The median values of the price paid
to assets and the tangible book premium to core deposits for the Selected
Georgia Savings Bank Mergers were 13.7% and 7.1%, respectively, compared to a
price of 48.3% of assets and a tangible book premium to deposits of 43.2% to be
paid pursuant to the Merger.
PRO FORMA MERGER ANALYSIS. Interstate/Johnson Lane reviewed certain pro
forma summaries of selected financial data for NationsBank for the fiscal year
ended 1995 and the interim period ended September 30, 1996 and for First Federal
for the fiscal year ended September 30, 1996 and the interim period ended
December 31, 1996, reflecting the Merger as if the Merger had been consummated
as of the beginning of each period presented. Interstate/Johnson Lane examined
the pro forma effects of the Merger on earnings per common share, cash dividends
per common share and shareholders' equity per share.
DIVIDEND DISCOUNT ANALYSIS. Interstate/Johnson Lane performed a dividend
discount analysis to determine a range of present values per share of First
Federal Common Stock assuming First Federal continued as either a stand-alone
entity (the "Stand-Alone Case") or was sold at the end of five years (the "Sale
Case"). Based on First Federal's fiscal 1997 budget and additional information
supplied by management, Interstate/Johnson Lane assumed a steady 2% increase in
earnings per share from 1997 through 2001. Additionally, the dividend stream is
projected to increase $.04 per year from its estimated 1997 level through 2001.
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The terminal values differ in the two scenarios. In the Stand-Alone Case,
Interstate/Johnson Lane utilized a range of price-earnings multiples consistent
with the range of price-earnings multiples at which stocks in the group of
Selected Georgia Savings Banks trade (12 to 17 times current earnings per
share). In the Sale Case, Interstate/Johnson Lane assumed that First Federal
would be sold at an earnings multiple consistent with those seen in the Selected
Mergers (12 to 18 times the previous 12-month earnings per share). The dividend
streams and terminal values were presently valued using a range of discount
rates from 5% to 15%.
Applying the above multiples and discount rates, Interstate/Johnson Lane
determined that the value of First Federal Common Stock in the Stand-Alone Case
ranged from approximately $18.04 to $37.19 per share, and in the Sale Case
ranged from approximately $18.04 to $39.12 per share.
OTHER ANALYSES. Interstate/Johnson Lane reviewed various published research
reports on NationsBank and, among other things, the investment opinions, stock
price targets and earnings estimates contained therein. In addition,
Interstate/Johnson Lane reviewed and analyzed the historical trading prices and
volumes for NationsBank Common Stock and for First Federal Common Stock.
The summary set forth above describes the material analyses that
Interstate/Johnson Lane performed, but does not purport to be a complete
description of such analyses. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or a summary
description.
Interstate/Johnson Lane believes that its analyses must be considered as a
whole and that selecting portions of its analyses without considering all
factors and analyses would create an incomplete view of the analyses and
processes underlying its opinion. In its analyses, Interstate/Johnson Lane
relied upon numerous assumptions made by First Federal and NationsBank with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of First Federal or
NationsBank. Analyses based on forecasts of future results are not necessarily
indicative of actual values, which may be significantly more or less favorable
than suggested by such analyses. No company or transaction used as a comparison
in the analysis is identical to First Federal or NationsBank or to the Merger.
Additionally, estimates of the value of businesses do not purport to be
appraisals or necessarily reflective of the prices at which businesses actually
may be sold. Because such estimates are inherently subject to uncertainty,
Interstate/Johnson Lane does not assume responsibility for the accuracy of such
estimates. Interstate/Johnson Lane's analyses were prepared solely for purposes
of its opinion dated the date hereof rendered to the First Federal Board of
Directors regarding the fairness of the proposed consideration to be received
for shares of First Federal Common Stock pursuant to the Merger to holders of
such shares and do not purport to be appraisals or necessarily reflect the
prices at which First Federal or the First Federal Common Stock actually may be
sold. Furthermore, Interstate/Johnson Lane is not expressing any opinion as to
the range of prices at which the NationsBank Common Stock will trade subsequent
to consummation of the Merger.
For the services of Interstate/Johnson Lane as financial advisor to First
Federal in connection with the Merger, Interstate/Johnson Lane will receive a
fee of $75,000 ($37,500 of which has been previously paid). No portion of
Interstate/Johnson Lane's fee is contingent upon the closing of the Merger. In
addition, First Federal has agreed to reimburse Interstate/Johnson Lane for its
reasonable out-of-pocket expenses incurred in connection with the Merger, but
not to exceed $10,000, and to indemnify Interstate/Johnson Lane against certain
liabilities, including certain liabilities arising under the federal securities
laws. Interstate/Johnson Lane has provided certain investment banking services
to First Federal from time to time, for which it has received customary
compensation. In addition, Interstate/Johnson Lane has provided, and may provide
in the future, certain investment banking services to NationsBank, for which it
has received, and will receive, customary compensation. Most recently,
Interstate/Johnson Lane acted as a co-managing underwriter in a sale of
NationsBank senior notes completed October 26, 1993.
Interstate/Johnson Lane has advised First Federal that, in the ordinary
course of its business as a full-service securities firm, Interstate/Johnson
Lane may, subject to certain restrictions, actively trade the equity or debt
securities of First Federal or of NationsBank for its own account or for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
EFFECT ON FIRST FEDERAL OPTIONS
There are currently outstanding options to acquire an aggregate of 5,111
shares of First Federal Options pursuant to the First Federal Stock Option Plan.
The First Federal Options are held by Ben T. Slade III (3,111 shares), James H.
Gash (1,000 shares) and John J. Rogers (1,000 shares). Each of Messrs. Slade,
Gash and Rogers have notified First Federal in writing that he intends to
exercise all of his First Federal Options on or before the Effective Date. Under
the terms of the First Federal
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Stock Option Plan, no new First Federal Options may be granted. Therefore, there
will be no First Federal Options outstanding on the Effective Date. See "THE
MERGER -- Interests of Certain Persons in the Merger."
CONDITIONS TO THE MERGER
The obligations of NationsBank and First Federal to consummate the Merger
are subject to the satisfaction (unless otherwise waived by the party so
permitted in accordance with the terms of the Agreement) of each of the
following conditions:
(a) the representations and warranties of each of NationsBank and
First Federal set forth or referred to in the Agreement shall be
true and correct in all material respects as of the date of the
Agreement and as of the Effective Date with the same effect as
though all such representations and warranties had been made on
and as of the Effective Date, except for (i) any such
representations and warranties confined to a specified date, which
shall be true and correct in all material respects as of such
date, (ii) changes in the ordinary course of business consistent
with past practice, or (iii) changes resulting from effecting the
transactions specifically contemplated by the Agreement or the
Plan of Merger, including the fees and expenses incurred in
connection therewith;
(b) each and all of the covenants and agreements of each of
NationsBank and First Federal to be performed and complied with
pursuant to the Agreement and the other agreements contemplated
thereby prior to the Effective Date shall have been duly performed
and complied with in all material respects;
(c) each of NationsBank and First Federal shall have delivered to the
other a certificate, dated as of the Effective Date and signed on
its behalf by its Chairman of the Board or its President, and its
Treasurer, to the effect that (i) the conditions of its
obligations have been satisfied and (ii) that there has been no
material adverse change in the consolidated financial condition or
consolidated results of operations of such party, other than
changes in the consolidated financial condition or consolidated
results of operations of such party resulting from effecting the
transactions specifically contemplated by the Agreement or the
Plan of Merger, all in such reasonable detail as the other party
shall request;
(d) all action necessary to authorize the execution, delivery and
performance of the Agreement and the consummation of the
transactions contemplated thereby shall have been duly and validly
taken by each of NationsBank and First Federal and each shall have
furnished to the other certified copies of resolutions duly
adopted by such party's Board of Directors evidencing the same;
(e) the stockholders of First Federal shall have approved the
Agreement, and the consummation of the transactions contemplated
thereby including the Merger, as and to the extent required by law
and by the provisions of any governing instruments, and First
Federal shall have furnished to NationsBank certified copies of
resolutions duly adopted by First Federal's stockholders
evidencing the same; provided further, the holders of no more than
7% of the issued and outstanding shares of First Federal Common
Stock shall have voted against adoption of the Agreement;
(f) all approvals and authorizations of, filings and registrations
with, and notifications to, all federal and state authorities
required for consummation of the Merger and for the preventing of
any termination of any right, privilege, license or agreement of
either NationsBank or First Federal, or any of their respective
subsidiaries which, if not obtained or made, would have a material
adverse impact on the financial condition or results of operation
of either NationsBank or First Federal (as applicable) and its
subsidiaries on a consolidated basis, shall have been obtained or
made and shall be in full force and effect and all waiting periods
required by law shall have expired; provided further, to the
extent that any lease, license, loan or financing agreement or
other contract or agreement to which First Federal or any of its
subsidiaries, as the case may be, is a party requires the consent
of or waiver from the other party thereto as a result of the
transactions contemplated by the Agreement, such consent or waiver
shall have been obtained, unless (i) waived by the appropriate
party, or (ii) the failure to obtain such consent or waiver would
not have a material adverse impact on the business, operations or
financial condition of First Federal or any of its subsidiaries
following the Merger or the transactions contemplated thereby;
provided further, any approval obtained from any regulatory
authority which is necessary to consummate the transactions
contemplated by the Agreement shall not be conditioned or
restricted in a manner in which in the judgment of the Board of
Directors of either party materially adversely affects the
economic assumptions of the transactions contemplated hereby or
the business of either party so as to render inadvisable the
consummation of the Merger;
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(g) no action or proceedings shall have been instituted by any
governmental authority or to the knowledge of either NationsBank
or First Federal threatened by any governmental authority seeking
to restrain the consummation of the transactions contemplated by
the Agreement which, in the opinion of the Board of Directors of
NationsBank or First Federal, renders it impossible or inadvisable
to consummate the transactions provided for in the Agreement;
(h) there shall have been no determination by the Board of Directors
of either NationsBank or First Federal that the Merger or the
other transactions contemplated by the Agreement have become
impractical because any state of war, national emergency, or
banking moratorium shall have been declared in the United States
or a general suspension of trading on the NYSE occurred; provided
further, there shall have been no determination by the Board of
Directors of either NationsBank or First Federal that the
consummation of the Merger or the other transactions contemplated
by the Agreement is not in the best interests of such party or its
stockholders by reason of a material adverse change in the
consolidated financial condition or consolidated results of
operations of the other party, other than changes in the
consolidated financial condition or consolidated results of
operations of such party resulting from effecting the transactions
specifically contemplated by the Agreement;
(i) each director and officer of First Federal shall have delivered to
NationsBank a letter concerning claims such directors and officers
may have against First Federal, in which the directors and
officers shall: (i) acknowledge the assumption by NationsBank of
all liability (to the extent First Federal is so liable) for
claims for indemnification arising under the charter or bylaws of
First Federal as existing on December 31, 1996, or as may be
afforded by Georgia law or the laws of the United States and for
claims for salaries, wages or other compensation, employee
benefits, reimbursement of expenses or worker's compensation
arising out of employment through the Effective Date; (ii) affirm
in their capacities as officers and directors, they do not have
nor are they aware of any claims they might have (other than those
referred to in (i) above) against First Federal; and (iii) release
any and all claims that they may have other than those referred to
in (i) above; provided further, NationsBank shall acknowledge
receipt of the letter and affirm its assumption of the liabilities
described in (i) above;
(j) NationsBank shall have delivered to First Federal an opinion of
Smith Helms Mulliss & Moore, L.L.P, dated as of the Effective
Date, and First Federal shall have delivered to NationsBank an
opinion of Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A.,
dated as of the Effective Date, each in substantially the form and
to the effect specified in Exhibit 6 to the Agreement;
(k) NationsBank shall have received from Arthur Andersen letters dated
as of (i) the date of this Proxy Statement-Prospectus and (ii) the
Effective Date, with respect to certain financial information
regarding First Federal;
(l) each of NationsBank and First Federal shall have delivered to the
other a certificate, dated as of the Effective Date, signed by its
Chairman of the Board or its President and by its Treasurer to the
effect that, to the best knowledge and belief of such officers,
the statement of facts and representations made on behalf of the
management of such party, presented to Arthur Andersen, were at
the date of such request or presentation and of any such
supplement, true, correct and complete and are on the date of such
certificate, to the extent contemplated by the request or
presentation and any such supplemental request, true, correct and
complete as though such request or presentation and any such
supplemental request had been made on the date of such
certificate, and each party shall have received a copy of the tax
opinion referred to in the Agreement;
(m) First Federal shall have received a letter from Interstate/Johnson
Lane, dated as of the date of this Proxy Statement-Prospectus, to
the effect that in the opinion of such firm the terms of the
Merger are fair to the stockholders of First Federal from a
financial point of view; and
(n) the Registration Statement shall be effective under the Securities
Act, and no stop orders suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for
such purpose, or under the proxy rules of the OTS pursuant to the
Exchange Act, and with respect to the transactions contemplated
hereby, shall be pending before or threatened by the Commission or
the OTS.
CONDUCT OF BUSINESS PRIOR TO THE MERGER
In the Agreement, First Federal has agreed that from the date of the
Original Agreement until the earlier of the Effective Date or the
termination of the Agreement, First Federal will not do or agree or commit
to do, any of the
28
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<PAGE>
following without the prior written consent of the chief executive officer
or chief financial officer of NationsBank, which consent shall not be
unreasonably withheld:
(a) Amend its charter or bylaws;
(b) Impose on any share of stock held by it in any of its
subsidiaries, any material lien, charge, or encumbrance, or permit
any such lien, charge, or encumbrance to exist;
(c) Except as otherwise expressly permitted in the Agreement,
repurchase, redeem, or otherwise acquire or exchange, directly or
indirectly, any shares of its capital stock or any securities
convertible into any shares of its capital stock;
(d) Except as otherwise expressly permitted in the Agreement, make or
effect any change in equity capitalization;
(e) Acquire direct or indirect control over any corporation,
association, firm or organization, other than in connection with
(i) exercise of rights as a secured party or creditor in the
ordinary course of business, or (ii) acquisitions of control by
First Federal in its fiduciary capacity;
(f) Sell or otherwise dispose of, or permit any of its subsidiaries,
as the case may be, to sell or otherwise dispose of: (i) any
shares of capital stock of any subsidiary; (ii) all or
substantially all of the assets of First Federal or any
subsidiary; (iii) any subsidiary; or (iv) assets other than in the
ordinary course of business for reasonable and adequate
consideration;
(g) Incur, or permit any of its subsidiaries to incur, any additional
debt obligation or other obligation for borrowed money in excess
of an aggregate of $100,000 (for First Federal and its
subsidiaries on a consolidated basis) except in the ordinary
course of the business of First Federal and its subsidiaries
consistent with applicable laws and regulations and past practices
(and such ordinary course of business shall include, but shall not
be limited to, creation of deposit liabilities, purchases of
federal funds, liabilities to the Federal Home Loan Banks under
advances therefrom, sales of certificates of deposit, and entry
into repurchase agreements);
(h) Grant any general increase in compensation to its employees as a
class or to its officers, except in accordance with its past
practice or as required by law; pay any bonus except in accordance
with past practice or the provisions of any applicable program or
plan adopted by the Board of Directors of First Federal prior to
the date of the Original Agreement; grant any increase in fees or
other increases in compensation or other benefits to any of its
directors; or effect any change in retirement benefits for any
class of its employees or officers (unless such change is required
by applicable law) that would materially increase the retirement
benefit liabilities of First Federal and its subsidiaries on a
consolidated basis;
(i) Amend any existing employment, management, consulting or other
service, deferred compensation, supplemental retirement benefit,
excess benefit or retainer contract between First Federal or any
subsidiary and any person (unless such amendment is required by
law) to increase the compensation or benefits payable thereunder
or enter into any new employment contract with any person that
First Federal or its applicable subsidiary does not have the
unconditional right to terminate without liability (other than
liability for services already rendered), at any time on or after
the Effective Date or;
(j) Adopt any new employee benefit plan of First Federal or any
subsidiary or make any material change in or to any existing
employee benefit plan of First Federal or any subsidiary other
than (i) as disclosed in the Agreement, or (ii) any such change
that is required by law or that, in the opinion of counsel, is
necessary or advisable to maintain the tax qualified status of any
such plan.
In addition, First Federal has agreed that unless the prior written consent
of NationsBank shall have been obtained and except as otherwise contemplated by
the Agreement, First Federal will and will cause its subsidiaries (a) to operate
their respective businesses only in the usual, regular and ordinary course
including the payment or accrual of as much of its costs and expenses in
carrying out the transactions contemplated by the Agreement as practicable
consistent with generally accepted accounting principles prior to the Effective
Date; (b) to preserve intact their respective business organizations and assets
and maintain their respective rights and franchises; and (c) to take no action
which would (i) adversely affect the ability of any of them to obtain any
necessary approvals of governmental authorities required for the transactions
contemplated hereby without imposition of a condition or restriction of the type
referred to in the Agreement, or (ii) adversely affect the ability of First
Federal to perform its covenants and agreements under the Agreement.
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MODIFICATION, WAIVER AND TERMINATION; EXPENSES
The Agreement provides that to the extent permitted by law, it may be
amended by a subsequent writing signed by NationsBank and First Federal upon the
approval of each of their respective Boards of Directors. However, the
provisions of the Agreement relating to the manner or basis in which shares of
First Federal Common Stock will be exchanged for NationsBank Common Stock shall
not be amended after the Special Meeting without the requisite approval of the
holders of the outstanding shares of First Federal Common Stock, and no
amendment to the Agreement shall modify the requirements relating to the
requisite regulatory approval and other action necessary to authorize the
execution, delivery and performance of the Agreement and the consummation of the
transactions contemplated thereby. See "THE MERGER -- Conditions to the Merger"
and " -- Bank Regulatory Matters." The Agreement provides that each party may
waive any default in the performance of any term of the Agreement, waive or
extend the time for the compliance or fulfillment of any obligations under the
Agreement and waive any of the conditions precedent to the Agreement, except any
condition which, if not satisfied, would result in the violation of any law or
applicable governmental regulation.
The Agreement may be terminated by majority vote of the Board of Directors
of both First Federal and NationsBank. The Agreement may also be terminated by
the majority vote of the Board of Directors of either First Federal or
NationsBank (i) in the event of a material breach of the Agreement by the other
party of any representation, warranty, covenant or agreement which cannot or has
not been cured within 30 days after written notice of such breach; (ii) if (a)
the approval of any governmental or other regulatory authority shall have been
denied by final non-appealable action or if any such action by such authority is
not appealed within the time limit for appeal or (b) the required approval of
the First Federal stockholders is not obtained; or (iii) in the event of the
acquisition of 40% or more of the outstanding shares of common stock of the
other party or the Board of Directors of the other party accepts or publicly
recommends acceptance of an offer from a third party to acquire 50% or more of
its common stock or consolidated assets.
In the Agreement, each of the parties has agreed to bear and pay all costs
and expenses incurred by it or on its behalf in connection with the transactions
contemplated by the Agreement, except for instances in which the Agreement is
terminated by First Federal for the reasons set forth in clauses (i) or (ii) (a)
of the preceding paragraph or by NationsBank for the reasons set forth in clause
(ii) (a) of the preceding paragraph, in which instances NationsBank shall
reimburse First Federal for any and all of the reasonable expenses incurred by
First Federal in attempting to effect the transactions contemplated by the
Agreement. Furthermore, if the Agreement is terminated by the willful breach of
a party, such party shall pay all reasonable expenses of the non-breaching party
incurred by such non-breaching party in attempting to effect the transactions
contemplated by the Agreement. Furthermore, the parties have agreed to each pay
one-half of the printing cost of this Proxy Statement-Prospectus and related
materials.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
King & Spaulding is expected to deliver to First Federal and NationsBank
its opinion that, based upon certain customary assumptions and representations,
under Federal law as currently in effect (a) the transactions contemplated by
the Agreement, including the Merger, will constitute a reorganization within the
meaning of Section 368(a)(2)(E) of the Code; (b) the exchange in the Merger of
NationsBank Common Stock for First Federal Common Stock will not give rise to
gain or loss to the stockholders of First Federal with respect to such exchange
(except to the extent of any cash paid in lieu of fractional shares); (c) the
Federal income tax basis of the NationsBank Common Stock for which shares of
First Federal Common Stock are exchanged pursuant to the Merger will be the same
as the basis of such shares of First Federal Common Stock exchanged therefor
(less any proportionate part of such basis allocable to any fractional interest
in any share of NationsBank Common Stock); (d) the holding period of NationsBank
Common Stock for which shares of First Federal Common Stock are exchanged will
include the period that such shares of First Federal Common Stock were held by
the holder, provided such shares were capital assets of the holder; and (e) the
receipt of cash in lieu of fractional shares will be treated as if the
fractional shares were distributed as part of the exchange and then redeemed by
NationsBank, and gain or loss will be recognized in an amount of equal to the
difference between the cash received and the basis of the First Federal Common
Stock surrendered, which gain or loss will be capital gain or loss if the First
Federal Common Stock was a capital asset in the hands of the holder.
THE FOREGOING IS A SUMMARY OF THE ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER UNDER THE CODE AND IS FOR GENERAL INFORMATION ONLY.
IT DOES NOT INCLUDE CONSEQUENCES OF STATE, LOCAL OR OTHER TAX LAWS OR SPECIAL
CONSEQUENCES TO PARTICULAR STOCKHOLDERS HAVING SPECIAL SITUATIONS. STOCKHOLDERS
OF FIRST FEDERAL SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING SPECIFIC TAX
CONSEQUENCES OF THE
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MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE AND LOCAL
TAX LAWS AND TAX CONSEQUENCES OF SUBSEQUENT SALES OF NATIONSBANK COMMON STOCK.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL. Certain members of First Federal management have interests in the
Merger that are in addition to any interests they may have as stockholders of
First Federal generally. These interests include, among other provisions,
certain severance and other employee benefits, as described below. In the
ordinary course of business and from time to time, NationsBank may do business
with First Federal, NationsBank may enter into banking transactions with certain
of First Federal's directors, executive officers, and their affiliates, First
Federal may do business with NationsBank, and First Federal may enter into
banking transactions with certain of NationsBank's directors, executive officers
and their affiliates.
CHANGE IN CONTROL AGREEMENTS. Beginning in 1992, First Federal entered into
Change in Control Agreements with each of Messrs. Slade, Gash, Rogers, and Sams
(collectively, the "Officers"). The Change in Control Agreements, which have
since been modified and extended through December 31, 1998, provide that in the
event the Officer's employment is terminated by First Federal except for "cause"
(as defined in the agreements) or by the Officer for "good reason" (as defined
in the agreements) within three years following a Change in Control of First
Federal, or if the Officer resigns for any reason within one year following a
Change in Control of First Federal, the Officer is entitled to receive a lump
sum cash amount equal to three times (two times for Mr. Sams) the aggregate of
the Officer's base salary plus the average of the incentive compensation
payments received by him during the three preceding fiscal years. The Change in
Control Agreements also require First Federal to provide the Officer with
coverage under First Federal's group life insurance plan at no cost to the
Officer for three years (two years for Mr. Sams) following the termination at a
level equal to three times (two times for Mr. Sams) the aggregate of the
Officer's base salary and the average incentive compensation payments received
by him during the three preceding fiscal years. The Change in Control Agreements
also require First Federal to provide for a period of three years (two years for
Mr. Sams) following the date of termination continued coverage to the Officer
under First Federal's dental and medical related insurance plans or equivalent
benefits and, for each officer other than Mr. Sams, an automobile as then
provided by First Federal, at no cost to the Officer. The Change in Control
Agreements also provide that, generally, First Federal's obligations are
suspended (or, in certain circumstances terminated) if the Officer is suspended
or temporarily prohibited from participating in First Federal's affairs by
notice from a bank regulatory agency, if the Officer is removed by a regulatory
agency, or if First Federal is in default of certain obligations under the
Federal Deposit Insurance Act.
Under the Change in Control Agreements, a Change in Control is deemed to
have occurred if (a) any person or group acquires 30% or more of First Federal's
voting stock; (b) a majority of First Federal's Board of Directors ceases to be
comprised of individuals who are presently serving as directors of First
Federal; or (c) any spin-off, split-off, split-up or similar corporate division
occurs that results in the distribution to First Federal stockholders of a
business whose assets represent 20% or more of the fair market value of the
total assets of First Federal immediately before the division. The Merger
constitutes a Change in Control. The Change in Control Agreements provide that
the employment of the Officer will be deemed terminated by him for "good reason"
if the Officer's base salary, position, level of responsibilities or authority
are reduced, the Officer's employment is terminated without "cause," the
Officer's job location is changed, or the Change in Control Agreement is not
renewed or is terminated as a result of the Board's annual review of the Change
in Control Agreement, all without the Officer's written consent. Termination by
First Federal for "cause" consists of any termination because of the Officer's
personal dishonesty, incompetence, wilful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, wilful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of the Change in Control Agreement.
The Change in Control Agreements also provide that the payments required to
be made by First Federal would be reduced to an amount which maximizes the
aggregate payments to be made without causing any payment to be nondeductible by
First Federal as a result of certain provisions of the Code. The Change in
Control Agreements are subject to review and approval by First Federal's Board
of Directors on each anniversary of the effective date of the Change in Control
Agreements in January of each year.
If, pursuant to the provisions described above, payments were required to
be made to the Officers, and assuming the Effective Date occurs prior to
December 31, 1997, the estimated amounts of such payments would be $497,430,
$307,583, $298,943 and $156,415, for Messrs. Slade, Gash, Rogers and Sams,
respectively, or an aggregate of $1,260,371. Computation of the foregoing
benefit amounts assumes that the Officers will terminate their employment on the
date on which the Effective Date occurs.
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As previously described, the Second Order held that the number of shares of
NationsBank Common Stock to be offered to the First Federal stockholders will be
reduced by the amounts First Federal may choose to pay to Messrs. Slade, Gash,
Rogers and Sams under the Change in Control Agreements. The amounts set forth in
the preceding paragraph were used by the First Federal Board of Directors to
determine the amount of that reduction, as described by First Federal in the
Share Calculation Letter. See "THE MERGER -- Background of the Merger; Share
Calculation Letter."
EXECUTIVE OFFICER STOCK OPTIONS. First Federal has granted stock options to
the Officers and certain other executive officers and employees under the First
Federal Stock Option Plan. Options granted consist of incentive stock options.
The following table sets forth with respect to Messrs. Slade, Gash and
Rogers and all executive officers as a group (a) the number of shares covered by
options held by such persons, (b) the number of shares covered by currently
exercisable options held by such persons, (c) the number of shares covered by
options held by such persons which will become exercisable upon consummation of
the Merger, (d) the weighted average exercise price of all such options held by
such persons, and (e) the aggregate value (I.E., stock price less option
exercise price) of all such options based upon the per share value of First
Federal Common Stock on the Record Date.
<TABLE>
<CAPTION>
OPTIONS WEIGHTED
EXERCISABLE AVERAGE
UPON EXERCISE
OPTIONS CONSUMMATION PRICE AGGREGATE
OPTIONS CURRENTLY OF THE PER VALUE OF
HELD EXERCISABLE MERGER OPTION OPTIONS (1)
<S> <C> <C> <C> <C> <C>
Ben T. Slade III................................................ 3,111 3,111 3,111 $12.00
James H. Gash................................................... 1,000 1,000 1,000 12.00
John J. Rogers.................................................. 1,000 1,000 1,000 12.00
All executive officers as a group (3 persons)................... 5,111 5,111 5,111 12.00
</TABLE>
(1) Based on the Exchange Ratio and the last sales price reported on the NYSE
Composite Transactions List for shares of NationsBank Common Stock on
, 1997.
Each of Messrs. Slade, Gash and Rogers has notified First Federal in
writing that he will exercise all of his First Federal Options on or before the
Effective Date.
ABSENCE OF DISSENTERS' RIGHTS
Pursuant to OTS regulations, holders of First Federal Common Stock will not
have dissenters' rights of appraisal with respect to the Merger if First Federal
Common Stock is quoted on The Nasdaq Stock Market on the date of the Special
Meeting and NationsBank Common Stock is quoted on the NYSE on the Effective
Date. First Federal Common Stock currently is quoted on The Nasdaq Stock Market,
and it is anticipated that First Federal Common Stock will continue to be so
quoted on the date of the Special Meeting. Similarly, NationsBank Common Stock
currently is quoted on the NYSE, and it is anticipated that NationsBank Common
Stock will continue to be so quoted on the Effective Date.
ACCOUNTING TREATMENT
Upon consummation of the Merger, the transaction will be accounted for as a
purchase, and all of the assets and liabilities of First Federal will be
recorded in NationsBank's consolidated financial statements at their estimated
fair value. The amount, if any, by which the purchase price paid by NationsBank
exceeds the fair value of the net assets acquired by NationsBank through the
Merger will be recorded as goodwill. NationsBank's consolidated financial
statements will include the operations of First Federal after the Effective
Date.
BANK REGULATORY MATTERS
FEDERAL RESERVE BOARD. The Merger is subject to prior approval by the
Federal Reserve Board under the BHCA. The BHCA requires the Federal Reserve
Board, when approving a transaction such as the Merger, to take into
consideration whether the operation of First Federal by NationsBank can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interests or unsound banking practices. In
addition, the Federal Reserve Board must consider the financial and managerial
resources (including the competence, experience and integrity of the officers,
directors and principal shareholders) and future prospects of the existing and
proposed institutions and the convenience and needs of the communities to be
served. In considering financial resources and future prospects, the
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Federal Reserve Board will, among other things, evaluate the adequacy of the
capital levels of the parties to a proposed transaction.
OFFICE OF THRIFT SUPERVISION. The Merger is subject to the approval of the
OTS pursuant to the Bank Merger Act. As a Federal stock savings bank, First
Federal is subject to extensive regulation by the OTS. Lending activities and
other investments of First Federal must comply with various Federal regulatory
requirements. The OTS periodically examines First Federal for compliance with
various regulatory requirements, and First Federal must file reports with the
OTS describing its activities and financial condition. First Federal is also
subject to certain reserve requirements promulgated by the Federal Reserve
Board. This supervision and regulation is intended primarily for the protection
of depositors.
Under the Bank Merger Act, the OTS may not approve the Merger if (a) it
would result in a monopoly, or would be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the business of banking in
any part of the United States, or (b) the effect of the Merger in any section of
the country may be substantially to lessen competition, or to tend to create a
monopoly, or which in any other manner would be in restraint of trade, unless it
finds that the anticompetitive effects of the proposed transaction are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the community to be served. The OTS is also
required to take into consideration the financial and managerial resources and
future prospects of the existing and proposed institutions and the convenience
and needs of the community to be served.
Regulations of the OTS also require consideration of the fairness of the
proposed transaction and the adequacy of disclosure, including but not limited
to consideration of the fairness of the transaction to all parties (including
the accountholders, borrowers, creditors, and stockholders), the accuracy and
completeness of any disclosure made, and the reasonableness of compensation to
directors and officers of the institutions. In addition, under the Community
Reinvestment Act of 1977, as amended (the "CRA"), the OTS is required to take
into account the record of performance of the existing institutions in meeting
the credit needs of the entire community, including low- to moderate-income
neighborhoods, served by the institutions.
Applicable Federal law provides for the publication of notice and public
comment on applications filed with the Federal Reserve Board and the OTS and
authorizes such agencies to permit interested parties to intervene in the
proceedings. If an interested party is permitted to intervene, such intervention
could delay the regulatory approvals required for consummation of the Merger.
The Merger generally may not be consummated until 15 days following the
date of applicable Federal regulatory approval, during which time the United
States Department of Justice may challenge the Merger on antitrust grounds. The
commencement of an antitrust action would stay the effectiveness of the
regulatory agency's approval unless a court specifically ordered otherwise.
NationsBank and First Federal believe that the Merger does not raise substantial
antitrust or other significant regulatory concerns and that any divestitures
that may be required in order to consummate the Merger will not be material to
the financial condition or results of operations of NationsBank or First Federal
prior to the Effective Date, or NationsBank after the Effective Date.
STATE AUTHORITIES. The Merger is subject to the approval of the State
Authority.
STATUS OF REGULATORY APPROVALS AND OTHER INFORMATION. NationsBank and First
Federal have filed all applications and notices and have taken (or will take)
other appropriate action with respect to any requisite approvals or other action
of any governmental authority. The Agreement provides that the obligation of
each of NationsBank and First Federal to consummate the Merger is conditioned
upon the receipt of all requisite regulatory approvals, including the approvals
of the Federal Reserve Board, the OTS and the State Authorities. THERE CAN BE NO
ASSURANCE THAT ANY GOVERNMENTAL AGENCY WILL APPROVE OR TAKE ANY OTHER REQUIRED
ACTION WITH RESPECT TO THE MERGER, AND, IF APPROVALS ARE RECEIVED OR ACTION IS
TAKEN, THERE CAN BE NO ASSURANCE AS TO THE DATE OF SUCH APPROVALS OR ACTION,
THAT SUCH APPROVALS OR ACTION WILL NOT BE CONDITIONED UPON MATTERS THAT WOULD
CAUSE THE PARTIES TO ABANDON THE MERGER OR THAT NO ACTION WILL BE BROUGHT
CHALLENGING SUCH APPROVALS OR ACTION, INCLUDING A CHALLENGE BY THE UNITED STATES
DEPARTMENT OF JUSTICE OR, IF SUCH A CHALLENGE IS MADE, THE RESULT THEREOF.
NationsBank and First Federal are not aware of any governmental approvals
or actions that may be required for consummation of the Merger other than as
described above. Should any other approval or action be required, NationsBank
and First Federal currently contemplate that such approval or action would be
sought.
See "THE MERGER -- Effective Date of the Merger," " -- Conditions to the
Merger" and " -- Modification, Waiver and Termination; Expenses."
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RESTRICTIONS ON RESALES BY AFFILIATES
The shares of NationsBank Common Stock to be issued to stockholders of
First Federal in the Merger have been registered under the Securities Act. Such
shares may be traded freely and without restriction by those stockholders not
deemed to be "affiliates" of First Federal as that term is defined under the
Securities Act. Any subsequent transfer of such shares, however, by any person
who is an affiliate of First Federal at the time the Merger is submitted for
vote or consent of the stockholders of First Federal will, under existing law,
require either (a) the further registration under the Securities Act of the
shares of NationsBank Common Stock to be transferred, (b) compliance with Rule
145 promulgated under the Securities Act (permitting limited sales under certain
circumstances) or (c) the availability of another exemption from registration.
An "affiliate" of First Federal, as defined by the rules promulgated pursuant to
the Securities Act, is a person who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
First Federal. The foregoing restrictions are expected to apply to the
directors, executive officers and the holders of 10% or more of the First
Federal Common Stock (and to certain relatives or the spouse of any such person
and any trusts, estates, corporations, or other entities in which any such
person has a 10% or greater beneficial or equity interest). Stop transfer
instructions will be given by NationsBank to the transfer agent with respect to
the NationsBank Common Stock to be received by persons subject to the
restrictions described above, and the certificates for such stock will be
appropriately legended.
In addition, the Agreement provides that First Federal will use its best
efforts to cause each person who is identified by it as an affiliate to deliver
to NationsBank a written agreement providing that such person will not sell,
pledge, transfer or otherwise dispose of the shares of First Federal Common
Stock held by such person except as contemplated by such agreement and will not
sell, pledge, transfer or otherwise dispose of the shares of NationsBank Common
Stock to be received by such person upon consummation of the Merger except in
compliance with applicable provisions of the Securities Act and the rules and
regulations thereunder and until such time as the financial results covering at
least 30 days of combined operations of First Federal and NationsBank have been
published within the meaning of Section 201.01 of the Security and Exchange
Commission's Codification of Financial Reporting Policies. NationsBank shall not
be required to maintain the effectiveness of the Registration Statement under
the Securities Act for the purposes of resale of NationsBank Common Stock by
such affiliates.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
NationsBank has a dividend reinvestment and stock purchase plan that
provides, for those shareholders who elect to participate, that dividends on
NationsBank Common Stock will be used to purchase either original issue shares
or shares in the open market at market value of NationsBank Common Stock on a
quarterly basis. The plan also permits participants to invest in additional
shares of NationsBank Common Stock through optional cash payments, within
certain dollar limitations, at the then-current market price of such stock at
the time of purchase on any of 12 monthly investment dates each year. It is
anticipated that NationsBank will continue its dividend reinvestment and stock
purchase plan and that stockholders of First Federal who receive shares of
NationsBank Common Stock in the Merger will have the right to participate
therein, although NationsBank may terminate the plan, in its sole discretion, at
any time.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
NATIONSBANK
NationsBank Common Stock is listed on the NYSE and the PSE under the
trading symbol "NB." NationsBank Common Stock is also listed on the LSE and
certain shares are listed on the Tokyo Stock Exchange. As of December 31, 1996,
NationsBank Common Stock was held of record by approximately 106,345 persons.
The following table sets forth the high and low sales prices of the NationsBank
Common Stock as reported on the NYSE Composite Transactions List and the
dividends declared per share of NationsBank Common Stock for the periods
indicated. The ability of NationsBank to pay dividends to its shareholders is
subject to certain restrictions. See "INFORMATION ABOUT
NATIONSBANK -- Supervision and Regulation."
<TABLE>
<CAPTION>
SALES PRICES
HIGH LOW DIVIDENDS
<S> <C> <C> <C>
Year Ended December 31, 1995:
First Quarter......................................................... $ 51 3/4 $ 44 5/8 $ .50
Second Quarter........................................................ 57 3/4 49 5/8 .50
Third Quarter......................................................... 68 7/8 53 3/4 .50
Fourth Quarter........................................................ 74 3/4 64 .58
Year Ended December 31, 1996:
First Quarter......................................................... $ 81 3/8 $ 64 3/8 $ .58
Second Quarter........................................................ 84 5/8 74 3/4 .58
Third Quarter......................................................... 94 1/8 76 3/8 .58
Fourth Quarter........................................................ 104 1/4 86 3/8 .66
Year Ending December 31, 1997:
First Quarter (through , 1997)........................... $ $ $
</TABLE>
FIRST FEDERAL
First Federal Common Stock is included for quotation in The Nasdaq Stock
Market under the symbol "FFBG." The following table sets forth the high and low
sales prices for First Federal Common Stock as reported by The Nasdaq Stock
Market and the dividends declared per share of First Federal Common Stock for
the indicated periods. As of the Record Date, First Federal Common Stock was
held of record by approximately persons. The ability of First Federal to pay
dividends to its shareholders is subject to certain restrictions. See
"INFORMATION ABOUT FIRST FEDERAL -- Supervision and Regulation."
<TABLE>
<CAPTION>
SALES PRICES
HIGH LOW DIVIDENDS
<S> <C> <C> <C>
Year Ended September 30, 1995:
First Quarter.......................................................... $ 32 $ 281/8 $.35
Second Quarter......................................................... 331/2 277/8 .18
Third Quarter.......................................................... 33 28 .18
Fourth Quarter......................................................... 341/2 283/4 .18
Year Ended September 30, 1996:
First Quarter.......................................................... $ 47 $ 30 $.36
Second Quarter......................................................... 52 42 .19
Third Quarter.......................................................... 60 50 .19
Fourth Quarter......................................................... 82 54 .19
Year Ending September 30, 1997:
First Quarter.......................................................... $ 791/2 $ 65 $.19
Second Quarter (through , 1997)...........................
</TABLE>
INFORMATION ABOUT NATIONSBANK
GENERAL
NationsBank is a bank holding company established as a North Carolina
corporation in 1968 and is registered under the BHCA, with its principal assets
being the stock of its subsidiaries. Through its banking subsidiaries (the
"Banks") and its various non-banking subsidiaries, NationsBank provides banking
and banking-related services, primarily throughout the
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<PAGE>
Southeast and Mid-Atlantic states and Texas. The principal executive offices of
NationsBank are located at NationsBank Corporate Center in Charlotte, North
Carolina 28255. Its telephone number is (704) 386-5000.
NationsBank provides a diversified range of banking and certain nonbanking
financial services and products through its various subsidiaries. NationsBank
manages its activities through three major business units: the General Bank,
Global Finance and Financial Services.
The General Bank provides comprehensive services in the commercial and
retail banking fields, including the origination and servicing of home mortgage
loans, the issuance and servicing of credit cards (through a Delaware
subsidiary), indirect lending, dealer finance and certain insurance services.
The General Bank also provides retirement services for defined benefit and
defined contribution plans, full service and discount brokerage services and
investment advisory services to a proprietary mutual fund, as well as investment
management, private banking and fiduciary services through subsidiaries of
NationsBank. As of December 31, 1996, the General Bank operated 1,979 banking
offices through the following Banks: NationsBank, N.A. (serving the states of
North Carolina, South Carolina, Maryland and Virginia and the District of
Columbia); NationsBank, N.A. (South) (serving the states of Florida and
Georgia); NationsBank of Kentucky, N.A.; NationsBank of Tennessee, N.A.;
NationsBank of Texas, N.A.; and Sun World, N.A. (serving the state of Texas).
The General Bank also provides fully automated, 24-hour cash dispensing and
depositing services throughout the states in which it is located, through 3,948
automated teller machines.
Global Finance provides comprehensive corporate and investment banking as
well as trading and distribution services to domestic and international
customers. The group serves as a principal lender and investor, as well as an
advisor, arranger and underwriter, and manages treasury and trade transactions
for clients and customers. Loan origination and syndication, asset-back lending,
leasing, factoring, project finance and mergers and acquisitions are
representative of the services provided by the group. Global Finance also
underwrites, trades and distributes a wide range of securities (including
bank-eligible securities and, to a limited extent, bank-ineligible securities as
authorized by the Federal Reserve Board), and trades and distributes a wide
range of derivative products in certain interest rate, foreign exchange,
commodity and equity markets. Global Finance provides its services through
various offices located in major United States cities as well as in London,
Frankfurt, Singapore, Bogota, Mexico City, Grand Cayman, Nassau, Seoul, Tokyo,
Osaka, Taipei and Hong Kong.
Financial Services includes NationsCredit Consumer Corporation, primarily a
consumer finance subsidiary, and NationsCredit Commercial Corporation, primarily
a commercial finance subsidiary. NationsCredit Consumer Corporation, which as of
December 31, 1996 had approximately 356 offices located in 35 states, provides
personal, mortgage and automobile loans to consumers and retail finance programs
to dealers. NationsCredit Commercial Corporation consists of seven divisions
that specialize in one or more of the following areas: equipment loans and
leasing; loans for debt restructuring, mergers and acquisitions and working
capital; real estate, golf/recreational and health care financing; and inventory
financing to manufacturers, distributors and dealers.
As part of its operations, NationsBank regularly evaluates the potential
acquisition of, and holds discussions with, various financial institutions and
other businesses of a type eligible for bank holding company investment. In
addition, NationsBank regularly analyzes the values of, and submits bids for,
the acquisition of customer-based funds and other liabilities and assets of such
financial institutions and other businesses. As a general rule, NationsBank
publicly announces such material acquisitions when a definitive agreement has
been reached.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation, various benefit
plans (including stock option plans), voting securities and the principal
holders thereof, certain relationships and related transactions and other
related matters as to NationsBank is incorporated by reference or set forth in
the NationsBank Annual Report on Form 10-K for the year ended December 31, 1995,
incorporated herein by reference. Stockholders of First Federal desiring copies
of such documents may contact NationsBank at its address or telephone number
indicated under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
SUPERVISION AND REGULATION
GENERAL. As a registered bank holding company, NationsBank is subject to
the supervision of, and to regular inspection by, the Federal Reserve Board. The
Banks are organized as national banking associations, which are subject to
regulation, supervision and examination by the Office of the Comptroller of the
Currency (the "Comptroller"). The Banks are also
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<PAGE>
subject to regulation by the FDIC and other federal regulatory agencies. In
addition to banking laws, regulations and regulatory agencies, NationsBank and
its subsidiaries and affiliates are subject to various other laws and
regulations and supervision and examination by other regulatory agencies, all of
which directly or indirectly affect the Corporation's operations, management and
ability to make distributions. The following discussion summarizes certain
aspects of those laws and regulations that affect NationsBank.
Under the BHCA, the activities of NationsBank, and those of companies which
it controls or in which it holds more than 5% of the voting stock, are limited
to banking or managing or controlling banks or furnishing services to or
performing services for its subsidiaries, or any other activity which the
Federal Reserve Board determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. In making such
determinations, the Federal Reserve Board is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries can
reasonably be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency that outweigh possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. Generally, bank
holding companies, such as NationsBank, are required to obtain prior approval of
the Federal Reserve Board to engage in any new activity not previously approved
by the Federal Reserve Board or to acquire more than 5% of any class of voting
stock of any company.
The BHCA also requires bank holding companies to obtain the prior approval
of the Federal Reserve Board before acquiring more than 5% of any class of
voting stock of any bank which is not already majority-owned by the bank holding
company. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Banking and Branching Act"), a bank holding company
became able to acquire banks in states other than its home state beginning
September 29, 1995, without regard to the permissibility of such acquisition
under state law, but subject to any state requirement that the bank has been
organized and operating for a minimum period of time, not to exceed five years,
and the requirement that the bank holding company, prior to or following the
proposed acquisition, controls no more than 10% of the total amount of deposits
of insured depository institutions in the United States and no more than 30% of
such deposits in that state (or such lesser or greater amount set by state law).
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, therefore creating interstate branches, beginning June 1,
1997. Under such legislation, each state has the opportunity to "opt out" of
this provision, thereby prohibiting interstate branching in such states, or to
"opt in" at an earlier time, thereby allowing interstate branching within that
state prior to June 1, 1997. Furthermore, pursuant to such act, a bank is now
able to open new branches in a state in which it does not already have banking
operations if the laws of such state permit such DE NOVO branching. Of those
states in which the Banks are located, Delaware, Maryland, North Carolina and
Virginia have enacted legislation to "opt in," thereby permitting interstate
branching prior to June 1, 1997, and Texas has adopted legislation to "opt out"
of the interstate branching provisions (which Texas law currently expires on
September 2, 1999).
As previously described, NationsBank regularly evaluates merger and
acquisition opportunities, and it anticipates that it will continue to evaluate
such opportunities in light of the new legislation.
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies.
CAPITAL AND OPERATIONAL REQUIREMENTS. The Federal Reserve Board, the
Comptroller and the FDIC have issued substantially similar risk-based and
leverage capital guidelines applicable to United States banking organizations.
In addition, those regulatory agencies may from time to time require that a
banking organization maintain capital above the minimum levels, whether because
of its financial condition or actual or anticipated growth.
The Federal Reserve Board risk-based guidelines define a two-tier capital
framework. Tier 1 capital consists of common and qualifying preferred
shareholders' equity, less certain intangibles and other adjustments. Tier 2
capital consists of subordinated and other qualifying debt, and the allowance
for credit losses up to 1.25% of risk-weighted assets. The sum of Tier 1 and
Tier 2 capital less investments in unconsolidated subsidiaries represents
qualifying total capital, at least 50% of which must consist of Tier 1 capital.
Risk-based capital ratios are calculated by dividing Tier 1 and total capital by
risk-weighted assets. Assets and off-balance sheet exposures are assigned to one
of four categories of risk-weights, based primarily on relative credit risk. The
minimum Tier 1 capital ratio is 4% and the minimum total capital ratio is 8%.
NationsBank's Tier 1 and total risk-based capital ratios under these guidelines
at December 31, 1996 were 7.76% and 12.66%, respectively.
The leverage ratio is determined by dividing Tier 1 capital by adjusted
total assets. Although the stated minimum ratio is 3%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3%. NationsBank's
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<PAGE>
leverage ratio at December 31, 1996 was 7.09%. Management believes that
NationsBank meets its leverage ratio requirement.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, identifies five capital categories for insured
depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective Federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5% of the bank's assets at the time it became "undercapitalized"
or the amount needed to comply with the plan. Furthermore, in the event of the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, FDICIA requires the
various regulatory agencies to prescribe certain non-capital standards for
safety and soundness relating generally to operations and management, asset
quality and executive compensation and permits regulatory action against a
financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier 1 risk-based capital and leverage capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of at least 5% and not be subject to a capital
directive order. An "adequately capitalized" institution must have a Tier 1
capital ratio of at least 4%, a total capital ratio of at least 8% and a
leverage ratio of at least 4%, or 3% in some cases. Under these guidelines, as
of December 31, 1996, each of the Banks was considered adequately or well
capitalized.
Banking agencies have recently adopted final regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. This
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have recently adopted final
regulations requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. Concurrently, banking agencies have
proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, those banking agencies intend
to propose further regulations to establish an explicit risk-based capital
charge for interest rate risk.
DISTRIBUTIONS. NationsBank funds for cash distributions to its shareholders
are derived from a variety of sources, including cash and temporary investments.
The primary source of such funds, however, is dividends received from the Banks.
The amount of dividends that each Bank may declare in a calendar year without
approval of the Comptroller is the Bank's net profits for that year, as defined
by statute, combined with its net retained profits, as defined, for the
preceding two years. In addition, from time to time NationsBank applies for, and
may receive, permission from the Comptroller for one or more of the Banks to
declare special dividends. As of January 1, 1997, the Banks can initiate
dividend payments without prior regulatory approval of up to $1.01 billion plus
an additional amount equal to their net profits for 1996 up to the date of any
such dividend declaration.
In addition to the foregoing, the ability of NationsBank and the Banks to
pay dividends may be affected by the various minimum capital requirements and
the capital and non-capital standards established under FDICIA as described
above. Furthermore, the Comptroller may prohibit the payment of a dividend by a
national bank if it determines that such payment would constitute an unsafe or
unsound practice. The right of NationsBank, its shareholders and its creditors
to participate in any distribution of the assets or earnings of its subsidiaries
is further subject to the prior claims of creditors of the respective
subsidiaries.
SOURCE OF STRENGTH. According to Federal Reserve Board policy, bank holding
companies are expected to act as a source of financial strength to each
subsidiary bank and to commit resources to support each such subsidiary. This
support may be required at times when a bank holding company may not be able to
provide such support. In the event of a loss suffered or anticipated by the
FDIC -- either as a result of default of a banking or thrift subsidiary of
NationsBank or related to FDIC assistance provided to a subsidiary in danger of
default the other banking subsidiaries of NationsBank may be assessed for the
FDIC's loss, subject to certain exceptions.
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<PAGE>
INFORMATION ABOUT FIRST FEDERAL
GENERAL
First Federal is a federally chartered stock savings bank, which began its
operations in 1926 as a Georgia-chartered building and loan association. First
Federal converted to a federal savings and loan association in 1935, conducting
its business under the name Brunswick Federal Savings and Loan Association, and
changed its name to First Federal Savings and Loan Association of Brunswick in
1959. First Federal converted to a federal mutual savings bank on December 5,
1983, and became a federal capital stock savings bank on July 21, 1984. First
Federal primarily engages in the business of attracting deposits from the
general public and investing those funds in real estate, commercial and consumer
loans. First Federal's operations are conducted from its headquarters, two
branch offices in Brunswick, and two branch offices on St. Simon's Island,
Georgia. First Federal's principal executive offices are located at 777
Gloucester Street, Brunswick, Georgia 31520. Its telephone number is (912)
265-1410. As of December 31, 1996, First Federal had total assets of $254
million and approximately 103 full-time and 36 part-time employees.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation, benefit plans
(including the First Federal Stock Option Plan), voting securities and the
principal holders thereof, certain relationships and related transactions and
other related matters as to First Federal is incorporated by reference or set
forth in First Federal's Annual Report on Form 10-K for the year ended September
30, 1996, incorporated herein by reference. Stockholders of First Federal
desiring copies of such documents may contact First Federal at its address or
telephone number indicated under "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
SUPERVISION AND REGULATION
GENERAL. First Federal is a member of the Federal Home Loan Bank System and
its deposit accounts are insured up to applicable limits through the SAIF of the
FDIC. First Federal is subject to supervision, regulation, and examination by
the OTS and the FDIC and must file reports with the OTS concerning its
activities and financial condition, in addition to obtaining regulatory approval
prior to entering into certain transactions such as mergers with or acquisitions
of other depository institutions. The OTS also monitors all areas of the
operations of First Federal, including reserves, loans, mortgages, issuances of
securities, payment of dividends, establishment of branches, and capital. The
OTS conducts periodic examinations to determine First Federal's compliance with
various regulatory requirements.
In addition to banking laws, regulations and regulatory agencies, First
Federal is subject to various other laws and regulations, all of which directly
or indirectly affect First Federal's operations, management and the ability to
make distributions. The following discussion summarizes certain aspects of those
laws and regulations that affect First Federal. This summary is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to First Federal's business. Supervision,
regulation and examination of First Federal by the regulatory agencies are
intended primarily for the protection of depositors rather than the holders of
stock of First Federal.
CAPITAL REQUIREMENTS. The OTS has issued capital guidelines applicable to
savings associations. From time to time, the OTS may require that a savings
association maintain capital above the minimum levels, whether because of its
financial condition or actual or anticipated growth. The capital standards
issued by the OTS include (a) a core capital requirement, (b) a tangible capital
requirement and (c) a risk-based capital requirement.
The core capital standard requires a savings association to maintain "core
capital" of not less than 3% of adjusted total assets. "Core capital" includes
common stockholders' equity (including retained earnings), noncumulative
perpetual preferred stock and related surplus, minority interests in the equity
accounts of fully consolidated subsidiaries, certain nonwithdrawable accounts,
pledged deposits of mutual savings associations, and certain goodwill resulting
from prior regulatory accounting practices. The tangible capital requirement
requires a savings association to maintain tangible capital in an amount not
less than 1.5% of adjusted total assets. "Tangible capital" is defined as core
capital minus intangible assets. The risk-based capital requirement requires a
savings association to maintain risk-based capital of not less than 8% of risk-
weighted assets. Risk-based capital includes core capital and supplementary
capital, provided that the amount of supplementary capital counting toward the
requirement may not exceed core capital.
In calculating the risk-based capital requirement for a savings
association, risk-weighted assets equals total assets plus consolidated
off-balance sheet items, where each asset or item is multiplied by the
appropriate risk weight as described
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below. Before an off-balance sheet item is assigned a risk weight, it must be
converted to an on-balance sheet credit equivalent amount. That conversion
generally is accomplished by multiplying the item by either 100%, 50%, 20%, or
0%, whichever is applicable under the OTS regulations. Each asset and each
credit equivalent amount is assigned a risk weight as follows: (a) 0%, for cash
and certain government securities; (b) 20%, for securities of the United States
government or its agencies not backed by the full faith and credit of the United
States government and for high-quality mortgage-related securities; (c) 50%, for
certain revenue bonds and qualifying residential mortgage loans; or (d) 100%,
for most other loans.
First Federal must maintain core capital at least equal to 3.0% of total
adjusted assets and risk-based capital at least equal to 8.0% of risk-weighted
assets. Additionally, First Federal must maintain tangible capital at least
equal to 1.5% of total adjusted assets. The following table presents First
Federal's capital levels at December 31, 1996, relative to these requirements.
<TABLE>
<CAPTION>
AMOUNT PERCENT ACTUAL ACTUAL EXCESS
REQUIRED REQUIRED AMOUNT PERCENT AMOUNT
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Core Capital............................................................. $7,659 3.0% $26,870 10.5% $19,211
Tangible Capital......................................................... 3,829 1.5 26,870 10.5 23,041
Risk-Based Capital....................................................... 14,728 8.0 27,475 14.9(1) 12,747
</TABLE>
(1) Represents risk-based capital as a percentage of risk-weighted assets.
Savings associations with "above normal" interest rate risk exposure are
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association's interest rate risk is
measured by the decline in the net portfolio value of its assets (I.E., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that generally would result from a
hypothetical 2% increase or decrease in market interest rates divided by the
estimated economic value of the association's assets, as calculated in
accordance with guidelines set forth by the OTS. A savings association whose
measured interest rate risk exposure exceeds 2% must deduct an interest rate
component in calculating its total capital under the risk-based capital rule.
The interest rate risk component is an amount equal to one-half of the
difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two-quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. The
rule also provides that the Director of the OTS may waive or defer an
association's interest rate risk component on a case-by-case basis.
The OTS also has adopted regulations to implement the system of prompt
corrective action established by law. The rules permit the OTS to take certain
supervisory actions when an insured association falls within one of five
specifically enumerated capital categories. Under the rules, an institution will
be deemed to be (a) "well-capitalized" if the association has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, and a leverage ratio of 5% or greater, and the association is not
subject to any enforcement agreement relating to capital; (b) "adequately
capitalized" if the association exceeds a risk-based capital ratio of 8%, a Tier
1 risk-based capital ratio of 4%, and a leverage ratio of 4% (3% if the
association has a composite one rating); (c) "undercapitalized" if the
association's risk-based capital ratio is less than 8%, Tier 1 capital ratio is
less than 4%, or leverage ratio is less than 4% (3% if it has a composite one
rating); (d) "significantly undercapitalized" if the association's risk-based
capital is less than 6%, Tier 1 capital ratio is less than 3%, or leverage ratio
is less than 3%; and (e) "critically undercapitalized" if the association has a
ratio of tangible equity to total assets that is 2% or below. The regulations
provide a framework of supervisory actions based on the capital level of an
insured association. Generally, an association may not declare any dividends,
make any other capital distribution, or pay a management fee if, following the
distribution or payment, the institution would be within any one of the three
undercapitalized categories. There is a limited exception to this prohibition
for stock redemptions that do not result in any decrease in an association's
capital and would improve the association's financial condition, provided the
redemption has been approved by the OTS. Institutions that are classified as
undercapitalized also are subject to additional mandatory supervisory actions,
including increased monitoring by the OTS, a requirement to submit a capital
restoration plan, and restrictions on growth of the institution's assets as well
as a limitation on its ability to make acquisitions and open branches. In
addition to the foregoing, a significantly undercapitalized institution may not
pay bonuses or raises to its senior executive officers without prior OTS
approval and also must comply with additional mandatory requirements regarding
the operation of the association in the interim. Based upon the foregoing
regulations and First Federal's capital ratios as of December 31, 1996, First
Federal would be considered in the well-capitalized category.
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The Director may grant an exemption from a capital directive imposing
operational restrictions or corrective actions if (a) the exemption would pose
no significant risk to the affected deposit insurance fund; (b) the
association's management is competent; (c) the association is in substantial
compliance with all applicable statutes, regulations, orders, and supervisory
agreements and directives; and (d) the association's management has not engaged
in any activities that have jeopardized the association's safety and soundness
or contributed to impairing its capital. In addition, a savings association that
does not meet applicable capital standards may not increase its assets without
the Director's prior written approval, and in no event may increase its assets
beyond the amount of net interest credited to its deposit liabilities.
In addition to the foregoing prompt corrective action provisions, federal
banking agencies, including the OTS, are required to review their capital
standards every two years to ensure that their standards require sufficient
capital to facilitate prompt corrective action and to minimize loss to the SAIF
and the BIF.
LIMITATION ON CAPITAL DISTRIBUTIONS. The OTS has promulgated a rule
governing capital distributions such as dividends, stock repurchases, and
cash-out mergers by savings associations. The rule establishes three tiers of
institutions. An institution that meets or exceeds its fully phased-in capital
requirement after giving effect to a proposed distribution is considered a "Tier
1 Institution" under the rule and may make aggregate capital distributions
during a calendar year, without prior OTS approval, of up to the greater of (a)
all of its net income to date during the year plus an amount that would reduce
its excess capital ratio to one-half of such excess capital ratio at the
beginning of the calendar year or (b) 75% of its net income over the most recent
four-quarter period. An institution that meets its current regulatory capital
requirement, but not its fully phased-in requirement, after giving effect to a
proposed distribution is a "Tier 2 Institution" and may make capital
distributions without prior OTS approval of up to the following percentage of
net income for the most recent four-quarter period: (a) 75% of such net income
if the association meets its fully phased-in risk-based capital requirements
before the distribution; or (b) 50% of such net income if the association meets
only its current risk-based capital standards before the distribution. A savings
association that fails to meet its regulatory capital requirements (a "Tier 3
Institution") may not make capital distributions without the OTS's prior written
approval. An institution meeting the Tier 1 capital criteria but that has been
notified by the OTS that it is in need of more than normal supervision may be
treated as a Tier 2 or a Tier 3 institution. As of December 31, 1996, First
Federal was a Tier 1 Institution and would be permitted to distribute 100% of
net income and one-half of its excess capital in a given year. The OTS also has
the right to preclude an association from paying any capital distribution if it
would constitute an unsafe or unsound practice or if the association's capital
was decreasing due to substantial losses.
TRANSACTIONS WITH AFFILIATES. The Federal Reserve Act ("FRA") Sections 23A,
23B, and 22(h) are applicable to savings associations. Those sections limit
extensions of credit to affiliated entities, executive officers, directors, and
10% stockholders. Generally, Sections 23A and 23B (a) limit the extent to which
the insured association or its subsidiaries may engage in certain covered
transactions with an affiliated entity to an amount equal to 10% of such
institution's capital stock and surplus, and place an aggregate limit on all
such transactions with all affiliated institutions of an amount equal to 20% of
such capital stock and surplus, and (b) require that all such transactions be on
terms consistent with safe and sound banking practices. "Covered transactions"
include the making of loans, the purchasing of assets, the issuance of a
guarantee and similar transactions. Federal law also imposes three additional
rules on savings associations: (i) a savings association may not make any
extension of credit to an affiliate unless that affiliate is engaged only in
activities permissible for bank holding companies; (ii) a savings association
may not purchase or invest in securities insured by an affiliate, other than a
subsidiary; and (iii) the Director may impose more stringent restrictions on
savings associations than those set forth in Sections 23A, 23B, and 22(h) of the
FRA.
RESTRICTIONS ON ACQUISITION. Federal law also generally provides that no
company may acquire "control" of an insured savings association without the
Director's prior approval, and that any company that acquires such control
becomes a "savings and loan holding company" subject to registration,
examination, and regulation under applicable law. Federal law does not require
the Director's approval if the acquiring company is a bank holding company
registered pursuant to the BHCA.
Federal law also authorizes the Federal Reserve Board to approve bank
holding company acquisitions of savings associations and provides that the
Federal Reserve Board may not impose "tandem restrictions" in connection with
such approvals.
INSURANCE OF DEPOSIT ACCOUNTS. First Federal's deposit accounts are insured
by the FDIC to the maximum amount permitted by law, currently $100,000 for each
insured account, through the SAIF fund. With respect to assessments paid by
associations, the FDIC historically imposed assessments on each association
based on the institution's assessment risk classification. The rates ranged from
$.23 to $.31 for each $100 of domestic deposits. The rate at which a SAIF member
institution paid assessments was determined on the basis of capital and
supervisory measures. On September 30, 1996, legislation was enacted which,
among other things, imposed a special one-time assessment on SAIF member
institutions, including First
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Federal, in order to recapitalize the SAIF and allocate to SAIF and BIF-insured
institutions an annual assessment to cover interest payments on Financing Corp.
(FICO) bonds issued in the 1980's to assist the thrift industry. The special
one-time assessment levied by the FDIC amounted to 65.7 basis points on SAIF
assessable deposits held by an institution as of March 31, 1995. SAIF-insured
institutions were required to recognize the special assessment, which is tax
deductible, as of September 30, 1996. Accordingly, First Federal took a charge
of $1.36 million before taxes as a result of the FDIC special assessment.
Beginning on January 1, 1997, SAIF members began paying an annual assessment of
6.4 basis points on SAIF-insured deposits to cover interest payments on the FICO
bonds. The FDIC also has proposed a base assessment schedule for SAIF
institutions which would range from 4 to 31 basis points, with an adjusted
assessment schedule that would immediately reduce those rates by 4 basis points.
Accordingly, well-capitalized thrifts would effectively have an assessment rate
of zero for deposit insurance, excepting the FICO assessment of 6.4 basis points
discussed above. The new rate applies to all SAIF-insured institutions effective
January 1, 1997.
LOANS TO ONE BORROWER AND CERTAIN LOAN LIMITS. Generally, a savings
association may lend to a single or related group of borrowers, on an unsecured
basis, an amount equal to 15% of its unimpaired capital and surplus. An
additional amount equal to 10% of unimpaired capital and surplus, may be loaned
if secured by readily marketable collateral, which is defined to include
securities and gold bullion, but generally does not include real estate.
Notwithstanding such provisions, a savings association may make loans to one
borrower (a) for any purpose, up to $500,000, or (b) to develop domestic
residential housing units, up to the lesser $30 million or 30% of the
association's unimpaired capital and unimpaired surplus, if certain conditions
are satisfied. In addition, a savings association's loans to one borrower to
finance a sale of real property acquired in satisfaction of debts previously
contracted in good faith may not exceed the 15% limit.
COMPARISON OF NATIONSBANK COMMON STOCK
AND FIRST FEDERAL COMMON STOCK
NATIONSBANK
NationsBank is authorized to issue 1,250,000,000 shares of NationsBank
Common Stock, of which 286,746,000 shares were outstanding as of December 31,
1996. NationsBank Common Stock is listed on the NYSE and the PSE under the
trading symbol "NB". NationsBank Common Stock is also listed on the LSE and
certain shares of NationsBank Common Stock are listed on the Tokyo Stock
Exchange. As of December 31, 1996, 60.3 million shares of NationsBank Common
Stock were reserved for issuance under various employee and director benefit
plans of NationsBank and upon conversion of the NationsBank ESOP Convertible
Preferred Stock, Series C (the "ESOP Preferred Stock"); 2.8 million shares were
reserved for issuance under the NationsBank Dividend Reinvestment and Stock
Purchase Plan; up to 110 million shares were reserved for issuance in connection
with the Boatmen's Acquisition, and up to 1.5 million shares were reserved for
issuance in connection with the merger. After taking into account the shares
reserved as described above, in the number of authorized shares of NationsBank
Common Stock available for other corporate purposes as of December 31, 1996 was
approximately 788.7 million.
NationsBank has authorized 45,000,000 shares of preferred stock and may
issue such preferred stock in one or more series, each with such preferences,
limitations, designations, conversion rights, voting rights, distribution
rights, voluntary and involuntary liquidation rights and other rights as it may
determine (the "Preferred Stock"). NationsBank has designated 3,000,000 shares
of ESOP Preferred Stock, of which 2.3 million shares were issued and outstanding
as of December 31, 1996. In addition, on the effective date of the Boatmen's
Acquisition, (i) each share of Boatmen's Series A Preferred Stock was converted
into one share of NationsBank New Series A Preferred Stock; (ii) each share of
Boatmen's Series B Preferred Stock was converted into one share of NationsBank
New Series B Preferred Stock and (iii) each Boatmen's Depositary Share was
converted into one depositary share of NationsBank Depositary Share. The
NationsBank New Series A Preferred Stock, NationsBank New Series B Preferred
Stock and NationsBank Depositary Shares have rights, preferences and terms
substantially identical to the rights, preferences and terms of the Boatmen's
Series A Preferred Stock, Boatmen's Series B Preferred Stock and Boatmen's
Depositary Shares, respectively.
FIRST FEDERAL
First Federal is authorized to issue 4,000,000 shares of First Federal
Common Stock, $1.00 par value, of which shares were issued and
outstanding as of the Record Date, and 1,000,000 shares of preferred stock, of
which no shares were issued and outstanding as of the Record Date.
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The Board of Directors has the authority to issue First Federal preferred
stock in one or more series and to fix the dividend rights, dividend rate,
liquidation preference, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), redemption price or prices, and
the number of shares constituting any such series, without any further action by
the stockholders unless such action is required by applicable rules or
regulations or by the terms of other outstanding series of First Federal
preferred stock. Any shares of First Federal preferred stock which may be issued
may rank prior to shares of First Federal Common Stock as to payment of
dividends and upon liquidation.
COMPARISON OF VOTING AND OTHER RIGHTS
NationsBank is a North Carolina corporation subject to the provisions of
the NCBCA. Stockholders of First Federal, whose rights are governed by First
Federal's Charter and Bylaws and by federal law, will upon consummation of the
Merger, become shareholders of NationsBank. As shareholders of NationsBank,
their rights will then be governed by the NationsBank Articles, the NationsBank
Bylaws and the NCBCA. Except as set forth below, there are no material
differences between the rights of First Federal stockholders under First
Federal's Charter and NationsBank Bylaws and under federal law, on the one hand,
and the rights of NationsBank shareholders under the NationsBank Articles and
Bylaws and the NCBCA, on the other hand.
MEETINGS OF SHAREHOLDERS. A special meeting of NationsBank shareholders may
be called for any purpose by the NationsBank Board of Directors, by the Chairman
of the Board of NationsBank or by the Chief Executive Officer or President of
NationsBank. A quorum for a meeting of NationsBank shareholders is a majority of
the outstanding shares of NationsBank Common Stock entitled to vote. A majority
of the votes cast is generally required for an action by the NationsBank
shareholders. North Carolina law provides that these quorum and voting
requirements may only be increased with approval of NationsBank shareholders.
Under First Federal's Bylaws, unless otherwise prescribed by OTS
regulations, special meetings of the stockholders may be called at any time by
the Chairman of the Board, the President, or a majority of the Board of
Directors, and will be called by the Chairman of the Board, the President, or
the Secretary upon the written request of the holders of at least one-tenth of
the outstanding capital stock of First Federal entitled to vote at the meeting.
A quorum for a meeting of First Federal stockholders is a majority of the
outstanding First Federal Common Stock entitled to vote. A majority of the votes
cast is generally required for an action by the First Federal shareholders.
DISTRIBUTIONS. The payment of distributions to holders of NationsBank
Common Stock is subject to the provisions of the NCBCA, the preferential rights
of the holders of NationsBank Preferred Stock, certain indebtedness of
NationsBank and the ability of the Banks to pay dividends to NationsBank, as
restricted by various bank regulatory agencies. See "INFORMATION ABOUT
NATIONSBANK -- Supervision and Regulation."
The payment of distributions to holders of First Federal Common Stock is
subject to the provisions of Federal law applicable to the declaration of
distributions by a savings association, the preferential rights of any holders
of First Federal preferred stock and the ability of First Federal to pay
dividends as restricted by the OTS. See "INFORMATION ABOUT FIRST
FEDERAL -- Supervision and Regulation."
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS. The size of the
NationsBank Board of Directors may be established by the shareholders or by the
NationsBank Board of Directors, provided that the NationsBank Board of Directors
may not set the number of directors at less than five nor more than 30. Any
change to this permissible range for the size of the NationsBank Board of
Directors must be approved by the NationsBank shareholders. The NationsBank
Board of Directors is not divided into classes, and all directors are elected
annually.
First Federal's Charter provides that the number of First Federal directors
shall not be less than seven nor more than 15, except when a greater number is
approved by the First Federal Board of Directors. First Federal's Bylaws provide
that the Board of Directors is divided into three classes serving staggered
three-year terms, with the terms of one class of directors expiring each year.
REMOVAL OF DIRECTORS. Generally, directors of NationsBank may be removed by
the shareholders with or without cause by the affirmative vote of a majority of
the votes cast, unless the NationsBank Articles are amended to provide
otherwise. In addition, the NCBCA provides that an appropriate court can remove
a director upon petition of the holders of at least 10% of the outstanding
shares of any class of stock of NationsBank upon certain findings by such court.
First Federal's Bylaws provide that any director may be removed for cause,
by the affirmative vote of the holders of a majority of the shares then entitled
to vote in an election of directors, at a stockholders' meeting with respect to
which notice
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of such purpose has been expressly given. If less than the entire Board of
Directors is to be removed, no director may be removed if the votes cast against
his removal would be sufficient to elect a director if then cumulatively voted
at an election of the class of directors of which such director is a part.
SHAREHOLDER INSPECTION RIGHTS; SHAREHOLDER LISTS. Under North Carolina law,
qualified shareholders have the right to inspect and copy (a) certain of the
NationsBank official corporate documents and (b) the NationsBank books and
records in good faith and for a proper purpose. Such right of inspection
requires that the shareholder give NationsBank written notice of the demand,
describing with reasonable particularity his purpose and the requested records.
The right of inspection extends not only to shareholders of record but also
beneficial owners whose beneficial ownership is certified to NationsBank by the
shareholder of record. However, NationsBank is under no duty to provide any
accounting records or any records with respect to any matter that it determines
in good faith may, if disclosed, adversely effect NationsBank in the conduct of
its business or may constitute material nonpublic information, and the right of
inspection is limited to NationsBank shareholders who either have been
NationsBank shareholders at least six months or who hold at least 5% of the
outstanding shares of any class of NationsBank stock. In addition, NationsBank
is required to prepare a shareholder list with respect to any shareholders'
meeting and to make such list available to NationsBank shareholders beginning
two business days after notice of such meeting is given and continuing through
such meeting and any adjournments thereof.
OTS regulations applicable to First Federal provide that any stockholder or
group of stockholders holding of record (a) voting shares having a cost of at
least $100,000 or constituting at least 1% of the total outstanding voting
shares, provided in either case that such stockholder or group has held those
shares of record for at least six months, or (b) at least 5% of the total
outstanding voting shares, has the right to examine, with certain exceptions,
books and records of account, minutes, and records of stockholders, upon written
demand stating a proper purpose.
ANTI-TAKEOVER PROVISIONS. First Federal's Charter provides that First
Federal's Board of Directors is divided into three classes serving staggered
three-year terms, with the terms of one class of directors expiring each year.
The purposes of dividing First Federal's Board of Directors into classes is to
facilitate continuity and stability of leadership of First Federal by ensuring
that experienced personnel familiar with the business and policies of First
Federal will be represented on the Board of Directors at all times, and to
permit First Federal's management to plan for a reasonable period into the
future. The effect of First Federal's having a classified Board of Directors is
that only approximately one-third of the members of the Board of Directors is
elected each year, which effectively requires two annual meetings for First
Federal's stockholders to change a majority of the members of the Board of
Directors. By delaying the time in which an acquiror could obtain working
control of the Board of Directors, this provision may discourage some potential
merger proposals, tender offers or other acquisition proposals.
The NationsBank Articles do not contain any anti-takeover provisions.
ANTI-TAKEOVER STATUTES. North Carolina has two anti-takeover statutes in
force, the North Carolina Shareholder Protection Act and the North Carolina
Control Share Acquisition Act which restrict business combinations with, and the
accumulation of shares of voting stock of, North Carolina corporations.
NationsBank has taken action to irrevocably "opt out" of the restrictions
imposed by these statutes.
Any company generally would be required to obtain the approval of the OTS
(or, in certain cases, the Federal Reserve Board) before acquiring control over
First Federal. Generally, the acquisition of 25% or more of the outstanding
First Federal Common Stock, among other things, would constitute control of
First Federal; provided that control may be presumed under OTS regulations once
such person or group of persons owns more than 10% of the outstanding shares of
First Federal Common Stock.
DISSENTER'S RIGHTS. The NCBCA generally provides dissenter's rights for
mergers and share exchanges that require shareholder approval, sales of
substantially all the assets (other than sales that are in the usual and regular
course of business and certain liquidations and court-ordered sales), and
certain amendments to the articles of incorporation of a North Carolina
corporation.
The rights of appraisal of dissenting stockholders of First Federal are
governed by federal regulations applicable to federally chartered thrifts.
Pursuant thereto, except as described below, any stockholder has the right to
demand payment of the fair or appraised value of his stock in the event that
First Federal enters into any combination permissible for a federally chartered
thrift, including permissible mergers, consolidations, and bulk purchases of
assets or assumptions of deposit liabilities. No appraisal rights are available
to a stockholder who is required to accept only "qualified consideration" (cash,
shares of stock of any association or corporation that, at the effective date of
the combination, would be listed on a national securities exchange or quoted on
The Nasdaq Stock Market, or any combination of such cash and stock) for such
holder's stock, if
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that stock were listed on a national securities exchange or quoted on The Nasdaq
Stock Market on the date of the meeting at which the combination was acted upon
or if the combination is one of a specified type for which stockholder action is
not required. Because First Federal Common Stock currently is quoted on The
Nasdaq Stock Market, First Federal stockholders generally do not have appraisal
rights in the event of any combination involving First Federal, unless those
stockholders are required to accept something other than "qualified
consideration" for their First Federal Common Stock.
MISCELLANEOUS. Chase Mellon Shareholder Services, L.L.C. acts as transfer
agent and registrar for the NationsBank Common Stock. NationsBank Common Stock
is listed and traded on the NYSE and the PSE. Certain shares of NationsBank
Common Stock are also listed on the LSE and on the Tokyo Stock Exchange.
Wachovia Bank of North Carolina, N.A. acts as transfer agent and registrar
for the First Federal Common Stock. First Federal Common Stock is included for
quotation in The Nasdaq Stock Market under the symbol "FFBG."
LEGAL OPINIONS
The legality of the NationsBank Common Stock to be issued in connection
with the Merger and certain other legal matters in connection with the Merger
will be passed upon by Smith Helms Mulliss & Moore, L.L.P., Charlotte, North
Carolina. As of the date of this Proxy Statement-Prospectus, certain members of
Smith Helms Mulliss & Moore, L.L.P., beneficially owned approximately 80,000
shares of NationsBank Common Stock. Certain tax consequences of the Merger will
be passed upon by King & Spaulding. Certain legal matters in connection with the
Merger will be passed upon for First Federal by Smith, Mackinnon, Greeley,
Bowdoin & Edwards, P.A.
EXPERTS
The consolidated financial statements of NationsBank incorporated in this
Proxy Statement-Prospectus by reference to the NationsBank Annual Report on Form
10-K for the year ended December 31, 1995, have been so incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Boatmen's at December 31, 1995 and
1994, and for the three years ended December 31, 1995, incorporated in this
Proxy Statement-Prospectus by reference to the NationsBank Current Report on
Form 8-K filed with the Commission on September 6, 1996 (as amended by Forms
8-K/A on September 11, 1996 and November 13, 1996) have been so incorporated in
reliance on the report of Ernst & Young LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of First Federal incorporated in this
Proxy Statement-Prospectus by reference to the First Federal Annual Report on
Form 10-K for the year ended September 30, 1996 have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are so incorporated in reliance upon the authority of said
firm as experts in auditing and accounting.
SHAREHOLDER PROPOSALS
The 1998 Annual Meeting of Stockholders of First Federal is tentatively
scheduled to be held January 28, 1998, subject to the earlier consummation of
the Merger. In the event that the First Federal 1998 Annual Meeting of
Stockholders is held, proposals of stockholders intended to be presented at that
meeting must be received by First Federal at its executive offices on or before
September 1, 1997, in order to be included in First Federal's Proxy Statement
and form of Proxy relating to such meeting.
OTHER MATTERS
As of the date of this Proxy Statement-Prospectus, the First Federal Board
of Directors knows of no matters that will be presented for consideration at the
Special Meeting other than as described in this Proxy Statement-Prospectus.
However, if any other matters shall properly come before the Special Meeting or
any adjournments or postponements thereof and be voted upon, the enclosed
proxies shall be deemed to confer discretionary authority on the individuals
named as proxies therein to vote the shares represented by such proxies as to
any such matters. The persons named as proxies intend to vote or not to vote in
accordance with the recommendation of the management of First Federal.
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APPENDIX A
[Date]
Board of Directors
First Federal Savings Bank of Brunswick, Georgia
777 Gloucester Street
Brunswick, Georgia 31520
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding common stock of First Federal Savings
Bank of Brunswick, Georgia ("First Federal") of the consideration to be received
in the proposed merger (the "Merger") of Interim First Federal Savings Bank of
Brunswick, Georgia, Charlotte, North Carolina, an interim federal stock savings
bank and a wholly owned subsidiary of NationsBank Corporation ("NationsBank"),
into First Federal. The Merger will be effected pursuant to an agreement between
NationsBank (as successor to C&S/Sovran Corporation, The Citizens and Southern
Corporation, Citizens and Southern Georgia Corporation and The Citizens and
Southern National Bank (collectively, "C&S/Sovran")) and First Federal (the
"Agreement"). The Agreement consists of the Amended and Restated Agreement and
Plan of Reorganization, dated as of November 20, 1989, between NationsBank (as
successor to C&S/Sovran) and First Federal; Amendment Number One to the Amended
and Restated Agreement and Plan of Reorganization, dated as of August 20, 1990,
between NationsBank (as successor to C&S/Sovran) and First Federal; Amendment
Number Two to the Amended and Restated Agreement and Plan of Reorganization,
dated as of December 19, 1990, between NationsBank (as successor to C&S/Sovran)
and First Federal; Order of the Superior Court of Glynn County, Georgia, dated
December 16, 1994; Order of the Superior Court of Glynn County, Georgia, dated
October 11, 1996; letter from First Federal to NationsBank, dated November 12,
1996, regarding the calculation of the Exchange Ratio; and letter from First
Federal to NationsBank, dated December 27, 1996, waiving certain provisions of
the Agreement.
In arriving at our opinion, we, among other things, (i) reviewed the
Agreement; (ii) reviewed annual audited financial statements for First Federal
and NationsBank, interim unaudited financial statements through September 30,
1996 for NationsBank and interim unaudited financial statements through December
31, 1996 for First Federal; (iii) reviewed publicly available information
including recent Office of Thrift Supervision and Securities and Exchange
Commission filings and stockholder communication for First Federal and for
NationsBank, respectively; (iv) met with members of the senior managements of
First Federal and NationsBank to discuss their respective businesses, financial
conditions and operating results; (v) considered the pro forma effects of the
Merger and the Boatmen's Acquisition on NationsBank's financial results and the
pro forma equivalent for the Merger and the Boatmen's Acquisition on First
Federal's financial results; (vi) compared certain financial and stock market
data for First Federal and for NationsBank with similar data for selected
publicly held savings banks and banks; (vii) reviewed the financial terms of
certain recent business combinations in the banking industry; (viii) reviewed
historical market price and volume data for the common stock of First Federal
and the common stock of NationsBank; (ix) reviewed various published research
reports and investment opinions on NationsBank; and (x) performed such other
financial studies and analyses as we deemed appropriate. We were not requested
to and did not solicit the interest of third parties in submitting a competing
offer for the acquisition of First Federal.
In rendering this opinion, we have relied upon the accuracy and
completeness of all financial and other information furnished to us by or on
behalf of First Federal and NationsBank, and other published information that we
considered in our review. We were not requested to and generally have not
undertaken to verify independently the accuracy and completeness of such
information. We have relied upon the reasonableness of all projections and
forecasts provided to us and have assumed that they were prepared in accordance
with accepted practice on bases reflecting the best currently available
estimates and good faith judgments of First Federal and NationsBank managements.
Our opinion herein is based on the circumstances existing and known to us as of
the date hereof. We have not made or obtained any independent evaluations or
appraisals of the assets or liabilities (contingent or otherwise) of either
First Federal or NationsBank, nor were we furnished with any such evaluations or
appraisals. Consequently, we do not express any opinion regarding the value of
any of First Federal's or NationsBank's specific individual assets We were not
requested to, and therefore did not, participate in the structuring or
negotiating of the Merger. Furthermore, we are not expressing any opinion herein
as to the range of prices at which NationsBank's common stock will trade
subsequent to consummation of the Merger.
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Interstate/Johnson Lane Corporation, as part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Pursuant to
our engagement in connection with this fairness opinion, we will receive a fee
for our services in rendering said opinion. We are familiar with both First
Federal and NationsBank and have performed investment banking services for both
companies in the past, including having acted as a co-managing underwriter in a
sale of NationsBank senior notes completed October 26, 1993.
The opinion expressed herein is provided solely for the benefit of the
First Federal Board of Directors and the opinion, and any supporting analysis or
other material supplied by us may not be quoted, referred to, or used in any
public filing or in any written document or for any other purpose without the
prior written approval of Interstate/Johnson Lane Corporation; provided that we
hereby consent to the inclusion of this letter as Appendix A to the Proxy
Statement-Prospectus to be filed as a part of the Registration Statement on Form
S-4 of NationsBank in connection with the Merger.
Based upon the foregoing considerations, it is our opinion that as of the
date hereof the consideration to be received by the stockholders of First
Federal upon consummation of the Merger is fair, from a financial point of view,
to the stockholders of First Federal.
Sincerely,
INTERSTATE/JOHNSON LANE CORPORATION
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PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
There are no provisions in the Registrant's Restated Articles of
Incorporation and no contracts between the Registrant and its directors and
officers relating to indemnification. The Registrant's Restated Articles of
Incorporation prevent the recovery by the Registrant of monetary damages against
its directors. However, in accordance with the provisions of the NCBCA, the
Registrant's Amended and Restated Bylaws provide that, in addition to the
indemnification of directors and officers otherwise provided by the NCBCA, the
Registrant shall, under certain circumstances, indemnify its directors,
executive officers and certain other designated officers against any and all
liability and litigation expense, including reasonable attorneys' fees, arising
out of their status or activities as directors and officers, except for
liability or litigation expense incurred on account of activities that were at
the time known or reasonably should have been known by such director or officer
to be clearly in conflict with the best interests of the Registrant. Pursuant to
such bylaw and as authorized by statute, the Registrant maintains insurance on
behalf of its directors and officers against liability asserted against such
persons in such capacity whether or not such directors or officers have the
right to indemnification pursuant to the bylaw or otherwise.
In addition to the above-described provisions, Sections 55-8-50 through
55-8-58 of the NCBCA contain provisions prescribing the extent to which
directors and officers shall or may be indemnified. Section 55-8-51 of the NCBCA
permits a corporation, with certain exceptions, to indemnify a current or former
director against liability if (i) he conducted himself in good faith, (ii) he
reasonably believed (x) that his conduct in his official capacity with the
corporation was in its best interests and (y) in all other cases his conduct was
at least not opposed to the corporation's best interests, and (iii) in the case
of any criminal proceeding, he had no reasonable cause to believe his conduct
was unlawful. A corporation may not indemnify a current or former director in
connection with a proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation or in connection with a
proceeding charging improper personal benefit to him in which he was adjudged
liable on such basis. The above standard of conduct is determined by the Board
of Directors or a committee thereof or special legal counsel or the shareholders
as prescribed in Section 55-8-55.
Sections 55-8-52 and 55-8-56 of the NCBCA require a corporation to
indemnify a director or officer in the defense of any proceeding to which he was
a party because of his capacity as a director or officer against reasonable
expenses when he is wholly successful in his defense, unless the articles of
incorporation provide otherwise. Upon application, the court may order
indemnification of the director or officer if he is adjudged fairly and
reasonably so entitled under Section 55-8-54. Section 55-8-56 allows a
corporation to indemnify and advance expenses to an officer, employee or agent
who is not a director to the same extent as a director or as otherwise set forth
in the corporation's articles of incorporation or bylaws or by resolution of the
Board of Directors.
In addition, Section 55-8-57 permits a corporation to provide for
indemnification of directors, officers, employees or agents, in its articles of
incorporation or bylaws or by contract or resolution, against liability in
various proceedings and to purchase and maintain insurance policies on behalf of
these individuals.
THE FOREGOING IS ONLY A GENERAL SUMMARY OF CERTAIN ASPECTS OF NORTH
CAROLINA LAW DEALING WITH INDEMNIFICATION OF DIRECTORS AND OFFICERS AND DOES NOT
PURPORT TO BE COMPLETE. IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
RELEVANT STATUTES WHICH CONTAIN DETAILED SPECIFIC PROVISIONS REGARDING THE
CIRCUMSTANCES UNDER WHICH AND THE PERSON FOR WHOSE BENEFIT INDEMNIFICATION SHALL
OR MAY BE MADE AND ACCORDINGLY ARE INCORPORATED HEREIN BY REFERENCE AS EXHIBIT
99.7 TO THIS REGISTRATION STATEMENT.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits and financial statement schedules are filed with or
incorporated by reference in this Registration Statement:
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO.
<C> <S>
2.1 Amended and Restated Agreement and Plan of Reorganization, dated as of November 20, 1989, among
NationsBank (as successor to C&S/Sovran) and First Federal
2.2 Amendment Number One to the Amended and Restated Agreement and Plan of Reorganization, dated as of August
20, 1990, among NationsBank (as successor to C&S/Sovran) and First Federal
2.3 Amendment Number Two to the Amended and Restated Agreement and Plan of Reorganization, dated as of
December 19, 1990, among NationsBank (as successor to C&S/Sovran) and First Federal
2.4 Order of the Superior Court of Glynn County, Georgia, dated December 16, 1994
2.5 Order of the Superior Court of Glynn County, Georgia, dated October 11, 1996
2.6 Letter from First Federal to NationsBank, dated November 12, 1996
2.7 Letter from First Federal to NationsBank, dated January 17, 1997
5.1 Opinion of Smith Helms Mulliss & Moore, L.L.P. regarding legality of shares
8.1 Opinion of King & Spaulding regarding federal income tax consequences *
10.1 Letter from McAlpin & Henson to First Federal, dated September 27, 1991
10.2 Letter from McAlpin & Henson to First Federal, dated March 16, 1993
10.3 Letter from First Federal to Whelchel Brown Readdick & Bumgartner and McAlpin & Henson, dated April 22,
1994
10.4 Letter from McAlpin & Henson to First Federal, dated November 8, 1996
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Smith Helms Mulliss & Moore, L.L.P. (included in Exhibit 5.1)
23.5 Consent of Interstate/Johnson Lane Corporation (included in Appendix A)
23.6 Consent of King & Spaulding (included in Exhibit 8.1)
24.1 Power of Attorney and Certified Resolutions
99.1 Notice of Special Meeting of Stockholders of First Federal
99.2 Form of Proxy for Special Meeting of Stockholders of First Federal
99.3 President's letter to First Federal Stockholders
99.4 First Federal Annual Report on Form 10-K for the year ended September 30, 1996
99.5 First Federal Quarterly Report on Form 10-Q for the three months ended December 31, 1996*
99.6 Opinion of Interstate/Johnson Lane Corporation (included as Appendix A to the Prospectus-Proxy Statement)
99.7 Provisions of North Carolina law regarding indemnification of directors and officers (incorporated herein
by reference to Exhibit 99.1 of the NationsBank Registration Statement on Form S-3, Registration No.
33-63097)
</TABLE>
* To be provided by amendment
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
II-2
<PAGE>
<PAGE>
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change in such information in the registration statement:
PROVIDED, HOWEVER, that paragraphs (a)(1) (i) and (a)(1) (ii) do not apply
if the Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(c) (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on January 22, 1997.
NATIONSBANK CORPORATION
By: HUGH L. MCCOLL, JR.*
HUGH L. MCCOLL, JR.
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
HUGH L. MCCOLL, JR.* Chief Executive Officer and Director January 22, 1997
HUGH L. MCCOLL, JR. (Principal Executive Officer)
JAMES H. HANCE, JR.* Vice Chairman and Chief Financial Officer January 22, 1997
JAMES H. HANCE, JR. (Principal Financial Officer)
MARC D. OKEN* Executive Vice President and Chief Accounting January 22, 1997
MARC D. OKEN Officer (Principal Accounting Officer)
Chairman of the Board and Director
ANDREW B. CRAIG, III
RONALD W. ALLEN* Director January 22, 1997
RONALD W. ALLEN
RAY C. ANDERSON* Director January 22, 1997
RAY C. ANDERSON
WILLIAM M. BARNHARDT* Director January 22, 1997
WILLIAM M. BARNHARDT
Director
B.A. BRIDGEWATER, JR.
THOMAS E. CAPPS* Director January 22, 1997
THOMAS E. CAPPS
CHARLES W. COKER* Director January 22, 1997
CHARLES W. COKER
</TABLE>
II-4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
THOMAS G. COUSINS* Director January 22, 1997
THOMAS G. COUSINS
ALAN T. DICKSON* Director January 22, 1997
ALAN T. DICKSON
W. FRANK DOWD, JR.* Director January 22, 1997
W. FRANK DOWD, JR.
PAUL FULTON* Director January 22, 1997
PAUL FULTON
TIMOTHY L. GUZZLE* Director January 22, 1997
TIMOTHY L. GUZZLE
Director
C. RAY HOLMAN
W. W. JOHNSON* Director January 22, 1997
W. W. JOHNSON
Director
RUSSELL W. MEYER, JR.
Director
JOHN J. MURPHY
Director
RICHARD B. PRIORY
JOHN C. SLANE* Director January 22, 1997
JOHN C. SLANE
O. TEMPLE SLOAN, JR.* Director January 22, 1997
O. TEMPLE SLOAN, JR.
JOHN W. SNOW* Director January 22, 1997
JOHN W. SNOW
MEREDITH R. SPANGLER* Director January 22, 1997
MEREDITH R. SPANGLER
ROBERT H. SPILMAN* Director January 22, 1997
ROBERT H. SPILMAN
</TABLE>
II-5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Director
ALBERT E. SUTER
RONALD TOWNSEND* Director January 22, 1997
RONALD TOWNSEND
E. CRAIG WALL, JR.* Director January 22, 1997
E. CRAIG WALL, JR.
JACKIE M. WARD* Director January 22, 1997
JACKIE M. WARD
VIRGIL R. WILLIAMS* Director January 22, 1997
VIRGIL R. WILLIAMS
* By: /s/ CHARLES M. BERGER
CHARLES M. BERGER
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
C&S/Brunswick
Final Agreement
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
THE CITIZENS AND SOUTHERN CORPORATION
CITIZENS AND SOUTHERN GEORGIA CORPORATION
THE CITIZENS AND SOUTHERN NATIONAL BANK
AND
FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA
<PAGE>
AMENDED AND RESTATED AGREEMENT
AND PLAN OF REORGANIZATION
TABLE OF CONTENTS
Parties..................................................................... 1
Preamble.................................................................... 1
ARTICLE ONE
DEFINITIONS
1.1 Agreement.......................................................... 2
1.2 Articles of Combination............................................ 3
1.3 Avantor............................................................ 3
1.4 Avantor Agreements................................................. 3
1.5 Avantor Base Period Trading Price.................................. 3
1.6 Avantor Common Stock............................................... 3
1.7 Avantor Reorganization............................................. 3
1.8 Base Period Trading Price.......................................... 3
1.9 Base Period Trading Price Limitations.............................. 3
1.10 BHC Act............................................................ 3
1.11 Brunswick Common Stock............................................. 3
1.12 Brunswick Companies................................................ 3
1.13 Brunswick Financial Statements..................................... 3
1.14 Brunswick Interim Common Stock..................................... 3
1.15 Brunswick Options.................................................. 3
1.16 Brunswick Reports.................................................. 4
1.17 Brunswick Subsidiaries............................................. 4
1.18 C&S Common Stock................................................... 4
1.19 C&S Companies...................................................... 4
1.20 C&S Financial Statements........................................... 4
1.21 C&S Georgia Common Stock........................................... 4
1.22 C&S Subsidiaries................................................... 4
1.23 Closing............................................................ 4
1.24 Comptroller........................................................ 4
1.25 CSNB Common Stock.................................................. 4
1.26 Effective Date..................................................... 4
1.27 ERISA.............................................................. 4
1.28 Exhibits........................................................... 4
1.29 FDIC............................................................... 4
1.30 Federal Reserve Board.............................................. 5
1.31 GAAP............................................................... 5
1.32 Georgia Commissioner............................................... 5
1.33 Internal Revenue Code.............................................. 5
1.34 Merger............................................................. 5
1.35 NASDAQ............................................................. 5
1.36 1933 Act........................................................... 5
1.37 1934 Act........................................................... 5
1.38 OTS................................................................ 5
(i)
<PAGE>
1.39 Party............................................................... 5
1.40 Pension Plan........................................................ 5
1.41 Per Share Purchase Price............................................ 5
1.42 Plan of Merger...................................................... 6
1.43 Proxy Statement..................................................... 6
1.44 Registration Statement.............................................. 6
1.45 Regulatory Authorities.............................................. 6
1.46 SAIF................................................................ 7
1.47 SEC................................................................. 7
1.48 Sovran.............................................................. 7
1.49 Stockholders' Meeting............................................... 7
1.50 Subsidiaries........................................................ 7
ARTICLE TWO
TERMS OF TRANSACTIONS
2.1 Merger.............................................................. 7
2.2 Effect of Merger.................................................... 7
2.3 Manner of Converting Shares......................................... 8
2.4 Assumption of Stock Options......................................... 9
ARTICLE THREE
CLOSING, EFFECTIVE DATE AND
EXCHANGE OF STOCK CERTIFICATES
3.1 Time and Place of Closing............................................ 10
3.2 Effective Date....................................................... 10
3.3 Exchange of Stock Certificates....................................... 10
3.4 Dissenting Stockholders.............................................. 11
3.5 Rights of Holders of Brunswick Common Stock.......................... 12
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF BRUNSWICK
4.1 Organization, Standing and Authority.................................. 12
4.2 Capital Stock......................................................... 13
4.3 Brunswick Subsidiaries................................................ 13
4.4 Authority............................................................. 14
4.5 Financial Statements.................................................. 15
4.6 Absence of Undisclosed Liabilities.................................... 15
4.7 Tax Matters........................................................... 16
4.8 Loans................................................................. 16
4.9 Allowance for Possible Loan Losses.................................... 16
4.10 Properties............................................................ 16
4.11 Compliance with Laws.................................................. 17
4.12 Employee Benefit Plans................................................ 17
4.13 Material Contracts.................................................... 19
4.14 Material Contract Defaults............................................ 20
4.15 Legal Proceedings..................................................... 20
(ii)
<PAGE>
4.16 Absence of Certain Changes or Events.................................. 20
4.17 Reports............................................................... 20
4.18 Statements True and Correct........................................... 21
ARTICLE FIVE
COVENANTS AND AGREEMENTS OF BRUNSWICK
5.1 Conduct of Business--Negative Covenants............................... 22
5.2 Conduct of Business--Affirmative Covenants............................ 23
5.3 Adverse Changes in Condition.......................................... 23
5.4 Cooperation........................................................... 24
5.5 Investigation and Confidentiality..................................... 24
5.6 Reports............................................................... 24
5.7 Current Information................................................... 25
5.8 Dividends............................................................. 25
5.9 Capital Stock......................................................... 25
5.10 Agreement of Affiliates............................................... 25
5.11 Certain Actions....................................................... 26
5.12 Agreement as to Efforts to Consummate................................. 26
5.13 Related Agreements.................................................... 27
5.14 Escrow Account........................................................ 27
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES OF C&S, C&S GEORGIA AND CSNB
6.1 Organization, Standing and Authority of C&S........................... 27
6.2 Capital Stock......................................................... 27
6.3 Organization and Standing of C&S Georgia.............................. 28
6.4 Organization and Standing of CSNB..................................... 28
6.5 Authority............................................................. 28
6.6 Financial Statements.................................................. 29
6.7 Absence of Undisclosed Liabilities.................................... 30
6.8 Compliance With Laws.................................................. 30
6.9 Legal Proceedings..................................................... 31
6.10 Absence of Certain Changes or Events.................................. 31
6.11 Reports............................................................... 31
6.12 Statements True and Correct........................................... 31
ARTICLE SEVEN
COVENANTS OF C&S, C&S GEORGIA AND CSNB
7.1 Conduct of Business................................................... 32
7.2 Adverse Changes in Condition.......................................... 32
7.3 Investigation and Confidentiality..................................... 33
7.4 Reports............................................................... 33
7.5 Current Information................................................... 33
7.6 Organization of Brunswick Interim..................................... 34
7.7 Applications.......................................................... 34
7.8 Agreement as to Efforts to Consummate................................. 34
(iii)
<PAGE>
ARTICLE EIGHT
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Stockholder Approval.......................... 34
8.2 Tax Ruling; Tax Opinion............................................... 35
8.3 Press Releases........................................................ 35
8.4 Avantor Reorganization; Substitution of Avantor Common
Stock............................................................... 35
ARTICLE NINE
CONDITIONS PRECEDENT TO THE OBLIGATIONS TO CONSUMMATE
9.1 Representations and Warranties........................................ 37
9.2 Performance of Agreements and Covenants............................... 38
9.3 Certificates.......................................................... 38
9.4 Corporate Authorization............................................... 38
9.5 Stockholder Approvals................................................. 38
9.6 Consents and Approvals................................................ 39
9.7 Legal Proceedings..................................................... 39
9.8 Material Adverse Change............................................... 39
9.9 Letters Concerning Claims............................................. 40
9.10 Opinions of Counsel................................................... 40
9.11 Accountants' Letters.................................................. 40
9.12 Tax Matters........................................................... 40
9.13 Letter from Investment Banking Firm................................... 41
9.14 Registration Statement................................................ 41
ARTICLE TEN
TERMINATION
10.1 Termination........................................................... 41
10.2 Effect of Termination................................................. 42
10.3 Survival of Representations, Warranties and Covenants................. 42
ARTICLE ELEVEN
MISCELLANEOUS
11.1 Expenses.............................................................. 42
11.2 Brokers and Finders................................................... 43
11.3 Entire Agreement...................................................... 43
11.4 Amendments............................................................ 43
11.5 Waivers............................................................... 44
11.6 No Assignment......................................................... 44
11.7 Specific Enforceability............................................... 44
11.8 Notices............................................................... 44
11.9 Governing Law......................................................... 45
11.10 Counterparts.......................................................... 45
(iv)
<PAGE>
LIST OF EXHIBITS
FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA
C&S -The Citizens and Southern Corporation
Brunswick -First Federal Savings Bank of Brunswick, Georgia
Exhibit Number Description
1. Form of Plan of Merger. (SS1.42).
2. Agreement of each affiliate of Brunswick. (SS5.10).
3. Agreement of directors and officers of Brunswick. (SS5.11).
4. Letter regarding claims of each director, the president and
each vice president of Brunswick. (SS9.9).
5. Legal opinion of Alston & Bird. (SS9.10).
6. Legal opinion of Smith, Mackinnon, Mathews & Christiansen,
P.A. (SS9.10).
7. Cold comfort letter of Arthur Andersen & Co. (SS9.11).
(v)
<PAGE>
LIST OF SCHEDULES
C&S -The Citizens and Southern Corporation
Brunswick -First Federal Savings Bank of Brunswick, Georgia
Schedule Number
4.2 Certain information with respect to the outstanding stock options of
Brunswick. (SS4.2).
4.3 Certain information with respect to the Subsidiaries of Brunswick.
(SS4.3).
4.5 Audited Consolidated Statements of Financial Condition of Brunswick at
September 30, 1987, 1986 and 1985, and the related Consolidated
Statements of (i) Income, (ii) Stockholders' Equity and (iii) Changes in
Financial Position for the fiscal years then ended and the notes thereto
as reported upon by Arthur Andersen & Co., independent certified public
accountants, together with unaudited Consolidated Statements of Financial
Condition of Brunswick at December 31, 1987, and the related Consolidated
Statements of (i) Income, (ii) Stockholders' Equity and (iii) Changes in
Financial Position for the three- month period then ended and the notes
thereto. (SS4.5).
4.12 List of employee benefit plans maintained by Brunswick. (SS4.12).
4.13 Schedule of other material contracts of Brunswick including any material
agreement, arrangement or commitment not cancellable by Brunswick without
penalty, any agreement, arrangement or commitment relating to the
appointment, election or retention of any director or officer, any
contract, agreement or any understanding with any labor union or any
contract or agreement or amendment thereto that would be required to be
filed with the OTS as an exhibit to a Form 10-K and that has not been
filed as an exhibit to Brunswick's Form 10-K for 1987 or in a report
filed with the OTS under the Securities Exchange Act of 1934, as amended.
(SS4.13).
6.6 Audited Consolidated Statements of Condition of C&S at December 31, 1987,
1986 and 1985, and the related Consolidated Statements of (i) Income,
(ii) Stockholders' Equity and (iii) Changes in Financial Position for the
years then ended and the notes thereto as reported upon by Ernst &
Whinney, independent certified public accountants. (SS6.6).
(vi)
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
("Agreement") is initially made and entered into as of the 19th day of April,
1988, and amended and restated as the 20th day of November, 1989, by and among
THE CITIZENS AND SOUTHERN CORPORATION, a corporation organized and existing
under the laws of the State of Georgia with its principal office located in
Atlanta, Fulton County, Georgia ("C&S"); CITIZENS AND SOUTHERN GEORGIA
CORPORATION, a corporation organized and existing under the laws of the State of
Georgia with its principal office located in Atlanta, Fulton County, Georgia
("C&S Georgia"); THE CITIZENS AND SOUTHERN NATIONAL BANK, a national banking
association organized and existing under the laws of the United States with its
main office located in Savannah, Chatham County, Georgia ("CSNB"); and FIRST
FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA, a federally chartered stock savings
bank organized and existing under the laws of the United States with its
principal office located in Brunswick, Glynn County, Georgia ("Brunswick").
PREAMBLE
The Boards of Directors of C&S, C&S Georgia, CSNB and Brunswick are of
the opinion that it is advisable for the welfare and best interests of the
parties to this Agreement and their respective stockholders that C&S acquire all
of the outstanding shares of Brunswick common stock in exchange for the issuance
of C&S common stock, all on the terms and conditions set forth in this
Agreement. If the transactions contemplated by this Agreement are consummated,
the stockholders of Brunswick will thereby become stockholders of C&S.
At the time this Agreement was originally entered into on April 19,
1988, the proposed acquisition of Brunswick by C&S was structured in a manner
that contemplated the conversion of Brunswick from a federal stock savings bank
to a state chartered savings and loan association would then be acquired by C&S
by means of the merger of Brunswick as a state chartered savings and loan
association into and with CSNB. As a result of the enactment of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), the
acquisition of Brunswick by C&S as originally contemplated by this Agreement is
no longer permissible and thus the parties believe it is in the best interest of
each of the parties and their respective stockholders to restructure the
transaction in a manner that would permit the acquisition of Brunswick by C&S
under the provisions of the newly enacted FIRREA. Accordingly, C&S, C&S Georgia,
CSNB and Brunswick are amending and restating this Agreement as of November 20,
1989, to reflect the restructuring of the acquistion of Brunswick by C&S in a
manner that comports with the provisions of FIRREA. The acquisition of Brunswick
by C&S will now be accomplished by means of the organization of an interim
federal stock savings bank to be known as "Interim Federal Savings Bank of
Brunswick" ("Brunswick Interim") as a wholly owned subsidiary of C&S and the
merger of Brunswick Interim with and into Brunswick. Upon consummation of the
merger of Brunswick Interim
<PAGE>
with and into Brunswick, Brunswick will be the surviving entity and will
continue to conduct its business and operations after the merger as a wholly
owned subsidiary of C&S and as a federal stock savings bank under the name "The
Citizens and Southern Savings Bank, F.A."
In addition to amending and restating this Agreement for the purpose of
reflecting the restructuring of the acquisition of Brunswick as a result of the
enactment of FIRREA, C&S has entered into an Amended and Restated Agreement and
Plan of Reorganization, dated as of September 26, 1989, and amended and restated
as of October 31, 1989, pursuant to which C&S and Sovran Financial Corporation
have agreed to become wholly owned subsidiaries of Avantor Financial Corporation
("Avantor"), a newly organized Delaware corporation. The transactions
contemplated by this Agreement will not be consummated until the Avantor
reorganization is consummated or terminated in accordance with the terms of the
Avantor agreements. If the Avantor reorganization is consummated, then in lieu
of receiving shares of C&S common stock for their shares of Brunswick common
stock, stockholders of Brunswick will receive shares of Avantor common stock. In
the event the Avantor reorganization is not consummated, the obligations of C&S
to consummate the proposed acquisition of Brunswick will continue in accordance
with the terms of this Agreement.
For federal income tax purposes, the Parties to this Agreement intend
that the acquisition by C&S of all of the outstanding shares of the common stock
of Brunswick in exchange solely for the shares of voting common stock of C&S as
contemplated herein, will constitute a reorganization within the meaning of
Section 368(b) of the Internal Revenue Code of 1986, as amended.
The transactions described in this Agreement are subject to the
approval of the stockholders of Brunswick, the sole stockholder of Brunswick
Interim, the Board of Governors of the Federal Reserve System, the Office of
Thrift Supervision and the Commissioner of the Department of Banking and Finance
of the State of Georgia, and the satisfaction of certain other conditions
described in this Agreement.
In consideration of the above, the mutual warranties, representations,
covenants and agreements set forth herein, the Parties agree as follows:
ARTICLE ONE
DEFINITIONS
As used in this Agreement and in any amendments hereto, the following
terms shall have the following meanings respectively:
1.1 "Agreement" shall mean this Amended and Restated Agreement and Plan
of Reorganization.
1.2 "Articles of Combination" shall mean the Articles of Combination to
be executed by Brunswick and Brunswick Interim and filed with the OTS as
contemplated by Section 2.1 of this Agreement.
-2-
<PAGE>
1.3 "Avantor" shall mean Avantor Financial Corporation, a newly
organized Deleware corporation that is to serve as the parent holding compnay of
C&S and Sovran.
1.4 "Avantor Agreements" shall mean the Amended and Restated Agreement
and Plan of Reorganization, dated as of September 26, 1989, and amended and
restated as of October 31, 1989, by and between C&S and Sovran and the related
(i) Plan of Merger of C&S Merger Subsidiary, Inc. into and with C&S and (ii)
Plan of Share Exchange of Sovran and Avantor.
1.5 "Avantor Base Period Trading Price" shall mean the average closing
price of a share of Avantor Common Stock as reported by the New York Stock
Exchange for the twenty (20) trading days immediately preceding the five (5)
consecutive calendar days immediately preceding the Effective Date.
1.6 "Avantor Common Stock" shall mean the $1.00 par value common stock
of Avantor to be issued to the stockholders of C&S and Sovran upon consummation
of the Avantor Reorganization.
1.7 "Avantor Reorganization" shall mean the proposed reorganization of
C&S and Sovran pursuant to which C&S and Sovran will become wholly owned
subsidiaries of Avantor in accordance with the terms of the Avantor Agreements.
1.8 "Base Period Trading Price" shall mean the average closing price of
a share of C&S Common Stock as reported by the New York Stock Exchange for the
twenty (20) trading days immediately preceding the five (5) consecutive calendar
days immediately preceding the Effective Date.
1.9 "Base Period Trading Price Limitations" shall have the meaning set
forth in Section 2.3 of this Agreement.
1.10 "BHC Act" shall mean the federal Bank Holding Company Act of 1956,
as amended.
1.11 "Brunswick Common Stock" shall mean the $1.00 par value commmon
stock of Brunswick.
1.12 "Brunswick Companies" shall mean collectively, Brunswick and all
Brunswick Subsidiaries.
1.13 "Brunswick Financial Statements" shall mean the financial
statements of Brunswick and Subsidiaries described in Section 4.5 of this
Agreement.
1.14 "Brunswick Interim Common Stock" shall mean the $1.00 par value
Common Stock of Brunswick Interim.
1.15 "Brunswick Options" shall have the meaning set forth in Section
2.4 of this Agreement.
-3-
<PAGE>
1.16 "Brunswick Reports" shall have the meaning set forth in Section
4.17 of this Agreement.
1.17 "Brunswick Subsidiaries" shall mean the Subsidiaries of Brunswick.
1.18 "C&S Common Stock" shall mean the $2.50 par value common stock
of C&S.
1.19 "C&S Companies" shall mean collectively, C&S and all C&S
Subsidiaries.
1.20 "C&S Financial Statements" shall mean the financial statements of
C&S and Subsidiaries described in Section 6.6 of this Agreement.
1.21 "C&S Georgia Common Stock" shall mean the $1.00 par value common
stock of C&S Georgia.
1.22 "C&S Subsidiaries" shall mean the Subsidiaries of C&S.
1.23 "Closing" shall mean the closing to be held pursuant to Section
3.1 of this Agreement at which the Parties shall deliver certain documents and
instruments and satisfy certain conditions precedent to consummation of the
Merger.
1.24 "Comptroller" shall mean the Office of the Comptroller of the
Currency.
1.25 "CSNB Common Stock" shall mean the $2.50 par value common stock of
CSNB.
1.26 "Effective Date" shall mean the date and time on which the Merger
contemplated by this Agreement becomes effective as defined in Section 3.2 of
this Agreement pursuant to the laws of the United States.
1.27 "ERISA" shall mean Public Law No. 93-406, the Employee Retirement
Income Security Act of 1974, as amended.
1.28 "Exhibits" 1 through 7, inclusive, and the Schedules referenced
herein, shall mean the respective Exhibits and Schedules so marked, each of
which has been initialed for identification by an officer of C&S and an officer
of Brunswick and bound sets of which have been delivered to the respective
Parties. Such Exhibits and Schedules are hereby incorporated by reference herein
and made a part hereof, and may be referred to in this Agreement and any other
related instrument or document without being attached hereto.
1.29 "FDIC" shall mean the Federal Deposit Insurance Corporation.
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1.30 "Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
1.31 "GAAP" shall mean generally accepted accounting principles.
1.32 "Georgia Commissioner" shall mean the commissioner of the
Department of Banking and Finance of the State of Georgia.
1.33 "Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended.
1.34 "Merger" shall mean the merger of Brunswick Interim into and with
Brunswick as provided in Section 2.1 of this Agreement and as described in the
Plan of Merger.
1.35 "NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation System.
1.36 "1933 Act" shall mean the Securities Act of 1933, as amended.
1.37 "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.38 "OTS" shall mean the Office of Thrift Supervision, and its
predecessor, the Federal Home Loan Bank Board.
1.39 "Party" shall mean either C&S, C&S Georgia and CSNB, on the one
hand, or Brunswick, on the other hand, and "Parties" shall mean C&S, C&S
Georgia, CSNB and Brunswick.
1.40 "Pension Plan" shall mean any employee pension benefit plan as
such term is defined in Section 3(2) of ERISA which is maintained by Brunswick.
1.41 "Per Share Purchase Price" shall mean an amount equal to (i)$16.80
PLUS (ii) an amount (rounded to the nearest cent) equal to the increase in book
value (as determined in accordance with GAAP as applied to savings banks) per
share of Brunswick Common Stock for each calendar month (prorated for any
portion thereof) that occurs between September 1, 1988, and the Effective Date.
Subject to the following sentence, the per share increase in book value of
Brunswick Common Stock that occurs between September 1, 1988, and the Effective
Date shall equal the quotient obtained by dividing (i) the aggregate increase
in book value (as determined in accordance with GAAP as applied to savings
banks) during such time period by (ii) the total number of shares of Brunswick
Common Stock issued and outstanding on the Effective Date. In order for the Per
Share Purchase Price to be determined prior to the Effective Date, the Parties
agree that for the purposes of determining the aggregate increase in book value
of Brunswick Common Stock for the month during which the Effective Date occurs
(or the month immediately preceding the
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Effective Date if the Effective Date occurs on the first of a month), the
aggregate increase in book value (as determined in accordance with GAAP as
applied to savings banks) of Brunswick Common Stock for the month during which
the Effective Date occurs (or the month immediately preceding the Effective Date
if the Effective Date occurs on the first of a month) shall equal the average
monthly aggregate increase in book value of Brunswick Common Stock for each of
the calendar months from October 1, 1987, through and including the month
immediately preceding the month during which the Effective Date occurs (or the
second month immediately preceding the month during which the Effective Date
occurs if the Effective Date occurs on the first of a month). In determining the
aggregate increase in book value (as determined in accordance with GAAP as
applied to savings banks) of Brunswick Common Stock, the following expenses
incurred by Brunswick or on its behalf in connection with the transactions
contemplated by this Agreement and the Plan of Merger shall be disregarded for
purposes of the calculation: (i) 50% of any and all accounting and legal fees
directly related to the transactions contemplated by this Agreement; and (ii)
any and all investment banking fees directly related to the transactions
contemplated by this Agreement. In addition, in determining the book value (as
determined in accordance with GAAP as applied to savings banks) of Brunswick
Common Stock as of September 1, 1988, and the aggregate increase in book value
of Brunswick Common Stock from September 1, 1988, through the Effective Date,
any and all funds received by Brunswick in payment of the exercise price of any
Brunswick Options exercised on or after October 1, 1987, through and including
the Effective Date shall be excluded for purposes of the calculation. The
calculation of the per share increase in book value shall be determined by
Arthur Andersen & Co., independent certified public accountants of Brunswick,
subject to review by Ernst & Young, independent certified public accountants of
C&S, which absent error shall be binding upon the Parties.
1.42 "Plan of Merger" shall mean the Plan of Merger set forth in
Exhibit 1 relating to the Merger.
1.43 "Proxy Statement" shall mean the proxy statement-prospectus
included in the Registration Statement and mailed to the stockholders of
Brunswick in connection with the Stockholders' Meeting.
1.44 "Registration Statement" shall mean the Registration Statement on
Form S-4, or other appropriate form, filed with the SEC by C&S under the 1933
Act as provided in Section 8.1 of this Agreement, together with any amendment or
amendments to such registration statement, in connection with the transactions
contemplated by this Agreement.
1.45 "Regulatory Authorities" shall mean collectively, the Federal
Reserve Board, the Comptroller, the OTS, the FDIC, the Georgia Commissioner and
the SEC.
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1.46 "SAIF" shall mean the Savings Association Insurance Fund, and
its predecessor, the Federal Savings and Loan Insurance Corporation.
1.47 "SEC" shall mean the Securities and Exchange Commission.
1.48 "Sovran" shall mean Sovran Financial Corporation, a
corporation organized and existing under the laws of the Commonwealth of
Virginia and registered as a bank holding company under the BHC Act.
1.49 "Stockholders' Meeting" shall mean the meeting of the
stockholders of Brunswick held pursuant to Section 8.1 of this Agreement.
1.50 "Subsidiaries" shall mean all those corporations, associations or
other entities of which the entity in question owns or controls 5% or more of
the outstanding equity securities either directly or through an unbroken chain
of entities as to each of which 5% or more of the outstanding equity securities
is owned directly or indirectly by its parent; provided , however, there shall
not be included any such entity which owns or operates an automated teller
machine interchange network and any such entity the equity securities of which
are owned or controlled in a fiduciary capacity.
ARTICLE TWO
TERMS OF TRANSACTIONS
2.1 MERGER. Subject to the terms of this Agreement and the Plan of Merger, on
the Effective Date, Brunswick Interim shall be merged into and with Brunswick in
accordance with the provisions of and with the effect provided in the
Homeowners' Loan Act of 1933, as amended, and the regulations thereunder.
Brunswick shall be the surviving savings bank resulting from the Merger and
shall continue to exist and to be governed by the laws of the United States as a
federal stock savings bank operating under the name "The Citizens and Southern
Savings Bank, F.A.". The Merger shall be consummated pursuant to the terms of
this Agreement and the Plan of Merger, in the form of Exhibit 1, both of which
have been approved and adopted to the extent necessary by the Boards of
Directors of C&S, C&S Georgia, CSNB and Brunswick and which shall
be approved and adopted by the Board of Directors of Brunswick Interim upon the
organization of Brunswick Interim. The Merger shall be effected by filing the
Plan of Merger as part of the Articles of Combination with the OTS.
2.2 EFFECT OF MERGER.
(a) On the Effective Date, the separate existence and corporate organization of
Brunswick Interim shall cease, and Brunswick shall succeed to and shall have all
the rights, privileges, immunities and powers of both Brunswick Interim and
Brunswick. Brunswick shall thereupon and thereafter possess all the rights,
privileges, powers, immunities and franchises of a
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public as well as a private nature, of both Brunswick and Brunswick Interim.
All assets and property, real, personal, and mixed, and all debts due on
whatever account , including without limiting the generality of the foregoing,
shares or subscriptions to shares, all other choses in action, rights and
credits, and all and every other interest of or owned by or due or which would
inure to either Brunswick or Brunswick Interim shall immediately by operation of
law to be taken or deemed to be transferred to and vested in Brunswick without
any further conveyance, transfer, act or deed, and the title to any real estate
or any interest therein vested in either Brunswick or Brunswick Interim shall
not revert or be in any way impaired by reason of the Merger. Brunswick shall be
deemed to be a continuation of the entity of each constituent association, the
rights and obligations of which shall succeed to such rights and obligations and
the duties and liabilities connected therewith, and shall thenceforth be
responsible and liable for all the liabilities and obligations of Brunswick
Interim, and any claim existing or action or proceeding pending by or against
Brunswick may be prosecuted as if the Merger had not taken place. Neither the
rights of creditors nor any liens upon the property of Brunswick Interim shall
be impaired by the Merger.
(b) All savings accounts and deposits of Brunswick Interim shall be and
continue to be saving accounts and deposits of Brunswick, without change in
their respective terms, maturity, minimum required balances or withdrawal value.
As of the Effective Date, each saving account or deposit of Brunswick Interim
shall continue to be considered for dividend or interest purposes as a saving
account or deposit of Brunswick from the time said savings account or deposit
was open in Brunswick Interim and at all times thereafter until such account or
deposit ceases to be a saving account or deposit of Brunswick.
(c) The liquidation account of Brunswick established in connection with its
conversion from a federal mutual savings bank to a federal stock savings bank
and in existence as of the Effective Date shall be unaffected by the Merger and
shall continue in Brunswick to the same extent, character and amount as it
existed in Brunswick immediately prior to the Merger.
2.3 MANNER OF CONVERTING SHARES. All of the shares of CSNB Common
Stock, C&S Georgia Common Stock and C&S Common Stock issued and outstanding on
the Effective Date shall remain issued and outstanding after the Effective Date
and shall be unaffected by the Merger. Each of the shares of Brunswick Interim
Common Stock issued and outstanding on the Effective Date shall be converted
into one (1) share of Brunswick Common Stock. The manner and basis of converting
the shares of the capital stock of Brunswick into shares of C&S Common Stock
upon consummation of the Merger shall be as follows:
(a) EXCHANGE RATIO. Except as otherwise provided in this Section 2.3, each
share of Brunswick Common Stock issued and outstanding on the Effective Date
(other than treasury shares) shall, as of the Effective Date, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and represent the right to receive the number of
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shares of C&S Common Stock determined by dividing the Per Share Purchase Price
by the Base Period Trading Price; provided, however, that for purposes of this
calculation, the Base Period Trading Price shall be deemed to equal (i) $18.84
in the event the Base Period Trading Price is less than $18.84 or (ii) $31.40 in
the event the Base Period Trading Price is greater than $31.40 (collectively,
$18.84 and $31.40 are referred to as the "Base Period Trading Price
Limitations").
(b) ANTI-DILUTION PROVISIONS. In the event C&S changes the number of shares of
C&S Common Stock issued and outstanding prior to the Effective Date as a result
of a stock split, stock dividend, or similar recapitalization, (i) the Base
Period Trading Price Limitations shall be adjusted to appropriately adjust the
ratio under which shares of Brunswick Common Stock will be converted into and
exchanged for shares of C&S Common Stock pursuant to Section 2.3 (a) of this
Agreement and (ii) if necessary, the anticipated Effective Date shall be
postponed for an appropriate period of time agreed upon by the Parties in order
for the Base Period Trading Price to reflect the market effect of such stock
split, stock dividend or similar recapitalization.
(c) DISSENTING STOCKHOLDERS OF BRUNSWICK . Any holder of shares of Brunswick
Common Stock who complies with the provisions of 12 C.F.R. SS552.14 with
respect to dissenting stockholders shall be entitled to receive the value of
such shares in cash (to be paid from the escrow account established by Brunswick
prior to the Effective Date pursuant to Section 5.14 of this Agreement)
calculated and determined pursuant to the applicable provisions of 12 C.F.R.
SS552.14; provided, however, that no such payment shall be made to any
dissenting stockholder unless and until such dissenting stockholder has
surrendered to C&S the certificate or certificates representing the shares for
which payment is being made.
(d) TREASURY SHARES. Any and all shares of Brunswick Common Stock held as
treasury shares by Brunswick shall be cancelled and retired on the Effective
Date, and no consideration shall be issued in exchange therefor.
(e) FRACTIONAL SHARES. No fractional shares of C&S Common Stock will be issued
as a result of the Merger. In lieu of the issuance of fractional shares pursuant
to Section 2.3 (a) of this Agreement, cash adjustments (without interest) based
upon the Base Period Trading Price will be paid to the holders of Brunswick
Common Stock in respect of any fraction of a share that would otherwise be
issuable.
2.4 ASSUMPTION OF STOCK OPTIONS. On the Effective Date, C&S shall
assume the stock options granted by Brunswick pursuant to the Brunswick Stock
Option Plan referred to in Section 4.2 of this Agreement which are outstanding
on the Effective Date, whether or not exercisable ("Brunswick Options"). Each
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such Brunswick Option so assumed shall continue to be an issued and outstanding
stock option in accordance with its terms and with the terms of the Brunswick
Stock Option Plan; provided, however, that (i) from and after the Effective
Date, each such Brunswick Option may be exercised solely for shares of C&S
Common Stock, (ii) the number of whole shares of C&S Common Stock subject to
each such Brunswick Option shall be equal to the number of shares of Brunswick
Common Stock subject to such Brunswick Option immediately prior to the Effective
Date times the quotient used in Section 2.3(a) of this Agreement for the
conversion on the Effective Date of each share of Brunswick Common Stock into
C&S Common Stock, rounded down to the nearest whole share, and (iii) the per
share exercise price under each such Brunswick Option shall be adjusted by
dividing the per share exercise price by the quotient used in Section 2.3 (a) of
this Agreement (rounded to the nearest cent); provided further, however, that in
the case of any Brunswick Option which is an "incentive stock option" as defined
in Section 422A of the Internal Revenue Code, the excess of the aggregate fair
market of the C&S Common Stock subject to such Incentive Stock Option over the
aggregate adjusted price of such option shall not exceed the excess of the
aggregate fair market value (determined immediately prior to the Effective Date)
of the Brunswick Common Stock (determined on the basis of the Per Share Purchase
Price) subject to such option over the aggregate unadjusted exercise price of
such option.
ARTICLE THREE
CLOSING, EFFECTIVE DATE, AND EXCHANGE OF STOCK CERTIFICATES
3.1 TIME AND PLACE CLOSING. The Closing will take place at 11:00
A.M., Atlanta, Georgia time, on the Effective Date, or at such other time as the
Parties may mutually agree. The place of Closing will be at the principal
offices of C&S, The Citizens and Southern National Bank Building, 35 Broad
Street, Atlanta, Georgia 30303 or such other place as may be mutually agreed
upon by the Parties.
3.2 EFFECTIVE DATE. The Merger shall become effective on the date and
at the time of endorsement of the Articles of Combination filed with the OTS
or on such other date that the OTS declares the Merger effective. Unless
otherwise mutually agreed upon in writing by the Parties, the Effective Date
shall be as soon as practicable following the date that all of the conditions
precedent specified in this Agreement have been satisfied or waived by the Party
or Parties permitted to do so.
3.3 EXCHANGE OF STOCK CERTIFICATES.
(a) As soon as practicable after the Effective Date but in no
event later than two (2) business days after the Effective Date, a form of
transmittal letter ("Transmittal Letter") pursuant to which each holder of
shares of Brunswick Common Stock may transmit certificates representing shares
of Brunswick Common Stock in exchange for the consideration provided in
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Section 2.3 of this Agreement, and any other appropriate materials, shall be
mailed by C&S or the exchange agent selected by C&S, to each holder of record of
Brunswick Common Stock as of the Effective Date.
(b) After the Effective Date, each holder of shares of Brunswick
Common Stock issued and outstanding on the Effective Date (other than shares
held by dissenting stockholders) shall surrender the certificate or certificates
representing such shares, together with a properly completed Transmittal Letter,
to the exchange agent selected by C&S and shall promptly upon surrender receive
in exchange therefor the consideration provided in Section 2.3 of this
Agreement. The certificate or certificates of Brunswick Common Stock so
surrendered shall be duly endorsed as C&S or the exchange agent may require. To
the extent required by Section 2.3 (e) of this Agreement, each holder of shares
of Brunswick Common Stock issued and outstanding on the Effective Date also
shall receive, upon surrender of the certificate or certificates representing
such shares, cash, without interest, in lieu of any fractional share of C&S
Common Stock to which such holder may be entitled. C&S shall not be obligated
to deliver the consideration to which any former holder of Brunswick Common
Stock is entitled as a result of the Merger until such holder surrenders his
certificate or certificates representing the shares of Brunswick Common Stock
for exchange as provided in this section 3.3. In addition, no dividend or other
distribution payable to the holders of record of C&S Common Stock as of any time
subsequent to the Effective Date shall be paid to the holder of any certificate
representing shares of Brunswick Common Stock issued and outstanding on the
Effective Date until such holder surrenders such certificate for exchange as
provided in this Section 3.3. Upon surrender of the Brunswick Common Stock
certificate, however, both the C&S Common Stock certificates (together with all
such withheld dividends or other distributions) and any withheld cash payments
(without interest) shall be delivered and paid with respect to each share
represented by such certificate. In the event a holder of shares of Brunswick
Common Stock has lost such holder's certificate or certificates representing the
shares of Brunswick Common Stock held by such a holder, such holder shall comply
with the policies and procedures of the exchange agent for lost certificates
prior to receiving the consideration to which the holder is entitled as provided
in this Agreement. Subject to the provisions of Section 2.3 (c) and Section 3.4
of this Agreement, after the Effective Date each outstanding certificate that
represented shares of Brunswick Common Stock prior to the Effective Date shall
be deemed for all corporate purposes (other than the payment of dividends and
other distributions to which the former stockholders of Brunswick may be
entitled) to evidence only the right of the holder thereof to receive the
consideration in exchange therefor provided in this Agreement.
3.4 DISSENTING STOCKHOLDERS. Any holder of shares of Brunswick Common
Stock who complies with the provisions of 12 C.F.R. SS552.14 with respect to
dissenting stockholders shall not be entitled to receive the consideration
provided in Section 2.3 of this Agreement in exchange for his
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shares of Brunswick Common Stock. Each holder of shares of Brunswick Common
Stock who becomes entitled to payment for his shares pursuant to 12 C.F.R.
ss552.14 shall receive payment for such shares in cash (to be paid from the
escrow account established by Brunswick prior to the Effective Date pursuant to
Section 5.14 of this Agreement), but only after the value thereof shall have
been agreed upon or finally determined pursuant to the appropriate procedure. In
the event that after the Effective Date a dissenting stockholder of Brunswick
fails to perfect, or effectively withdraws or loses, his right to appraisal of
and payment for his shares, C&S shall issue and deliver the shares of C&S Common
Stock (and cash in lieu of any fractional share) to which such holder of shares
of Brunswick Common Stock is entitled under Section 2.3 of this Agreement upon
surrender by such holder of the certificate or certificates representing the
shares of Brunswick Common Stock held by him.
3.5 RIGHTS OF HOLDERS OF BRUNSWICK COMMON STOCK. The holder of a
certificate or certificates representing shares of Brunswick Common Stock issued
and outstanding on the Effective Date shall have no rights with respect to such
shares other than the right to surrender such certificate or certificates and
receive in exchange therefor the consideration provided in Section 2.3 of this
Agreement or to perfect the right to receive payment for such shares as
described in Section 3.4 of this Agreement.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF BRUNSWICK
Brunswick hereby represents and warrants (as of April 19, 1988, which
shall include any representation or warranty given as of the date of this
Agreement, except to the extent that a representation or warranty is confined to
a specific date) to C&S, C&S Georgia and CSNB as follows:
4.1 ORGANIZATION, STANDING AND AUTHORITY. Brunswick is a federally
chartered stock savings bank duly organized, validly existing and in good
standing under the laws of the United States. The accounts of Brunswick are
insured by the SAIF to the extent provided in the Federal Deposit Insurance Act
and the Home Owners' Loan Act of 1933, as amended, and the rules and regulations
promulgated thereunder. Brunswick has corporate power and authority to carry on
its business as now conducted and to own, lease and operate its assets,
properties and business, and to execute, adopt and deliver, as appropriate, this
Agreement and the Plan of Merger and perform their respective terms. Copies of
the charter of Brunswick (certified by the secretary of Brunswick), which have
been delivered to C&S, and copies of the corporate minutes of Brunswick, which
have been or will be made available by Brunswick to C&S for review, are true and
complete as now in effect on the date of this Agreement.
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4.2 CAPITAL STOCK. The authorized capital stock of Brunswick
consists of (i) 4,000,000 shares of Brunswick Common Stock, of which 1,354,231
shares are issued and outstanding as of the date of this Agreement and (ii)
1,000,000 shares of serial preferred stock, none of which is issued and
outstanding as of the date of this Agreement. Brunswick does not hold any
shares of its Brunswick Common Stock in its treasury. All of the issued and
outstanding shares of Brunswick Common Stock are duly and validly issued and
outstanding are fully paid and non-assessable. None of the outstanding shares
of Brunswick Common Stock has been issued in violation of any preemptive rights
of the current or past stockholders of Brunswick. As of the date of this
Agreement, Brunswick has reserved 177,019 shares of Brunswick Common Stock for
issuance under the Brunswick Stock Option Plan pursuant to which options
covering 177,019 shares of Brunswick Common Stock are outstanding at the date of
this Agreement. Except as set forth above, there are no shares of capital stock
or other equity securities of Brunswick outstanding and no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of the capital stock of Brunswick or contracts, commitments,
understandings, or arrangements by which Brunswick may be bound to issue
additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock. Schedule 4.2
lists all of the currently outstanding options granted by Brunswick to its
directors, officers, and employees, and lists the number of shares of Brunswick
Common Stock, exercise periods and exercise prices of such options.
4.3 BRUNSWICK SUBSIDIARIES. Schedule 4.3 lists all of the Brunswick
Subsidiaries as of the date of this Agreement and indicates for each Subsidiary
as of such date (i) the percentage and type of equity securities owned or
controlled by Brunswick or some other Brunswick Subsidiary and (ii) its
jurisdiction of incorporation. No equity securities of any of the Brunswick
Subsidiaries are or may become required to be issued (other than to Brunswick)
by reason of any options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of any
Brunswick Subsidiary, and there are no contracts, commitments, understandings,
or arrangements by which any Brunswick Subsidiary is bound to issue (other than
to Brunswick) additional shares of its capital stock or options, warrants, or
rights to purchase or acquire any additional shares of its capital stock. All
of the shares of capital stock of each Brunswick Subsidiary held by Brunswick
are fully paid and non-assessable and are owned by Brunswick free and clear of
any claim, lien, encumbrance, or agreement with respect thereto. Each Brunswick
Subsidiary: (i) is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated; (ii) has the
corporate power and authority necessary for it to own or lease its properties
and assets and to carry on its business as it is now being conducted; and (iii)
has all federal, state, local and foreign governmental authorization necessary
for it to own or lease its properties and
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assets and to carry on its business as it is now being conducted, the absence of
which governmental authorizations, either individually or in the aggregate,
would have a material adverse effect on the financial condition or results of
operations of the Brunswick Companies on a consolidated basis.
4.4 AUTHORITY
(a) The execution, adoption and delivery, as appropriate, of this
Agreement and the Plan of Merger and the consummation of the transactions
contemplated herein or therein, including the Merger, have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
Brunswick, subject, with respect to this Agreement and the Plan of Merger, to
the approval of the stockholders of Brunswick. This Agreement and the Plan of
Merger, subject to the requisite approval of the stockholders of Brunswick,
represent legal, valid and binding obligations of Brunswick, enforceable against
Brunswick in accordance with their terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution, adoption and delivery, as appropriate, of
this Agreement or the Plan of Merger by Brunswick , nor the consummation by
Brunswick of the transactions contemplated herein or therein, nor compliance by
Brunswick with any of the provisions hereof or thereof will (i) conflict or
result in a breach of any provision of the charter or by-laws of Brunswick, or
(ii) constitute or result in the breach of any term, condition or provision of,
or constitute a default under, or give rise to any right of termination,
cancellation, or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon, any property or assets of Brunswick, pursuant
to any note, bond, mortgage, indenture, license, agreement, lease, or other
instrument or obligation to which it is a party or by which its properties or
assets may be subject, and that would in any such events, have a material
adverse effect on the financial condition or results of operations of the
Brunswick Companies on a consolidated basis or the transactions contemplated
hereby, or (iii) subject to receipt of the requisite approvals referred to in
Section 9.6 of this Agreement, to the knowledge of Brunswick's management,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Brunswick or any of its Subsidiaries or any of their properties or
assets.
(c) Other than in connection or compliance with the provisions of the
applicable state corporate law, the 1933 Act , the 1934 Act and the rules and
regulations thereunder, applicable state securities laws and rules of the
National Association of Securities Dealers, Inc., and the New York Stock
Exchange, Inc.,; and other than consents, authorizations, approvals, or
exemptions required from the Federal Reserve Board, the OTS and the Georgia
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Commissioner: and other than notices to or filings with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation with respect to any employee
benefit plans, no notice to, filing with, authorization of, or exemption by, or
consent or approval of any public body or authority is necessary for the
consummation by Brunswick of the Merger and the other transactions contemplated
in this Agreement or the Plan of Merger.
4.5 FINANCIAL STATEMENTS. Brunswick has delivered to C&S prior to the
execution of this Agreement copies of the following financial statements of
Brunswick and its Subsidiaries included in reports filed with the OTS or
separate from such reports (collectively referred to herein as the "Brunswick
Financial Statements"): (i) audited Consolidated Statements of Financial
Condition of Brunswick at September 30, 1987, 1986 and 1985, and the related
Consolidated Statements of (a) Income, (b) Stockholders' Equity and (c) Changes
in Financial Position for the fiscal years then ended and the noted thereto as
reported upon by Arthur Andersen & Co., independent certified public
accountants, and (ii) unaudited Consolidated Statements of Financial Condition
of Brunswick at December 31, 1987, and the related Consolidated Statements of
(a) Income, (b) Stockholders' Equity and (c) Changes in Financial Position for
the three-month period then ended and the notes thereto. Copies of the
Brunswick Financial Statements are contained in Schedule 4.5.
The Brunswick Financial Statements (as of the dates thereof and for the
periods covered thereby): (i) are in accordance with the books and records of
Brunswick, which are complete and accurate in all material respects and which
have been maintained in accordance with good business practices, and (ii)
present fairly the consolidated financial position and the consolidated results
of operations and changes in financial position of Brunswick as of the dates and
for the periods indicated, in accordance with GAAP applicable to savings banks,
applied on a basis consistent with prior periods (subject in the case of interim
financial statements to normal recurring year-end adjustments and to the
omission of certain footnote disclosure, which omission does not cause the
interim financial statements to be misleading or inaccurate in any material
respect).
4.6 ABSENCE OF UNDISCLOSED LIABILITIES. None of the Brunswick
Companies has any obligation or liability (contingent or otherwise) that is
material on a consolidated basis to Brunswick, or that when combined with all
similar obligations or liabilities would be material, on a consolidated basis to
Brunswick, (i) except as disclosed in the Brunswick Financial Statements or by
this Agreement and (ii) except for letters of credit, acceptances or unfunded
loan commitments made in the ordinary course of its business consistent with
applicable laws and past practice. Since December 31, 1987, none of the
Brunswick Companies has incurred or paid any obligation or liability which would
be material on a consolidated basis to Brunswick, except for obligations paid in
connection with transactions by it in the ordinary course of its business
consistent with past practice.
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4.7 TAX MATTERS.
(a) All federal, state, local and foreign tax returns required to be
filed by or on behalf of Brunswick have been timely filed or requests for
extensions have been timely filed, granted and have not expired for periods
ending on or before September 30, 1987, and all returns filed are complete and
accurate in all material respects to the best information and belief of
Brunswick's management. All taxes shown on filed returns have been paid. As of
the date of this Agreement, there is no audit examination, deficiency or refund
litigation or matter in controversy with respect to any taxes that might result
in a determination adverse to any of the Brunswick Companies, except as reserved
against in the Brunswick Financial Statements. All taxes, interest, additions
and penalties due with respect to completed and settled examinations or
concluded litigation have been paid. The last fiscal year for which federal
income tax returns for Brunswick have been audited by the Internal Revenue
Service was 1982.
(b) None of the Brunswick Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of any tax
due that is currently in effect.
(c) Adequate provision for any federal, state, local or foreign taxes
due or to become due for any of the Brunswick Companies for the period or
periods beginning October 1, 1987, or thereafter through and including December
31, 1987, has been made and is reflected on the December 31, 1987 financial
statements included in the Brunswick Financial Statements.
(d) Deferred taxes of Brunswick have been provided for in accordance
with GAAP applied on a consistent basis.
4.8 LOANS. As of the date of this Agreement, to the best knowledge of
Brunswick's management, each loan in excess of $100,000 reflected as an asset of
Brunswick in the Brunswick Financial Statements as of September 30, 1987, or
acquired since that date, is the legal, valid and binding obligation of the
obligor named therein, and no loan having an unpaid balance (principal and
accrued interest) in excess of $100,000 as of September 30, 1987, is subject to
any asserted defense, offset or counterclaim known to Brunswick.
4.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible
loan losses shown on the Consolidated Statement of Financial Condition of
Brunswick as of September 30, 1987, is adequate in all material respects to
provide for possible losses, net of recoveries relating to loans previously
charged off, on loans outstanding (including accrued interest receivable) as of
September 30, 1987.
4.10 PROPERTIES. Except as disclosed or reserved against in the
Brunswick Financial Statements and except for transactions occurring after
December 31, 1987, in the ordinary course of their business consistent with
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past practice, the Brunswick Companies have good and marketable title free and
clear of all material liens, encumbrances, charges, defaults, or equities of
whatever character to all of the respective properties and assets, tangible or
intangible, reflected in the Brunswick Financial Statements as being owned by
Brunswick as of December 31, 1987. To the knowledge of Brunswick's management,
all buildings, and all fixtures, equipment and other property and assets which
are material to its business on a consolidated basis, held under leases or
subleases by any of the Brunswick Companies, are held under valid instruments
enforceable in accordance with their respective terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceedings may be brought). The real property owned by the Brunswick Companies
has never been used for the handling, treatment, storage or disposal of any
hazardous or toxic substance as defined under any applicable state or federal
law. To the knowledge of Brunswick's management, the policies of fire, theft,
liability and other insurance maintained with respect to the assets or
businesses of Brunswick provide adequate coverage against loss, and the fidelity
bonds in effect as to which the Brunswick Companies are a named insured are
believed to be sufficient.
4.11 COMPLIANCE WITH LAWS. To the knowledge of Brunswick's management
each of the Brunswick Companies:
(a) Is in compliance with all laws, regulations, reporting and
licensing requirements and orders applicable to its business or employees
conducting its business, the breach or violation of which would have a material
adverse effect on the financial condition or results of operations of the
Brunswick Companies on a consolidated basis; and
(b) Has received no notification from any agency or department of
federal, state or local government or any of the Regulatory Authorities or the
staff thereof asserting that any of the Brunswick Companies is not in compliance
with any of the statutes, regulations or ordinances which such governmental
authority or Regulatory Authority enforces, which, as a result of such
noncompliance, would result in a material adverse impact on the business,
operations or financial condition of the Brunswick Companies on a consolidated
basis, or threatening to revoke any license, franchise, permit or governmental
authorization which is material to the business, operations or financial
condition of the Brunswick Companies on a consolidated basis, and is subject to
no written agreement or written understanding with any Regulatory Authority with
respect to its assets or business.
4.12 EMPLOYEE BENEFIT PLANS.
(a) Schedule 4.12 lists every pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
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vacation, bonus or other incentive plan, any other written or unwritten employee
program, arrangement, agreement or understanding, whether arrived at through
collective bargaining or otherwise, any medical, vision, dental or other health
plan, any life insurance plan, or any other employee benefit plan or fringe
benefit plan, including, with limitation, any "employee benefit plan," as that
term is defined in Section 3(3) of the ERISA, currently or expected to be
adopted, maintained by, sponsored in whole or in part by, or contributed to by
any of the Brunswick Companies or affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "Benefit Plans"). Any of the Benefit Plans which
is any "employee pension benefit plan," as that term is defined in Section 3(2)
of ERISA, or an "employee welfare benefit plan" as that term is defined in
Section 3(1) of ERISA, is referred to herein as an "ERISA Plan." No Benefit
Plan is or has been a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(b) Set forth in Schedule 4.12 are the following documents: true,
correct and complete copies of all written Benefit Plans listed in Schedule 4.12
and all trust agreements or other funding arrangements, including insurance
contracts, all amendments thereto and, where applicable, with respect to any
such plans or plan amendments, all determination letters, rulings, opinion
letters, information letters, or advisory opinions issued by the Internal
Revenue Service or the United States Department of Labor after December 31,
1974, annual reports or returns, audited or unaudited financial statements,
actuarial valuations, and summary annual reports for the most recent three plan
years, the most recent summary plan descriptions and any material modifications
thereto;
(c) All the Benefit Plans and the related trusts comply with, and have
been administered in compliance with, the provisions of ERISA, the provisions of
the Internal Revenue Code and all other applicable laws, rules and regulations
and collective bargaining agreements. Governmental approvals for the Benefit
Plans have been obtained, including, but not limited to, timely determination
letters on the qualification of the ERISA Plans and tax exemption of related
trusts, as applicable, under the Internal Revenue Code, and all such
governmental approvals continue in full force and effect. None of the Brunswick
Companies nor any administrator nor fiduciary of any such Benefit Plan (or agent
or delegate of any of the foregoing) has engaged in any transaction or acted or
failed to act in any manner which could subject any of the Brunswick Companies
to any direct or indirect liability for a breach of any fiduciary, cofiduciary,
or other duty under ERISA. No oral or written representation or communication
with respect to any aspect of the Benefit Plans has been made to employees of
any of the Brunswick Companies prior to the Effective Date which is not in
accordance with the written or otherwise preexisting terms and provisions of
such Benefit Plan in effect immediately prior to the Effective Date. Except as
disclosed in Schedule 4.12, there are
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no unresolved claims or disputed under the terms of, or in connection with, the
Benefit Plans and no action, legal or otherwise, has been commenced with respect
to any claim.
(d) Since December 31, 1974, no "party in interest" (as defined in
Section 3(14) of ERISA) or "disqualified person" (as defined in Section
4975(e)(2) of the Internal Revenue Code) of any Benefit Plan has engaged in any
"prohibited transaction" (within the meaning of Section 4975(c) of the Internal
Revenue Code or Section 406 of ERISA). There has been no (i) "reportable event"
(as defined in Section 4043 of ERISA), or event described in Section 4062(f) or
Section 4063(a) of ERISA, or (ii) termination or partial termination, withdrawal
or partial withdrawal with respect to any of the ERISA Plans which; (1) any of
the Brunswick Companies maintains or contributes to or has maintained or
contributed to or was required to be maintained or contributed to for the
benefit of employees of any of the Brunswick Companies, or (2) which has been
maintained or contributed to or was required to be maintained or contributed to
by any member of a controlled group of trades or business as defined in ERISA
Section 4001(a)(14) which has, since January 1, 1975, included any of the
Brunswick Companies.
(e) For any given ERISA Plan, the fair market value of such plan's
assets equals or exceeds the present value of all benefits (whether vested or
not) accrued to date by all present or former participants in such plan. For
this purpose the assumptions prescribed by the Pension Benefit Guaranty
Corporation for valuing pension plan assets or liabilities upon plan termination
shall be applied, to the extent such assumptions would be applicable upon
termination of each ERISA Plan. To the extent such assumptions would not apply
to the ERISA Plans, the actuarial assumptions used to determine funding
requirements under the plans shall be applied.
(f) Except for transactions occurring after December 31, 1987, in the
ordinary course of business of the Brunswick Companies consistent with their
past practice, as of the Effective Date, none of the Brunswick Companies will
have any material current or future liability under any Benefit Plan that is not
reflected in the Brunswick Financial Statements.
(g) None of the Brunswick Companies has at any time, and does not now,
maintain a Benefit Plan providing welfare benefits (as defined in ERISA Section
3(1)) to employees after retirement.
4.13 MATERIAL CONTRACTS. Except as set forth on Schedule 4.13 or
otherwise reflected in the Brunswick Financial Statements or the notes thereto,
none of the Brunswick Companies, nor any of their respective assets, businesses
or operations is as of the date of this Agreements a party to, or is bound or
affected by, or receives benefits under, (i) any material agreement, arrangement
or commitment not cancellable by it without penalty other than agreements,
arrangements or commitments entered into in the ordinary course of its business
consistent with its past practice, (ii) any agreement,
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arrangement or commitment relating to the employment, election or retention in
office of any director or officer, (iii) any contract, agreement or
understanding with any labor union, or (iv) any contract or agreement or
amendment thereto that would be required to be filed as an exhibit to a Form
10-K filed by Brunswick as of the date of this Agreement that has not been filed
as an exhibit to Brunswick Form 10-K filed for 1987 or on a report filed with
the OTS under the 1934 Act and identified to C&S. Brunswick has delivered to
C&S an executed copy of its current engagement letter with Interstate Johnson
Lane, Inc. which accurately reflects its current fee arrangement with such firm
for the services that it has previously provided and that will be provided in
connection with the transactions contemplated by this Agreement.
4.14 MATERIAL CONTRACT DEFAULTS. None of the Brunswick Companies is
in default in any material respect under any material contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to which it
is a party or by which its respective assets, business or operations may be
bound or affected or under which it or its respective assets, business or
operations received 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.
4.15 LEGAL PROCEEDINGS. There are not actions, suits or proceedings
instituted or pending, or to the knowledge of Brunswick's management, threatened
(or unasserted but considered probable of assertion and which if asserted would
have at least a reasonable probability of an unfavorable outcome) against any of
the Brunswick Companies, or against any property, asset, interest, or right of
any of them, that are reasonably expected to have either individually or in the
aggregate a material adverse effect on the business or financial condition of
the Brunswick Companies or that are reasonably expected to materially threaten
or materially impede the consummation of the transactions contemplated by this
Agreement. None of the Brunswick Companies is a party to any agreement or
instrument or is subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree, rule, regulation, code or ordinance
that threatens or might impede the consummation of the transactions contemplated
by this Agreement.
4.16 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 1987,
the Brunswick Companies on a consolidated basis have not: (i) incurred any
material liability, except in the ordinary course of their business consistent
with their past practice and except as permitted pursuant to this Agreement;
(ii) suffered any material adverse change in their business, operations, assets,
or condition (financial or otherwise); or (iii) failed to operate their business
consistent with their past practice.
4.17 REPORTS. Between January 1, 1983, and the date of this
Agreement, Brunswick has filed all reports and statements, together with any
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amendments required to be made with respect thereto, that it was required to
file with the OTS or the SAIF ("Brunswick Reports") and has timely filed all
such reports, statements and amendments as wee required under the 1934 Act. To
the extent permitted by law, all such reports have been made available to C&S
for its review and inspection. As of their respective dates, the Brunswick
Reports, including the financial statements, exhibits and schedule contained or
referenced therein, complied in all material respects with the rules and
regulations with respect thereto promulgated by the OTS or the SAIF,
respectively, and did not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
4.18 STATEMENTS TRUE AND CORRECT. No representation or warranty made
by Brunswick nor any statement or certificate or instrument furnished by
Brunswick as information which is included in an Exhibit or Schedule by
Brunswick in connection with this Agreement nor any statement or certificate to
be furnished by Brunswick to C&S pursuant to this Agreement or in connection
with the transactions contemplated by this Agreement, contains or will contain
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading. None of
the information supplied or to be supplied by Brunswick for inclusion in the
Registration Statement to be filed by C&S with the SEC in connection with the
C&S Common Stock to be issued in the Merger, the Proxy Statement to be mailed to
the Brunswick stockholders in connection with the Stockholders' meeting,
and any other documents to be filed with any Regulatory Authority in connection
with the transactions contemplated hereby, will, at the respective time such
documents are filed, and, in the case of the Registration Statement, when it
becomes effective, and with respect to the Proxy Statement, when first mailed to
the stockholders of Brunswick, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not misleading, or, in the case of the Proxy Statement or any
amendment thereof or supplement thereto, at the time of the Stockholders'
meeting, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the
Stockholders' Meeting. All documents that Brunswick is responsible for filing
with the OTS or any other Regulatory Authority in connection with the Merger
will comply as to form in all material respects with the provisions of
applicable law.
ARTICLE FIVE
COVENANTS AND AGREEMENTS OF BRUNSWICK
Brunswick hereby covenants and agrees with C&S, C&S Georgia and CSNB as
follows:
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5.1 CONDUCT OF BUSINESS -- NEGATIVE COVENANTS. From the date of this
Agreement until the earlier of the Effective Date or until the termination of
this Agreement, Brunswick convenants and agrees that it will not do or agree or
commit to do, any of the following without the prior written consent of the
chief executive officer or chief financial officer of C&S, which consent shall
not be unreasonably withheld:
(a) Amend its charter or by-law; or
(b) Impose on any share of stock held by it in any of the Brunswick
Subsidiaries, any material lien, charge, or encumbrance, or permit any such
lien, charge or encumbrance to exist; or,
(c) Except as otherwise expressly permitted in Section 5.9 of this
Agreement, repurchase, redeem, or otherwise acquire or exchange, directly or
indirectly, any shares of its capital stock or any securities convertible into
any shares of its capital stock; or,
(d) Except as otherwise expressly permitted in Section 5.9 of this
Agreement, make or effect any change in equity capitalization; or,
(e) Acquire direct or indirect control over any corporation,
association, firm or organization, other than in connection with (i) exercise of
rights as a secured party or creditor in the ordinary course of business, or
(ii) acquisitions of control by Brunswick in its fiduciary capacity; or,
(f) Sell or otherwise dispose of, or permit any of the Brunswick
Subsidiaries, as the case may be, to sell or otherwise dispose of: (i) any
shares of capital stock of any Brunswick Subsidiary; (ii) all or substantially
all of the assets of Brunswick or any Subsidiary; (iii) any Brunswick
Subsidiary; or (iv) assets other than in the ordinary course of business for
reasonable and adequate consideration; or
(g) Incur, or permit any of Brunswick Subsidiaries to incur, any
additional debt obligation or other obligation for borrowed money in excess of
an aggregate of $100,000 (for the Brunswick Companies on a consolidated basis)
except in the ordinary course of the business of the Brunswick Companies
consistent with applicable laws and regulations and past practices (and such
ordinary course of business shall include, but shall not be limited to, creation
of deposit liabilities, purchases of federal funds, liabilities to the Federal
Home Loan Banks under advance therefrom, sales of certificates of deposit, and
entry into repurchase agreements); or,
(h) Grant any general increase in compensation to its employees as a
class or to its officers, except in accordance with its past practice or as
required by law; pay any bonus except in accordance with past practice or the
provisions of any applicable program or plan adopted by the Board of Directors
of Brunswick prior to the date of this Agreement; grant any increase in fees
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or other increases in compensation or other benefits to any of its directors; or
effect any change in retirement benefits for any class of its employees or
officers (unless such change is required by applicable law) that would
materially increase the retirement benefit liabilities of the Brunswick
Companies on a consolidated basis; or,
(i) Amend any existing employment, management, consulting or other
service, deferred compensation, supplemental retirement benefit, excess benefit
or retainer contract between Brunswick or any Subsidiary and any person (unless
such amendment is required by law) to increase the compensation or benefits
payable thereunder or enter into any new employment contract with any person
that Brunswick or its applicable Subsidiary does not have the unconditional
right to terminate without liability (other than liability for services already
rendered), at any time on or after the Effective Date; or,
(j) Adopt any new employee benefit plan of Brunswick or any Subsidiary
or make any material change in or to any existing employee benefit plan of
Brunswick or any Subsidiary other than (i) as disclosed on Schedule 4.12, or
(ii) any such change that is required by law or that, in the opinion of counsel,
is necessary or advisable to maintain the tax qualified status of any such plan.
5.2 CONDUCT OF BUSINESS -- AFFIRMATIVE COVENANTS. Unless the prior
written consent of C&S shall have been obtained and except as otherwise
contemplated by this Agreement, Brunswick will and will cause its Subsidiaries:
(i) to operate their respective businesses only in the usual, regular and
ordinary course including the payment or accrual of as much of its costs and
expenses in carrying out the transactions contemplated by this Agreement as
practicable consistent with GAAP prior to the Effective Date; (ii) to preserve
intact their respective business organizations and assets and maintain their
respective rights and franchises; and (iii) to take no action which would (a)
adversely affect the ability of any of them to obtain any necessary approvals of
governmental authorities required for the transactions contemplated hereby
without imposition of a condition or restriction of the type referred to in the
last sentence of Section 9.6 of this Agreement, or (b) adversely affect the
ability of Brunswick to perform its convenants and agreements under this
Agreement.
5.3 ADVERSE CHANGES IN CONDITION. Brunswick hereby agrees to give
written notice promptly to C&S concerning any material adverse change in its
condition or that any of the Brunswick Subsidiaries from the date of this
Agreement until the Effective Date that might adversely affect the consummation
of the transactions contemplated hereby or upon becoming aware of the occurrence
or impending occurrence of any event or circumstance which would cause or
constitute a material breach of any of the representations, warranties or
covenants of Brunswick contained herein. Brunswick shall use its best efforts
to prevent or promptly remedy the same.
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5.4 COOPERATION. Brunswick hereby covenants and agrees to cooperate
fully with C&S to provide such support, assistance and information to C&S as may
be reasonably requested by it in connection with its application for all
necessary approvals by public authorities, federal, state or local, in
connection with the transactions contemplated hereby, and to consult regularly
with C&S in the preparation of any such applications or the Registration
Statement and the Proxy Statement.
5.5 INVESTIGATION AND CONFIDENTIALITY. Prior to the Effective Date,
C&S may make or cause to be made such investigation, if any, of the business and
properties of Brunswick and the Brunswick Subsidiaries and of their respective
financial and legal condition as C&S reasonably deems necessary or advisable to
familiarize itself and its advisers with such business, properties, and other
matters, provided that such investigation shall be reasonably related the
transactions contemplated hereby and shall not interfere unnecessarily with
normal operations. Subject to applicable provisions of law, Brunswick agrees to
furnish C&S and C&S's advisers with such financial and operating data and other
information with respect to its businesses, properties, and employees as C&S
shall affect the representations and warranties of Brunswick, and subject to
Section 10.3 of this Agreement each such representation and warranty shall
survive any such investigation. C&S shall, and shall cause its advisers and
agents, to maintain the confidentiality of all confidential information
furnished to it by Brunswick concerning Brunswick's business, operations and
financial condition and shall not use such information for any purpose for a
period of five (5) years after the date of this Agreement except in furtherance
of the transactions contemplated by this Agreement. If this Agreement is
terminated prior to the Effective Date, C&S shall promptly return all documents
and copies thereof, and all work papers containing confidential information
received from Brunswick.
5.6 REPORTS. Between the date of this Agreement and the Effective
Date, Brunswick shall timely file all reports and statements, together with any
amendments required to be made with respect thereto, required to be filed with
the OTS by Brunswick between the date of this Agreement and the Effective Date
and shall deliver to C&S copies of all such reports promptly after the same are
filed. If financial statements will fairly present the financial position of
the Brunswick Companies on a consolidated basis as of the dates indicated and
the results of operations and changes in financial position for the period then
ended in accordance with GAAP applicable to savings banks, applied on a
consistent basis (subject in the case of interim financial statements to normal
recurring year-end adjustments). As of their respective dates such reports
filed with the OTS will comply in all material respects with the rules and
regulations promulgated by the OTS and will not contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light
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of the circumstances under which they were made, not misleading. Any financial
statements contained in any such reports to another Regulatory Authority shall
be presented in accordance with applicable rules, regulations or standards
applicable to such reports.
5.7 CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Date, Brunswick shall cause one or more of its
representatives to confer on a regular and frequent basis with representatives
of C&S and to report on the general status of the ongoing operations of
Brunswick and its Subsidiaries. Brunswick shall promptly notify C&S of any
material change in the normal course of the business of Brunswick and its
Subsidiaries or in the operation of their properties and of any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated) or the institution or the threat
of any material litigation involving Brunswick or its Subsidiaries, and will
keep C&S fully informed with respect to such events.
5.8 DIVIDENDS. Without the prior written consent of C&S, from the
date of this Agreement to the earlier of the Effective Date or the termination
of this Agreement, Brunswick shall not declare, set aside, make or pay any
dividend or distribution in respect of its capital stock whether in cash, in
shares of its capital stock or in any other form whatsoever.
5.9 CAPITAL STOCK. Without the prior written consent of C&S, from the
date of this Agreement to the earlier of the Effective Date or the termination
of this Agreement, Brunswick: (i) shall not, and shall not enter into any
agreement to, issue, sell, or otherwise permit to become outstanding, any
additional shares of Brunswick Common Stock, preferred stock or any other
capital stock of Brunswick's treasury, or any stock appreciation rights, or
any option, warrant, conversion, or other right to purchase any such stock,
or any security convertible into any such stock, other than the issuance of not
more than 177,019 shares of Brunswick Common Stock upon the exercise of
presently outstanding options under the Brunswick Stock Option Plan; and (ii)
shall not permit more than 1,531,250 shares of Brunswick Common Stock to be
issued and outstanding.
5.10 AGREEMENT OF AFFILIATES. Brunswick agrees to deliver to C&S no
later than the date of this Agreement a letter identifying ally persons whom
Brunswick reasonably believes, at the time the Merger is submitted to a vote of
its stockholders, will be "affiliate" of Brunswick for purposes of Rule 145
under the 1933 Act. Brunswick shall use its best efforts to cause each person
who is identified as an "affiliate" in the letter referred to above to deliver
to C&S within ten (10) days after the date of this Agreement, a written
agreement, substantially in the form of Exhibit 2, providing that such person
will not sell, pledge, transfer or otherwise dispose of the shares of Brunswick
Common Stock held by such person except as contemplated by such agreement and
will not sell, pledge, transfer or otherwise dispose of the
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shares of C&S Common Stock to be received by such person upon consummation of
the Merger except in compliance with applicable provisions of the 1933 Act and
the rules and regulations thereunder and until such time as the financial
results covering at least thirty (30) days of combined operations of C&S and
Brunswick have been published within the meaning of Section 201.01 of the SEC's
Codification of Financial Reporting Policies. If the Merger will qualify for
pooling of interest accounting treatment, shares of C&S Common Stock issued to
such affiliates of Brunswick in exchange for Brunswick Common Stock shall not be
transferable until such time as financial results covering at least thirty (30)
days of combined operations of C&S and Brunswick have been published within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies regardless of whether each such affiliate has provided the written
agreement referred to in this section. C&S shall not be required to maintain
the effectiveness of the Registration Statement under the 1933 Act for the
purposes of resale of C&S Common Stock by such affiliates.
5.11 CERTAIN ACTIONS. Except to the extent necessary to discharge its
legal obligations or the legal obligations of members of its Board of Directors
as directors and except to the extent necessary to consummate the transactions
specifically contemplated by this Agreement or the Plan of Merger, (i) Brunswick
shall not, and shall use its best efforts to ensure that its directors, officers
and advisors do not, institute , pursue, enter into, solicit or encourage
(including by way of furnishing any information not legally required to be
furnished) any inquiry, discussion or proposal relating to the merger or
consolidation of Brunswick or any of its Subsidiaries with any entity or the
acquisition of Brunswick or any of its Subsidiaries or all or a significant
amount of their assets or properties by any person or entities, (ii) Brunswick
shall not negotiate with respect to any such transaction, nor shall it reach any
agreement or understanding (formal or informal, binding or non-binding,
preliminary or definitive, written or otherwise) with respect to any such
transaction and (iii) Brunswick shall promptly notify C&S orally and in writing
in the event it receives any inquiry or proposal relating to any such
transaction and shall consult with C&S before communicating with anyone (other
than its professional advisors) regarding such inquiry or proposal. As part of
its obligations under this Section 5.11, Brunswick has delivered to C&S a duly
executed agreement from each officer and director of Brunswick substantially in
the form of Exhibit 3.
5.12 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, Brunswick hereby agrees to use all reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective, as soon as practicable after the
date of this Agreement, the transactions contemplated by this Agreement and the
Plan of Merger, including, without limitation, using reasonable effort to lift
or rescind any injunction or restraining order or other adversely affecting the
ability of the Parties to consummate the transactions contemplated herein.
Brunswick shall use, and shall cause each
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of the Brunswick Subsidiaries to use, its best efforts to obtain consents
of all third parties and governmental bodies necessary or desirable for the
consummation of the transactions contemplated by this Agreement.
5.13 RELATED AGREEMENTS. By the Effective Date, Brunswick shall have
cured defaults, if any, existing on the date of this Agreement under any
material loan or financing agreements to which Brunswick is a borrower or
obligor thereunder.
5.14 ESCROW ACCOUNT. Brunswick agrees to establish prior to the
Effective Date an account consisting solely of certain assets of Brunswick
in an amount sufficient to satisfy claims of stockholders of Brunswick who
perfect their rights of appraisal pursuant to 12 C.F.R. ss 552.14, but the
aggregate amount of the value of the assets placed in escrow will in no
event exceed one percent (1%) of the net assets of Brunswick.
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES OF C&S, C&S GEORGIA AND CSNB
C&S, C&S Georgia and CSNB hereby represent and warrant (as of April
19, 1988, which shall include any representation or warranty given as of
the date of the Agreement, except to the extent that a representation or
warranty is confined to a specific date) to Brunswick as follows:
6.1 ORGANIZATION, STANDING AND AUTHORITY OF C&S. C&S is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Georgia, is duly qualified to do business and is in good standing
in the States of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business requires it
to be so qualified and in which the failure to be duly qualified could have
a material adverse effect upon the C&S Companies on a consolidated basis,
and has corporate power and authority to carry on its business as now
conducted and to own, lease and operate its assets, properties and
business, and to execute and deliver this Agreement and the Plan of Merger
and perform their respective term. C&S is duly registered as a bank holding
company under the BHC Act. C&S has in effect all federal, state, local and
foreign governmental authorization necessary for it to own or lease its
properties and assets and to carry on its business as is now being
conducted, the absence of which, either individually or in the aggregate,
would have a material adverse effect on the financial condition or results
of operations of the C&S Companies on a consolidated basis.
6.2 CAPITAL STOCK. The authorized capital stock of C&S consists of
(i) 120,000,000 shares of C&S Common Stock, of which 61,110,616 shares
were issued and outstanding as of March 31, 1988, and (ii) 10,000,000
shares of C&S
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preferred stock of no par value, which shares of preferred stock may be
issued in classes and series by the Board of Directors of C&S as provided
in Section 14-2-602 of the Georgia Business Corporation Code. As of March
31, 1988, 125 shares of Money Market Cumulative Preferred Stock, Series A,
and 125 shares of Money Market Cumulative Preferred Stock, Series B, were
issued and outstanding. C&S issued and additional 2,948,588 shares of ESOP
Convertible Perferred Stock, Series C on July 10, 1989. C&S holds no shares
of C&S Common Stock in its treasury. All of the issued and outstanding
shares of C&S Common Stock are, and the shares of C&S Common Stock to be
issued upon consummation of the Merger shall be, duly and validly issued
and outstanding and fully paid and non-assessable. None of outstanding
shares of C&S Common Stock has been issued in violation of any preemptive
rights of its current or former stockholders. C&S has provided Brunswick
with a copy of C&S' 1988 Annual Meeting Proxy Statement dated March 4,
1988. The information included therein with respect to the various stock
option and stock appreciation rights plans maintained by C&S as described
under "Proposal I - Election of the Directors - Information on Benefit
Plans and Policies; Stock Option and Stock Appreciation Rights Plans" and
"Proposal III - Proposed 1988 Long-Term Incentive Plan" was accurate and
complete in all material respects as of the date of such proxy statement.
6.3 ORGANIZATION AND STANDING OF C&S GEORGIA. C&S Georgia is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Georgia and has corporate power and authority to carry
on its business as now conducted and to own, lease and operate its assets,
properties and business and to execute and deliver this Agreement and the
Plan as a bank holding company under the BHC Act. The authorized capital
stock of C&S Georgia consists of 10,000 shares of $1.00 par value common
stock, of which 500 shares were issued and outstanding as of March 31,
1988. C&S Georgia is a wholly owned subsidiary of C&S.
6.4 ORGANIZATION AND STANDING OF CSNB. CSNB is a national banking
association duly organized, validly existing and in good standing under the
laws of the United States and has power and authority to carry on its
business as now conducted and to own, lease and operate its assets,
properties and business and to execute and deliver this Agreement and
perform its terms. CSNB is not required to be qualified to transact
business as a foreign corporation in any state or jurisdiction. CSNB has an
authorized capital stock of 40,000,000 shares of $2.50 par value common
stock, of which 38,000,000 shares are issued and outstanding.
6.5 AUTHORITY.
(a) The execution and delivery of this Agreement and the Plan of
Merger, and the consummation of the transactions contemplated herein or
therein, including the Merger, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of C&S, C&S
Georgia
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and CSNB. This Agreement and the Plan of Merger represent to the extent
applicable legal, valid and binding obligations of C&S, C&S Georgia and
CSNB, enforceable in accordance with their respective terms (except in all
cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injuctive relief is
subject to the discretion of the court before which any proceeding may be
brought).
(b) Neither the execution and delivery of this Agreement or the Plan
of Merger by C&S, C&S Georgia or CSNB, nor the consummation by C&S, C&S
Georgia or CSNB of the transactions contemplated herein or therein, nor
compliance by C&S, C&S Georgia or CSNB with any of the provisions hereof or
or thereof will (i) conflict or result in a breach of any provision of the
articles of incorporation or by-laws of C&S, or C&S Georgia or the articles
of association or the by-laws of CSNB, or (ii) constitute or result in the
breach of any term, condition or provision of, or constitute a default
under, or give rise to any right of termination, cancellation, or
acceleration with respect to, or result in the creation of any lien, charge
or encumbrance upon, any property or assets of any of the C&S Companies,
pursuant to any note, bond, mortgage, indenture, license, agreement, lease,
or other instrument or obligation to which any of them is a party or by
which any of them or any of their properties or assets may be subject, and
that would, in any such events, have a material adverse effect on the
financial condition or results of the operations of the C&S Companies on a
consolidated basis or the transactions contemplated hereby, or (iii)
subject to receipt of requisite approvals referred to in Section 9.6 of
this Agreement, to the knowledge of C&S's management, violate any order,
writ, injunction, decree, statute, rule or regulation applicable to C&S or
any of their properties or assets.
(c) Other than in connection or compliance with the provisions of the
applicable state corporate law, the 1933 Act, the 1934 Act and the rules
and regulations thereunder, applicable state securities laws and rules of
the National Association of Securities Dealers, Inc. and the New York Stock
Exchange, Inc.; and other than consents, authorizations, approvals, or
exemptions required from the Federal Reserve Board, the OTS and the Georgia
Commissioner; and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with respect to
any employee benefit plans, no notice to, filing with, authorization of, or
or exemption by, or consent or approval or any public body or authority is
necessary for the consummation by C&S, C&S Georgia and CSNB of the Merger
and the other transactions contemplated in this Agreement or the Plan of
Merger.
6.6 FINANCIAL STATEMENTS. C&S has delivered to Brunswick prior to the
execution of this Agreement copies of the following financial statements of
C&S and its Subsidiaries included in reports filed with the SEC or separate
from such reports (collectively referred to herein as the "C&S Financial
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Statements"): audited Consolidated Statements of Condition of C&S at
December 31, 1987, 1986 and 1985, and the related Consolidated Statements
of (i) Income, (ii) Stockholders' Equity and (iii) Changes in Financial
Position for the years then ended and the notes thereto as reported upon by
Ernst & Whinney, independent certified public accountants. Copies of the
C&S Financial Statements are contained in Schedule 6.6.
The C&S Financial Statements (as of the dates thereof and for the
periods covered thereby): (i) are in accordance with the books and records
of the C&S Companies, which are complete and accurate in all material
respects and which have been maintained in accordance with good business
practices, and (ii) present fairly the consolidated financial position of
C&S as of the dates and for the periods indicated, in accordance with GAAP
applicable to banks or bank holding companies, applied on a basis
consistent with prior periods.
6.7 ABSENCE OF UNDISCLOSED LIABILITIES. None of the C&S Companies has
any obligation or liability (contingent or otherwise) that is material on a
consolidated basis to C&S, or that when combined with all similar
obligations or liabilities would be material, on a consolidated basis to
C&S, (i) except as disclosed in the C&S Financial Statements or by this
Agreement and (ii) except, in the case of any banking Subsidiaries of C&S,
for letters of credit, acceptances or unfunded loan commitments made in the
ordinary course of its business consistent with applicable laws and past
practice. Since December 31, 1987, none of the C&S Companies has incurred
or paid any obligation or liability with would be material on a
consolidated basis to C&S, except for obligations paid in connection with
transactions by it in the ordinary course of its business consistent with
past practice.
6.8 COMPLIANCE WITH LAWS. To the knowledge of C&S's management each
of the C&S companies:
(a) Is in compliance with all laws, regulations, reporting and
licensing requirements and orders applicable to its business or employees
conducting its business, the breach or violation of which would have a
material adverse effect on the financial condition or results of operations
of the C&S Companies on a consolidated basis; and
(b) Has received no notification from any agency or department of
federal, state or local government or any of the Regulatory Authorities or
the staff thereof asserting that any of the C&S Companies is not in
compliance with any of the statutes, regulations or ordinances which such
governmental authority or Regulatory Authority enforces, which, as a result
of noncompliance, would result in a material adverse impact on the
business, operations or financial condition of the C&S Companies on a
consolidated basis, or threatening to revoke any license, franchise, permit
or governmental authorization which is material to the business, operations
or financial condition of the C&S Companies on a consolidated basis, and is
subject to no
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written agreement or written understanding with any Regulatory Authority
with respect to its assets or business.
6.9 LEGAL PROCEEDINGS. There are no actions, suits or proceedings
instituted or pending, or to the knowledge of C&S's management, threatened
(or unasserted by considered probable or assertion and which if asserted
would have at least a reasonable probability of an unfavorable outcome)
against any of the C&S Companies, or against any property, asset, interest,
or right of any of them (including the litigation with the Internal Revenue
Service relating to the deductibility of certain intangible assets which is
disclosed in the C&S Financial Statements), that are reasonably expected to
have either individually or in the aggregate a material adverse effect on
the business or financial condition of the C&S Companies or that are
reasonably expected to materially threaten or materially impede the
consummation of the transactions contemplated by this Agreement. None of
the C&S Companies is a party to any agreement or instrument or is subject
to any charter or other corporate restriction or any judgement, order,
writ, injunction, decree, rule, regulation, code or ordinance that
threatens or might impede the consummation of the transactions contemplated
by this Agreement.
6.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1987,
the C&S Companies on a consolidated basis have not: (i) incurred any
material liability, except in the ordinary course of their business
consistent with their past practice and except as permitted pursuant to
this Agreement; (ii) suffered any material or adverse change in their
business, operations, assets or condition (financial or otherwise); or
(iii) failed to operate their business consistent with their past practice.
6.11 REPORTS. Since January 1, 1987, C&S and each Subsidairy of C&S
that is a bank has filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required
to file with (i) the SEC, including, but not limited to Forms 10-K, Forms
10-Q and proxy statements, (ii) the Federal Reserve Board, (iii) the
Comptroller, and (iv) the FDIC. Each of such reports and documents,
including the financial statements, exhibits and schedules thereto, does
not contain any statement with at the time and in light of the
circumstances under which it was made, is false or misleading with respect
to any material fact or which omits to state any material fact necessary in
order to make statements contained therein not false or misleading.
6.12 STATEMENTS TRUE AND CORRECT. No representation or warranty made
by C&S nor any statement or certificate or instrument furnished by C&S as
information which is included in an Exhibit or Schedule in connection with
this Agreement nor any statement or certificate to be furnished by C&S to
Brunswick pursuant to this Agreement, or in connection with the
transactions contemplated by this Agreement, contains or will contain any
untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading.
None of the information
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supplied or to be supplied by C&S for inclusion in the Registration Statement to
be filed by C&S with the SEC in connection with the C&S Common Stock to be
issued in the Merger, the Proxy Statement to be mailed to the Brunswick
stockholders in connection with the Stockholders' Meeting, and any other
documents to be filed with any Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and, in the case of the Registration Statement, when it becomens
effective, and with respect to the Proxy Statement, when first mailed to the
stockholders of Brunswick, be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein not misleading, or, in the case of the Proxy Statement or any
amendment thereof or supplement thereto, at the time of the Stockholders'
Meeting, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the
Stockholders' Meeting. All documents that C&S is responsible for filing with the
SEC or any other Regulatory Authority in connection with the Merger will comply
as to form in all material respects with the provisions of applicable law.
ARTICLE SEVEN
COVENANTS AND AGREEMENTS OF C&S, C&S GEORGIA AND CSNB
C&S, C&S Georgia and CSNB hereby covenant and agree with Brunswick as
follows:
7.1 CONDUCT OF BUSINESS. Except as contemplated by this Agreement, C&S
will and will cause its Subsidiaries: (i) to operate their respective business
only in the usual, regular and ordinary course; (ii) to preserve intact their
respective business organizations and assets and maintain their rights and
franchises; and (iii) to take no action which would (a) adversely affect the
ability of any of them to obtain any necessary approvals of governmental
authorities required for the transactions contemplated hereby without imposition
of a condition or restriction of the type referred to in the last sentence of
Section 9.6 of this Agreement or (b) adversely affect the ability of C&S to
perform its covenants and agreements under this Agreement.
7.2 ADVERSE CHANGES IN CONDITION. C&S hereby agrees to give written
notice promptly to Brunswick concerning any material adverse change in its
condition or that of any of the C&S Subsidiaries from the date of this Agreement
until the Effective Date that might adversely affect the consumation of the
transactions contemplated hereby or upon becoming aware of the occurrence or
impending occurrence of any event or circumstance which could cause or
constitute a material breach of any of the representations, warranties or
convenants of C&S contained herein. C&S shall use its best efforts to prevent or
promptly remedy the same.
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7.3 INVESTIGATION AND CONFIDENTIALITY. Prior to the Effective Date,
Brunswick may make or cause to be made such investigation, if any, of the
business and properties of C&S and the C&S Subsidiaries and of their
respective financial and legal condition as Brunswick reasonably deems necessary
or advisable to familiarize itself and its advisers with such business,
properties, and other matters, provided that such investigation shall be
reasonably related to the transactions contemplated hereby and shall not
interfere unnecessarily with normal operations. Subject to the applicable
provisions of law, C&S agrees to furnish Brunswick and Brunswick's advisers with
such financial and operating data and other information with respect to its
businesses, properties, and employees as Brunswick shall from time to time
reasonably request. No investigation by Brunswick shall affect the
representations and warranties of C&S, and subject to Section 10.3 of this
Agreement each such representation and warranty shall survive any such
investigation. Brunswick shall, and shall cause its advisers and agents, to
maintain the confidentiality of all confidential information furnished to it by
C&S concerning C&S's business, operations and financial condition and shall not
use such information for any purpose for a period of five (5) years after the
date of this Agreement except in furtherance of the transactions contemplated by
this Agreement. If this Agreement is terminated prior to the Effective Date,
Brunswick shall promptly return all documents and copies thereof, and all work
papers containing confidential information received from C&S.
7.4 REPORTS. C&S shall timely file all reports and statements,
together with any amendments required to be made with respect thereto, required
to be filed with the SEC and the Federal Reserve Board by C&S between the date
of this Agreement and the Effective Date and shall deliver to Brunswick copies
of all such reports promptly after the same are filed. If financial statements
are contained in such reports to the SEC, such financial statements will fairly
present the financial position of the C&S Companies on a consolidated basis as
of the dates indicated and the results of operations and changes in financial
position for the period then ended in accordance with GAAP applicable to banks
and bank holding companies, applied on a consistent basis (subject in the case
of interim financial statements to normal recurring year-end adjustments). As of
their respective dates such reports filed with the SEC will comply in all
material respects with the rules and regulations promulgated by the SEC and will
not contain any untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statements contained in any such reports to another
Regulatory Authority shall be presented in accordance with applicable rules,
regulations or standards applicable to such reports.
7.5 CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Date, C&S shall cause one or more of its
representatives to confer on a regular and frequent basis with representatives
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of Brunswick and to report on the general status of its ongoing operations. C&S
shall promptly notify Brunswick of any material change in the normal course of
C&S's business or in the operation of its properties and of any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated) or the institution or the threat
of litigation involving C&S, and will keep Brunswick fully informed with respect
to such events.
7.6 ORGANIZATION OF BRUNSWICK INTERIM. As soon as practicable after
the execution of this Agreement, C&S shall effect all action necessary to
organize Brunswick Interim as a federal stock savings bank. The authorized
capital stock of Brunswick Interim shall consist of 1,000 shares of Brunswick
Interim Common Stock, all of which shares shall be held by C&S. Except as
contemplated by this Agreement or the Plan of Merger, Brunswick Interim shall
engage in no business activities or acquire any assets until consummation of the
Merger.
7.7 APPLICATIONS. C&S shall diligently prepare and file, or shall
cause to be prepared and filed, and pursue applications with the Federal Reserve
Board, the OTS and the Georgia Commissioner seeking the requisite approvals
necessary to consummate the transactions contemplated by this Agreement and Plan
of Merger and shall take such other steps and actions in furtherance thereof as
it deems appropriate.
7.8 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, C&S agrees to use all reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper, or advisable under applicable laws and regulations to
consummate and make effective, as soon as practicable after the date of this
Agreement, the transactions contemplated by this Agreement and the Plan of
Merger, including, without limitation, using reasonable effort to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the Parties to consummate the transactions contemplated herein.
C&S shall, and shall cause each of the C&S Subsidiaries to, use its best efforts
to obtain consents of all third parties and governmental bodies necessary or
desirable for the consummation of the transactions contemplated by this
Agreement and the Plan of Merger.
ARTICLE EIGHT
ADDITIONAL AGREEMENTS
8.1 REGISTRATION STATEMENT: STOCKHOLDER APPROVAL. At such time as
determined in the sole discretion of C&S, C&S shall prepare and file the
Registration Statement with the SEC and C&S and Brunswick shall use their best
efforts to cause the Registration Statement to become effective under the 1933
Act and shall take any action required to be taken under the applicable state
Blue Sky or securities laws in connection with the issuance of the shares of
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C&S Common Stock upon consummation of the Merger. Each Party shall furnish all
information concerning it and the holders of its capital stock as the other
Party may reasonable request in connection with such action. Brunswick shall
call a Stockholders' Meeting to be held as soon as practicable after the date of
this Agreement for the purpose of voting upon the Merger and such other related
matters as it deems appropriate. In connection with the Stockholders' Meeting,
(i) Brunswick shall mail the Proxy Statement included as part of the
Registration Statement and as filed with the OTS to its stockholders, (ii) the
Board of Directors of Brunswick shall recommend (subject to compliance with its
legal obligations as advised by counsel and subject to receipt of the investment
banking letter referred to in Section 9.13 of this Agreement) to its
stockholders the approval of this Agreement and the Plan of Merger, and (iii)
Brunswick shall use its best efforts to obtain such stockholders' approval. As
soon as practicable after the Stockholders' Meeting, Brunswick shall deliver to
C&S a certificate of the Secretary of Brunswick containing the names of the
stockholders of Brunswick that have either: (i) not voted for the Merger
contemplated hereby or (ii) given written notice of or prior to the
Stockholders' Meeting that they dissent from the Merger ("Certificate of
Objections"). The Certificate of Objections shall include the number of shares
of Brunswick Common Stock held by each such stockholder and the mailing address
of each such stockholder.
8.2 TAX RULING: TAX OPINION. C&S and Brunswick hereby agree to use
their efforts to obtain (i) a ruling from the Internal Revenue Service to the
effect that the transactions contemplated hereby, including the Merger, will
constitute a reorganization within the meaning of Section 368(b) of the Internal
Revenue Code and that the exchange in the Merger of C&S Common Stock for
Brunswick Common Stock will not give rise to gain or loss to the stockholders of
C&S or Brunswick with respect to such exchange (except to the extent of any cash
paid in lieu of fractional shares) ("Tax Ruling") or (ii) if mutually agreed
upon in writing by C&S and Brunswick, a written opinion of legal counsel
reasonably acceptable to C&S and Brunswick to the same effect ("Tax Opinion").
8.3 PRESS RELEASES. Prior to the Effective Date, C&S and Brunswick
shall consult with each other as to the form and substance of any press release
or other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, however, that nothing in this Section
8.3 shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by law and the other Party shall be properly notified of
such disclosure.
8.4 AVANTOR REORGANIZATION: SUBSTITUTION OF AVANTOR COMMON STOCK.
(a) Brunswick acknowledges that C&S and Sovran have entered into the
Avantor Agreements, pursuant to which (i) C&S and Sovran will become wholly
owned subsidiaries of Avantor and (ii) each share of C&S Common Stock, C&S
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Money Market Cumulative Preferred Stock, Series A and B, and C&S ESOP
Convertible Preferred Stock, Series C, will be converted, respectively, into one
share of Avantor Common Stock, Avantor Money Market Cumulative Preferred Stock,
Series A and B, and Avantor ESOP Convertible Preferred Stock, Series C, and each
share of Sovran common stock will be converted into 1.23 shares of Avantor
Common Stock. Brunswick acknowledges that C&S has delivered to Brunswick, the
Registration Statement on Form S-4 filed by Avantor with the SEC on November 1,
1989, with respect to (i) the Avantor Reorganization (which registration
statement includes the Avantor Agreements as appendices to the Joint Proxy
Statement --Prospectus contained therein) and (ii) the shares of Avantor Common
Stock, Avantor Money Market Cumulative Preferred Stock, Series A and Series B,
and Avantor ESOP Convertible Preferred Stock, Series C, proposed to be issued to
the stockholders of C&S and Sovran upon Consummation of the Avantor
Reorganization. Brunswick further understands that C&S and Sovran presently
anticipate consummating the Avantor Reorganization during the first or second
quarters of 1990, but that no assurance can be provided that the Avantor
Reorganization will be consummated during such time period or at all. Brunswick
agrees that the Effective Date shall be delayed until such time as the Avantor
Reorganization is consummated (or terminated in accordance with the provisions
of the Avantor Agreements) and that the timing of the Merger, including the
Stockholders' Meeting, shall be effected in accordance with a schedule
determined by C&S and shall be delayed until such time as the Avantor
Reorganization is consummated (or terminated in accordance with the provisions
of the Avantor Agreements). In consideration of the transactions contemplated by
this Agreement, the Board of Directors of Avantor shall approve the obligations
of Avantor under this Agreement and the Plan of Merger and shall execute a
supplement to this Agreement evidencing such approval of its obligations under
the terms of this Agreement and the Plan of Merger.
(b) C&S and Brunswick agree, that if the Avantor Reorganization is
consummated:
(i) on and after the Effective Date, C&S will be a wholly owned
subsidiary of Avantor;
(ii) this Agreement and the Plan of Merger shall be deemed to be
automatically amended, upon consummation of the Avantor Reorganization,
to provide that, upon the Effective Date, (a) (1) each share Brunswick
Common Stock that would otherwise be converted in teh Merger into the
right to receive a multiple of a share of C&S Common Stock shall be
converted in lieu thereof into the right to receive the multiple of a
share of Avantor Common Stock as calculated in accordance with the
terms of this Agreement and the Plan of Merger (an "Avantor Merger
Share") and (2) for such purposes, an Avantor Merger Share shall mean a
multiple of a share of Avantor Common Stock determined by dividing the
Per Share Purchase Price by the Avantor Base Period Trading Price;
provided, however, that for purposes of this calculation, the Avantor
Base Period Trading Price shall be deemed to equal (x) $18.84 in the
event the Avantor Base Period Trading Price is less than $18.84 or (y)
$31.40 in the event
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the Avantor Base Period Trading Price is greater then $31.40 and (b)
each option to purchase Brunswick Common Stock that would otherwise be
converted in the Merger into the right to receive an option to purchase
C&S Common Stock shall be converted in lieu thereof into the right to
receive an option to purchase Avantor Common Stock on the same terms as
set forth in Section 2.4 of this Agreement; and in connection
therewith, all references in this Agreement, the Plan of Merger and the
other appendices to this Agreement to:
(1) shares of C&S Common Stock shall be changed to refer to
shares of Avantor Common Stock (but only in those contexts in
which C&S is referred to as the issuer of the C&S Common Stock in
the Merger);
(2) C&S shall be changed to refer to Avantor (but only in
those contexts in which C&S is referred to as the issuer of the
C&S Common Stock to be issued in the Merger);
(3) the Registration Statement of C&S (with respect to the
C&S Common Stock to be issued in the Merger) shall be changed to
refer to the Registration Statement of Avantor (with respect to
the Avantor Common Stock to be issued in the Merger); and
(4) the various appendices to this Agreement shall be
amended as agreed upon by the Parties (including the legal
opinions of the respective counsel to C&S and Brunswick which
shall include such corresponding opinions with respect to
Avantor as provided with respect to C&S) and to the extent
consistent with, and reasonably required to reflect, the
substitution of shares of Avantor Common Stock for shares of C&S
Common Stock as contemplated by this Section 8.4; and
(iii) consummation of the Avantor Reorganization shall not cause
an adjustment in the multiple of a share of Avantor Common Stock to be
received for each share of Brunswick Common Stock as a result of the
application of the provisions of Section 2.3(b) of this Agreement.
ARTICLE NINE
CONDITIONS PRECEDENT TO THE OBLIGATIONS TO CONSUMMATE
The obligations of C&S, on the one hand, and Brunswick, on the other
hand, to perform this Agreement and consummate the Merger are subject to the
satisfaction of the following conditions, unless waived by C&S or Brunswick, as
the case may be, pursuant to Section 11.5 of this Agreement:
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9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of each Party set forth or referred to in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Effective Date with the same effect as though all such representations and
warranties had been made on and as of the Effective Date, except for (i) any
such representations and warranties confined to a specified date, which shall be
true and correct in all material respects as of such date, (ii) changes in the
ordinary course of business consistent with past practice, or (iii) changes
resulting from effecting the transactions specifically contemplated by this
Agreement or the Plan of Merger, including the fees and expenses incurred in
connection therewith.
9.2 PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
covenants and agreements of each Party to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby prior to
the Effective Date shall have been duly performed and complied with in all
material respects.
9.3 CERTIFICATES. Each of the Parties shall have delivered to the other
a certificate, dated as of the Effective Date and signed on its behalf by its
Chairman of the Board, or its President, and its Treasurer, to the effect that
(i) the conditions of its obligations set forth in Sections 9.1 and 9.2 of this
Agreement have been satisfied and (ii) that there has been no material adverse
change in the consolidated financial condition or consolidated results of
operations of such Party from that reflected on the (a) September 30, 1987 and
December 31, 1987, financial statements referred to in Section 4.5 as to
Brunswick and (b) December 31, 1987, financial statements referred to in Section
6.6 as to C&S, other than changes in the consolidated financial condition or
consolidated results of operations of such Party resulting from effecting the
transactions specifically contemplated by this Agreement or the Plan of Merger,
all in such reasonable detail as the other Party shall request.
9.4 CORPORATE AUTHORIZATION. All action necessary to authorize the
execution, delivery and performance of this Agreement and the Plan of Merger and
the consummation of the transactions contemplated hereby and thereby shall have
been duly and validly taken by the Parties. Each Party shall have furnished to
the other certified copies of resolutions duly adopted by such Party's Board of
Directors evidencing the same.
9.5 STOCKHOLDER APPROVALS. The stockholders of Brunswick shall have
approved this Agreement and the Plan of Merger, and the consummation of the
transactions contemplated hereby including the Merger, as and to the extent
required by law and by the provisions of any governing instruments, and
Brunswick shall have furnished to C&S certified copies of resolutions duly
adopted by Brunswick's stockholders evidencing the same. In addition, the
holders of no more than seven percent (7%) of the issued and outstanding shares
of Brunswick Common Stock shall have filed written notice with Brunswick at or
prior to the Stockholders' Meeting that they dissent from the Merger or have
voted against adoption of this Agreement or the Plan of Merger.
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<PAGE>
9.6 CONSENTS AND APPROVALS. All approvals and authorizations of,
filings and registrations with, and notifications to, all federal and state
authorities required for consummation of the Merger and for the preventing of
any termination of any right, privilege, license or agreement of either Party or
any of its respective Subsidiaries which, if not obtained or made, would have a
material adverse impact on the financial condition or results of operation of
such Party and its Subsidiaries on a consolidated basis, shall have been
obtained or made and shall be in full force and effect and all waiting periods
required by law shall have expired. To the extent that any lease, license, loan
or financing agreement or other contract or agreement to which Brunswick or any
of its Subsidiaries, as the case may be, is a party requires the consent of or
waiver from the other party thereto as a result of the transactions contemplated
by this Agreement or the Plan of Merger, such consent or waiver shall have been
obtained, unless (i) waived by the appropriate Party in accordance with Section
11.5 of this Agreement, or (ii) the failure to obtain such consent or waiver
would not have a material adverse impact on the business, operations or
financial condition of Brunswick or any of its Subsidiaries following the Merger
or the transactions contemplated hereby. Any approval obtained from any
Regulatory Authority which is necessary to consummate the transactions
contemplated hereby shall not be conditioned or restricted in a manner in which
in the judgment of the Board of Directors of either Party materially adversely
affects the economic assumptions of the transactions contemplated hereby or the
business of either Party so as to render inadvisable the consummation of the
Merger.
9.7 LEGAL PROCEEDINGS. No action or proceedings shall have been
instituted by any governmental authority or to the knowledge of the parties
threatened by any governmental authority seeking to restrain the consummation of
the transactions contemplated by this Agreement which, in the opinion of the
Board of Directors of C&S or Brunswick, renders it impossible or inadvisable to
consummate the transactions provided for in this Agreement.
9.8 MATERIAL ADVERSE CHANGE. There shall have been no determination by
the Board of Directors of either Party that the Merger or the other transactions
contemplated by this Agreement have become impractical because any state of war,
national emergency, or banking moratorium shall have been declared in the United
States or a general suspension of trading on the New York Stock Exchange
occurred. There shall have been no determination by the Board of Directors of
either Party that the consummation of the Merger or the other transactions
contemplated by this Agreement is not in the best interests of such Party or its
stockholders by reason of a material adverse change in the consolidated
financial condition or consolidated results of operations of the other Party
from that reflected in the (i) September 30, 1987 and December 31, 1987,
financial statements referred to in Section 4.5 as to Brunswick and (ii) the
December 31, 1987, financial statements referred to in Section 6.6 as to C&S,
other than changes in the consolidated financial condition or consolidated
results of operations of such Party resulting from effecting the transactions
specifically contemplated by this Agreement, or the Plan of Merger.
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<PAGE>
9.9 LETTERS CONCERNING CLAIMS. Each director and officer of Brunswick
shall have delivered to C&S a letter in the form set forth in Exhibit 4
concerning claims such directors and officers may have against Brunswick. In the
letter, the directors and officers shall: (i) acknowledge the assumption by C&S
of all liability (to the extent Brunswick is so liable) for claims for
indemnification arising under the charter or by-laws of Brunswick as existing on
December 31, 1987, or as may be afforded by Georgia law or the laws of the
United States and for claims for salaries, wages or other compensation, employee
benefits, reimbursement of expenses or worker's compensation arising out of
employment through the Effective Date; (ii) affirm in their capacities as
officers and directors, they do not have nor are they aware of any claims they
might have (other than those referred to in (i) above) against Brunswick; and
(iii) release any and all claims that they may have other than those referred to
in (i) above. C&S shall acknowledge receipt of the letter and affirm its
assumption of the liabilities described in (i) above.
9.10 OPINIONS OF COUNSEL. C&S shall have delivered to Brunswick an
opinion of Alston & Bird, dated as of the Effective Date, substantially in the
form and to the effect specified in Exhibit 5, and Brunswick shall have
delivered to C&S an opinion of Smith, Mackinnon, Mathews & Christiansen, P.A.,
dated as of the Effective Date, substantially in the form and to the effect
specified in Exhibit 6.
9.11 ACCOUNTANTS' LETTERS. C&S shall have received from Arthur Andersen
& Co. letters dated as of (i) the date of the Proxy Statement and (ii) the
Effective Date, with respect to certain financial information regarding
Brunswick, which shall be substantially in the form and to the effect set forth
in Exhibit 7.
9.12 TAX MATTERS. Each of the Parties shall have delivered to the other
a Certificate, dated as of the Effective Date, signed by its Chairman of the
Board, or its President, and by its Treasurer to the effect that, to the best
knowledge and belief of such officers, the statement of facts and
representations made on behalf of the management of such Party, presented in and
in support of the request to the Internal Revenue Service for the Tax Ruling and
presented in and in support of all supplemental requests, or presented to the
legal counsel delivering the Tax Opinion, as the case may be, were at the date
of such request or presentation and of any such supplement, true, correct and
complete, and are on the date of such Certificate, to the extent contemplated by
the request or presentation and any such supplemental request, true, correct and
complete, as though such request or presentation and any such supplemental
request had been made on the date of such Certificate. Each Party shall have
received a copy of the Tax Ruling or the Tax Opinion referred to in Section 8.2
of this Agreement.
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<PAGE>
9.13 LETTER FROM INVESTMENT BANKING FIRM. Brunswick shall have received
a letter from Interstate Johnson Lane, Inc. dated as of the date of the Proxy
Statement, to the effect that in the opinion of such firm the terms of the
Merger are fair to the stockholders of Brunswick from a financial point of view.
9.14 REGISTRATION STATEMENT. The Registration Statement shall be
effective under the 1933 Act and no stop orders suspending the effectiveness of
the Registration Statement shall be in effect and no proceedings for such
purpose, or under the proxy rules of the OTS pursuant to the 1934 Act, and with
respect to the transactions contemplated hereby, shall be pending before or
threatened by the SEC or the OTS.
ARTICLE TEN
TERMINATION
10.1 TERMINATION. Notwithstanding any other provision of this Agreement
or the Plan of Merger and notwithstanding the approval of this Agreement and the
Plan of Merger by the stockholders of Brunswick, this Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Date:
(a) By a vote of a majority of the Board of Directors of both C&S and
Brunswick; or
(b) By a vote of a majority of the Board of Directors of either C&S or
Brunswick in the event of a material breach by the other Party of any
representation, warranty, covenant or agreement contained herein which cannot be
or has not been cured within thirty (30) days after the giving of written notice
to the breaching Party of such breach; or
(c) By a vote of a majority of the Board of Directors of either C&S or
Brunswick in the event that the Merger shall not have been consummated by
September 30, 1990; or
(d) By a vote of a majority of the Board of Directors of either C&S or
Brunswick in the event (i) any approval of any governmental or other
Regulatory Authority required for Consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final non-appealable
action of such authority or if any action taken by such authority is not
appealed within the time limit for appeal or (ii) if the stockholders of
Brunswick fail to vote their approval of the Merger and the transactions
contemplated hereby as required by the Home Owners' Loan Act of 1933, as
amended, and the Georgia Financial Institutions Code at the Stockholders'
Meeting where the transactions were presented to such stockholders for approval;
or
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<PAGE>
(e) By a vote of a majority of the Board of Directors of either C&S or
Brunswick in the event (i) of the acquisition, by any person or group of
persons, of beneficial ownership of forty percent (40%) or more of the
outstanding shares of common stock of the other Party (the terms "group" and
"beneficial ownership" having the meanings assigned thereto in Section 13(d) of
the 1934 Act and the regulations promulgated thereunder), or (ii) the Board of
Directors of the other Party accepts or publicly recommends acceptance of an
offer from a third party to acquire fifty percent (50%) or more of its common
stock or consolidated assets, provided that the transactions contemplated by the
Avantor Reorganization shall not be deemed to provide Brunswick a right of
termination under the provisions of this Section 10.1(e);
(f) By a vote of majority of the Board of Directors of Brunswick in the
event the Base Period Trading Price is less than $17.00 (subject to appropriate
adjustment in the event of stock splits or stock dividends with respect to
shares of C&S Common Stock prior to the Effective Date).
10.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement and the Plan of Merger pursuant to Section 10.1 of
this Agreement, this Agreement and the Plan of Merger shall become void and have
no effect, except that the provisions of Sections 5.5, 7.3 and 11.1 of this
Agreement shall survive any such termination and abandonment.
10.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
respective representations, and warranties, obligations, covenants and agreement
of the Parties shall not survive the Effective Date except Sections 2.3, 2.4,
3.3, 3.4, 3.5, 8.4, 11.1 and 11.2 of this Agreement.
ARTICLE ELEVEN
MISCELLANEOUS
11.1 EXPENSES.
(a) Except as provided in Section 11.1(b) of this Agreement, each of
the Parties 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 or other consultants, investment bankers,
accountants and counsel.
(b) Notwithstanding the provisions of Section 11.1(a) of this
Agreement, if this Agreement and the Plan of Merger are terminated (i) by
Brunswick before the Closing is concluded for any of the reasons set forth in
Sections 10.1(b), 10.1(d)(i) or 10.1(f) of this Agreement, (ii) by C&S before
the Closing is concluded for any of the reasons set forth in Section 10.1(d)(i)
of this Agreement or (iii) by mutual agreement of the Parties before the Closing
is concluded pursuant to Section 10.1(a) of this Agreement but only for the
specific reasons specified in Section 10.1(d)(i) of
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<PAGE>
this Agreement, C&S shall reimburse Brunswick for any and all of the expenses of
Brunswick (including, but not limited to, fees and expenses of its accountants,
counsel and investment bankers) reasonably incurred in attempting to effect the
transactions contemplated by this Agreement. Notwithstanding the foregoing, if
this Agreement and the Plan of Merger are terminated by C&S or Brunswick
pursuant to Section 10.1(b) of this Agreement because of the willful breach by
the other of any representation, warranty, covenant, undertaking or restriction
contained herein, if the terminating Party shall not have been in breach (in any
material respect) of any representation, warranty, covenant, undertaking or
restriction contained in this Agreement, then the breaching Party shall pay for
any and all of the expenses of the terminating Party (including, but not limited
to, fees and expenses of its accountants, counsel and investment bankers)
reasonably incurred in attempting to effect the transactions contemplated by
this Agreement. Final settlement with respect to payment of such fees and
expenses by the Parties shall be made within thirty (30) days of the termination
of this Agreement and the Plan of Merger.
11.2 BROKERS AND FINDERS. Except for Interstate Johnson Lane, Inc. as
to Brunswick, each of the Parties, represents and warrants that neither it nor
any of its officers, directors, employees, affiliates or Subsidiaries has
employed any broker or finder or incurred any liability for any financial
advisory fees, investment bankers' fees, brokerage fees, commissions, or
finders' fees in connection with this Agreement or the transactions contemplated
hereby. In the event of a claim by any broker or finder based upon his or its
representing or being retained by or allegedly representing or being retained by
either C&S or Brunswick, C&S or Brunswick, as the case may be, agrees to
indemnify and hold the other Party harmless of and from any such claim.
11.3 ENTIRE AGREEMENT. Except as otherwise expressly provided herein,
this Agreement and the Plan of Merger contain the entire agreement between the
Parties with respect to the transactions contemplated hereunder and thereunder,
and such agreements supersede all prior arrangements or understandings with
respect thereto, written or oral. The terms and conditions of this Agreement and
the Plan of Merger shall inure to the benefit of and be binding upon the Parties
and their respective successors. Nothing in this Agreement or the Plan of Merger
expressed or implied, is intended to confer upon any Party, other than the
Parties or their respective successors, any rights, remedies, obligations or
liabilities under or by reason of this Agreement or the Plan of Merger, except
as expressly provided herein or therein.
11.4 AMENDMENTS. To the extent permitted by law, this Agreement and the
Plan of Merger may be amended by a subsequent writing signed by all of the
Parties upon the approval of the Boards of Directors of each of the Parties;
provided, however, that the provisions of Section 2.3 of this Agreement relating
to the manner or basis in which shares of Brunswick Common Stock will
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<PAGE>
be exchanged for C&S Common Stock shall not be amended after the Stockholders'
Meeting without the requisite approval of the holders of the outstanding shares
of Brunswick Common Stock, and that no amendment to this Agreement shall modify
the requirements of regulatory approval set forth in Sections 9.4 and 9.6 of
this Agreement.
11.5 WAIVERS. Prior to or on the Effective Date, C&S, acting through
its Board of Directors or its Chairman, Vice Chairman or President, shall have
the right to waive any default in the performance of any term of this Agreement
by Brunswick, to waive or extend the time for the compliance or fulfillment by
Brunswick of any and all of its obligations under this Agreement, and to waive
any or all of the conditions precedent to the obligations of C&S under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any law or applicable governmental regulation. Prior to or on the
Effective Date, Brunswick, acting through its Board of Directors, Chairman or
President, shall have the right to waive any default in the performance of any
term of this Agreement by C&S, to waive or extend the time for the compliance or
fulfillment by C&S of any and all of its obligations under this Agreement, and
to waive any or all of the conditions precedent to the obligations of Brunswick
under this Agreement, except any condition which, if not satisfied, would result
in the violation of any law or applicable governmental regulation.
11.6 NO ASSIGNMENT. None of the Parties may assign any of its rights or
obligations under this Agreement or the Plan of Merger to any other person.
11.7 SPECIFIC ENFORCEABILITY. The Parties recognize and hereby
acknowledge that it is impossible to measure in money the damages that would
result to a Party by reason of the failure of any of the Parties to perform any
of the obligations imposed on it by this Agreement. Accordingly, if after the
Stockholders' Meeting any Party should institute an action or proceeding
seeking specific enforcement of the provisions of this Agreement, each Party
against which such action or proceeding is brought hereby waives the claim or
defense that the Party instituting such action or proceeding has an adequate
remedy at law and hereby agrees not to assert in any such action or proceeding
the claim or defense that such a remedy at law exists.
11.8 NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally,
by facsimile transmission or sent by registered or certified mail, postage
prepaid to the persons at the addresses set forth below (or at such other
address as may be provided hereunder), and shall be deemed to have been
delivered as of the date so delivered personally or by facsimile transmission or
mailed; provided, however, that notice of termination of this Agreement shall be
effective only upon actual delivery of such notice to the Party entitled to the
same:
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<PAGE>
C&S: The Citizens and Southern Corporation
35 Broad Street
Atlanta, Georgia
Attention: Bennett A. Brown
Chairman of the Board
Copy to Counsel: Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: F. Dean Copeland
Brunswick: First Federal Savings Bank of Brunswick,
Georgia
777 Gloucester Street
Brunswick, Georgia
Attention: Ben T. Slade III
Chairman of the Board
Copy to Counsel: Smith, Mackinnon, Mathews &
Christiansen, P.A.
Suite 850
255 South Orange Avenue
Orlando, Florida 32809
Attention: John P. Greeley
11.9 GOVERNING LAW. This Agreement and the Plan of Merger shall be
governed by and construed and enforced in accordance with the laws of the State
of Georgia except to the extent the laws of the State of Delaware or federal law
shall be applicable.
11.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
duly executed and delivered on its behalf and its corporate seal to be hereunto
affixed and attested by officers thereunto duly authorized all as of the day and
year first above written.
THE CITIZENS AND SOUTHERN CORPORATION
By: /s/ Bennett A. Brown
---------------------------------
Bennett A. Brown
Chairman of the Board
ATTEST: /s/ Enoch J. Prow
--------------------------
Enoch J. Prow
Secretary
(CORPORATE SEAL)
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<PAGE>
CITIZENS AND SOUTHERN GEORGIA
CORPORATION
By: /s/ John W. McIntyre
--------------------------------
John W. McIntyre
Chairman of the Board
ATTEST: /s/ Enoch J. Prow
--------------------------
Enoch J. Prow
Secretary
(CORPORATE SEAL)
THE CITIZENS AND SOUTHERN NATIONAL
BANK
By: /s/ William J. VanLandingham
--------------------------------
William J. VanLandingham
President
ATTEST: /s/ Enoch J. Prow
---------------------------
Enoch J. Prow
Secretary
(ASSOCIATION SEAL)
FIRST FEDERAL SAVINGS BANK
OF BRUNSWICK, GEORGIA
By: /s/ Ben T. Slade III
--------------------------------
Ben T. Slade III
Chairman of the Board
ATTEST: /s/ Robert B. Sams
---------------------------
Robert B. Sams
Secretary
(SAVINGS BANK SEAL)
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<PAGE>
Supplement to Amended and Restated Agreement
and Plan of Reorganization
This Supplement ("Supplement") to the foregoing Amended and Restated
Agreement and Plan of Reorganization ("Agreement") is executed by Avantor
Financial Corporation ("Avantor") pursuant to Section 8.4(a) of the Agreement
and in consideration of the premises of the Agreement, the representations,
warranties, covenants, and agreements of First Federal Savings Bank of
Brunswick, Georgia and The Citizens and Southern Corporation set forth in the
Agreement, the benefits to be derived by Avantor under the terms of the
Agreement, and other good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged. By execution of this Supplement, Avantor
represents that its Board of Directors has duly and validly authorized and
approved the obligations of Avantor under the Agreement and the transactions
contemplated thereby and undertakes and agrees to perform all obligations and
covenants to be performed by Avantor under the terms of the Agreement and the
Plan of Merger and to abide by the Agreement and the Plan of Merger in
accordance with their respective terms.
AVANTOR FINANCIAL CORPORATION
By: /s/ Albert B. Gornto, Jr. By: /s/ Bennett A. Brown
--------------------------- ---------------------------
Albert B. Gornto, Jr. Bennett A. Brown
Chairman of the Executive Chairman of the Board
Committee
ATTEST: /s/ Page D. Cranford (CORPORATE SEAL)
Page D. Cranford
Secretary
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<PAGE>
AMENDMENT NUMBER ONE
TO
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT NUMBER ONE TO AMENDED AND RESTATED AGREEMENT AND PLAN OF
REORGANIZATION ("Amendment Number One") is made and entered into as of this 20th
day of August, 1990, by and among THE CITIZENS AND SOUTHERN CORPORATION ("C&S"),
CITIZENS AND SOUTHERN GEORGIA CORPORATION ("CSGA"), THE CITIZENS AND SOUTHERN
NATIONAL BANK ("CSNB") and FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA
("Brunswick").
This Amendment Number One is made pursuant to Section 11.4 of the
Amended and Restated Agreement and Plan of Reorganization ("Agreement"), dated
as of April 19, 1988, and amended and restated as of November 20, 1989, by and
among C&S, CSGA, CSNB and Brunswick and supplemented by the Supplement to
Amended and Restated Agreement and Plan of Reorganization executed by C&S/Sovran
Corporation (formerly named Avantor Financial Corporation) ("CSC") and in
accordance with resolutions adopted by the Boards of Directors of C&S, CSGA,
CSNB, Brunswick and CSC authorizing the preparation, execution, and delivery of
this Amendment Number One. Terms with initial capitalization which are not
otherwise defined in this Amendment Number One shall have the meaning set forth
in the Agreement.
PREAMBLE
The respective Boards of Directors of the Parties have determined that
it is the best interests of their respective institutions to restructure the
transactions contemplated by the Agreement such that the acquisition of
Brunswick ("Acquisition") will be effected in a manner that will permit
Brunswick to be operated as a commercial bank subsidiary, the deposits of which
are insured by the SAIF of the FDIC, rather than operated as a thrift subsidiary
and will consist of the following series of transactions: (i) the conversion of
Brunswick from a federally chartered stock savings bank organized under the laws
of the United States to a state chartered stock savings and loan association
organized under the laws of the State of Georgia; (ii) the conversion of
Brunswick from a state chartered stock savings and loan association organized
under the laws of the State of Georgia to a state chartered bank organized under
the laws of the State of Georgia, the deposits of which are insured by the SAIF
maintained by the FDIC; (iii) the organization of Brunswick Interim, Inc.
("Interim"), as a wholly owned subsidiary of C&S (or CSC in the event the CSC
reorganization described herein is consummated); and (iv) the merger of Interim
into and with Brunswick.
In consideration of the above, the mutual warranties, representations,
covenants and agreements set forth in the Agreement and herein, the Parties
agree as follows:
1. All matters provided in the Preamble to the Agreement which are
inconsistent with this Amendment Number One and the Preamble set forth herein
are hereby revised to conform to this Amendment Number One.
<PAGE>
2. All references to "Avantor Financial Corporation" which are set
forth in the Agreement shall be revised to reflect the change in name of such
entity to "C&S/Sovran Corporation," and all references to "Avantor" shall be
changed to "CSC."
3. Section 1.1 of the Agreement shall be amended by adding the phrase
"as amended by the Amendment Number One to Amended and Restated Agreement and
Plan of Reorganization dated as of August 20, 1990, by and among C&S, CSGA,
CSNB, and Brunswick and supplemented by the Supplement to Amendment Number One
executed by CSC" to the end of such Section 1.1.
4. Section 1.2 of the Agreement shall be deleted in its entirety and
replaced with the following:
1.2 "Articles of Merger" shall mean the Articles of Merger to be
executed by Brunswick and Brunswick Interim and filed with the Georgia
Commissioner as contemplated by Section 2.1(c) of this Agreement.
5. Section 1.26 of the Agreement shall be revised by substituting the
words "State of Georgia" for the words "United States" where such words appear
in the last line of Section 1.26.
6. Section 1.28 shall be revised by substituting the words "1 through
9," for the words "1 through 7," where such words appear in the first line of
Section 1.28.
7. Section 1.39 shall be revised to include "CSC" immediately before
C&S in the first and second lines of Section 1.39.
8. Article One of the Agreement shall be amended by adding the
following new Sections which shall provide:
1.51 "Amended Brunswick Articles" shall mean the Amended and Restated
Articles of Incorporation of Brunswick set forth in Exhibit 8 and shall
reflect the Bank Conversion.
1.52 "Brunswick Interim" shall refer to Brunswick Interim, Inc., a
corporation to be organized under the laws of the State of Georgia as a
wholly owned subsidiary of C&S (or CSC in the event the CSC Reorganization
is consummated).
1.53 "Bank Conversion" shall refer to the conversion of Brunswick
Interim from a state chartered stock savings and loan association organized
under the laws of the State of Georgia to a state chartered bank organized
under the laws of the State of Georgia as contemplated by Section 2.1(b) of
this Agreement and as reflected in the Amended Brunswick Articles.
1.54 "Plan of Thrift Conversion" shall refer to the Plan of Thrift
Conversion set forth in Exhibit 9 relating to the Thrift Conversion.
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<PAGE>
1.55 "Thrift Conversion" shall refer to the conversion of Brunswick
from a federally chartered stock savings bank to a state charted stock
savings and loan association organized under the laws of the State of
Georgia as contemplated by Section 2.1(a) of this Agreement and as set
forth in the Plan of Thrift Conversion.
9. Section 2.1 of the Agreement shall be deleted in its entirety and
replaced with the following:
2.1 Transactions. The Parties agree that the conversion of Brunswick
from a federally chartered stock savings bank to a state chartered savings
and loan association organized and existing under the laws of the State of
Georgia and then to a state chartered bank organized and existing under the
laws of the State of Georgia is necessary for and is a condition precedent
to the consummation of the Merger. The Parties acknowledge that in order to
ensure that the Thrift Conversion and the Bank Conversion are not effected
without Consummation of the Merger, the Parties will, if practicable, cause
the Thrift Conversion and the Bank Conversion to be effected prior to but
on the same day as consummation of the Merger. The Parties further
acknowledge that neither this Agreement, the Plan of Thrift Conversion,
nor the Amended Brunswick Articles will obligate Brunswick to consummate
either conversion other than as a condition precedent to the Merger.
(a) Thrift Conversion. Subject to the terms of this Agreement and the
Plan of Thrift Conversion, on the Effective Date and immediately prior to
the consummation of the Bank Conversion and the Merger, Brunswick shall
convert from a federally chartered stock savings bank to a state chartered
savings and loan association organized and existing under the Laws of the
State of Georgia in accordance with the provisions of and with the effect
provided by 12 U.S.C. SS 1464(i)(3) and Sections 7-1-293(e) and 7-1-550
through 7-1-555 of the Georgia Financial Institutions Code. Upon
consummation of the Thrift Conversion, Brunswick shall be governed by the
laws of the State of Georgia. The Thrift Conversion shall be consummated
pursuant to the terms of this Agreement and the Plan of Thrift Conversion,
both of which have been approved and adopted by the Board of Directors of
Brunswick. The Thrift Conversion shall be effected by filing the Plan of
Thrift Conversion as part of the articles of conversion to be filed with
the Georgia Commissioner pursuant to Section 7-1-551 of the Georgia
Financial Institutions Code.
(b) Bank Conversion. Subject to the terms of this Agreement, on the
Effective Date and immediately subsequent to the Thrift Conversion but
immediately prior to the consummation of the Merger, Brunswick shall
convert from a state chartered savings and loan association organized and
existing under the laws of the State of Georgia to a state chartered bank
organized and existing under the
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<PAGE>
laws of the State of Georgia, the deposits of which are insured by SAIF,
in accordance with the provisions of and with the effect provided by 12
U.S.C. ss 1815 (d)(2)(G) and Sections 7-1-293(b) and Section 7-1-510
through 7-1-516 of the Georgia Financial Institutions Code. Upon consum-
mation of the Bank Conversion, Brunswick shall be governed by the laws of
the State of Georgia and shall continue to conduct its business under the
name "First Interim Bank of Brunswick, Georgia." The Bank Conversion
shall be consummated pursuant to the terms of this Agreement and the pro-
visions of the Amended Brunswick Articles, both of which have been
approved and adopted by the Board of Directors of Brunswick. The Bank
Conversion shall be effected by filing the Amended Brunswick Articles as
part of the articles of amendment to be filed with the Georgia Com-
missioner pursuant to Section 7-1-512 of the Georgia Financial
Institutions Code.
(c) Merger. Subject to the terms of this Agreement and the Plan of
Merger, on the Effective Date and after consummation of the Thrift Con-
version and the Bank Conversion, Brunswick Interim shall be merged into
and with Brunswick in accordance with the provisions of and with the
effect provided in 12 U.S.C. ss 1828(c) and Part 14 of Article 2 of
Chapter 1 of the Georgia Financial Institutions Code. Brunswick shall be
the entity resulting from the Merger and shall continue to exist and to be
governed by the laws of the State of Georgia as a commercial bank
operating under the name "The Citizens and Southern Bank of Glynn County."
The Merger shall be consummated pursuant to the terms of this Agreement
and the Plan of Merger, both of which have been approved and adopted to
the extent necessary by the Boards of Directors of C&S, CSGA, CSNB and
Brunswick and which shall be approved and adopted by the Board of
Directors of Brunswick Interim upon its organization. The Merger shall be
effected by filing the Articles of Merger with the Georgia Commissioner as
required by Section 7-1-532 of the Georgia Financial Institutions Code.
10. Subsection (c) of Section 2.3 of the Agreement shall be deleted
in its entirety and replaced with the following:
(c) Dissenting Stockholders of Brunswick. Any holder of shares of
Brunswick Common Stock who complies with Article 13 of the Georgia
Business Corporation Code (made applicable by Section 7-1-537 of the
Georgia Financial Institutions Code) shall be entitled to receive the fair
value of such shares pursuant to Section 14-2-1302 of the Georgia Business
Corporation Code from C&S in cash from the escrow account established by
Brunswick prior to the Effective Date pursuant to Section 5.14 of this
Agreement; provided, however, that no such payment shall be made to any
dissenting stockholder unless and until (i) the value thereof shall have
been agreed upon or finally determined as provided in Article 13 of the
Georgia Business Corporation Code and (ii) the dissenting stockholder has
surrendered
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to C&S the certificate or certificates representing the shares for which
such payment is being made.
11. Section 3.2 of the Agreement shall be deleted in its entirety
and replaced with the following:
3.2 Effective Date. The Merger shall become effective on the date
and time specified in the Certificate of Merger issued by the Secretary of
State of the State of Georgia. Unless otherwise mutually agreed upon in
writing by the Parties, the Effective Date shall be as soon as practicable
following the date that all of the conditions precedent specified in this
Agreement have been satisfied or waived by the Party or Parties permitted
to do so.
12. Section 3.4 of the Agreement shall be deleted in its entirety
and replaced with the following:
3.4 Dissenting Stockholders. Any holder of shares of Brunswick
Common Stock who complies with Article 13 of the Georgia Business
Corporation Code (made applicable by Section 7-1-537 of the Georgia
Financial Institutions Code) shall not be entitled to payment for his
shares of Brunswick Common Stock who becomes entitled to payment for his
shares pursuant to Section 14-2-1302 of Georgia Business Corporation Code
shall receive payment for such shares in cash (to be paid from the escrow
account established by Brunswick prior to the Effective Date pursuant to
Section 5.14 of this Agreement); provided, however, that no such payment
shall be made to any dissenting stockholder unless and until (i) the value
thereof shall have been agreed upon or finally determined as provided in
Article 13 of the Georgia Business Corporation Code and (ii) the dis-
senting stockholder shall have surrendered to C&S the certificate or
certificates representing the shares for which such payment is being made.
In the event that after the Effective Date a dissenting stockholder of
Brunswick fails to perfect, or effectively withdraws or loses his right to
appraisal of and payment for his shares, C&S shall issue and deliver the
shares of C&S Common Stock (and cash in lieu of any fractional share) to
which such holder of shares of Brunswick Common Stock is entitled under
Section 2.3 of this Agreement upon surrender by such holder of the cer-
tificate or certificates representing the shares of Brunswick Common Stock
held by him.
13. Section 4.1 of the Agreement shall be deleted in its entirety
and replaced with the following:
4.1 Organization, Standing and Authority. Brunswick is a federally
chartered stock savings bank duly organized, validly existing and in good
standing under the laws of the United States. The accounts of Brunswick
are insured by the SAIF to the extent
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provided in the Federal Deposit Insurance Act and the Home Owners' Loan
Act of 1933, as amended, and the rules and regulations promulgated there-
under. Brunswick has corporate power and authority to carry on its
business as now conducted and to own, lease and operate its assets,
properties and business, and to execute, adopt and deliver, as appropriate,
this Agreement, the Plan of Thrift Conversion, the Amended Brunswick
Articles and the Plan of Merger and perform their respective terms. Copies
of the charter of Brunswick (certified by the secretary of Brunswick)
and the by-laws of Brunswick (certified by the secretary of Brunswick),
which have been delivered to C&S, and copies of the corporate minutes of
Brunswick, which have been or will be made available by Brunswick to C&S
for review, are true and complete as now in effect on the date of this
Agreement.
14. Section 4.4 of the Agreement shall be deleted in its entirety
and replaced with the following:
4.4 Authority.
(a) The execution, adoption and delivery, as appropriate, of this
Agreement, the Plan of Thrift Conversion, the Amended Brunswick Articles
and the Plan of Merger and the consummation of the transactions contem-
plated herein or therein, including the Thrift Conversion, the Bank Con-
version and the Merger, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of Brunswick,
subject, with respect to this Agreement, the Plan of Thrift Conversion, the
Amended Brunswick Articles and the Plan of Merger, to the approval of the
stockholders of Brunswick. This Agreement, the Plan of Thrift Conversion,
the Amended Brunswick Articles and the Plan of Merger, to the approval of
the stockholders of Brunswick. This Agreement, the Plan of Thrift Con-
version, and the Amended Brunswick Articles and the Plan of Merger,
subject to the requisite approval of the stockholders of the Brunswick,
represent legal, valid and binding obligations of Brunswick, enforceable
against Brunswick in accordance with their terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the
equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding may be brought).
(b) Neither the execution, adoption and delivery, as appropriate, of
this Agreement, the Plan of Thrift Conversion, the Amended Brunswick
Articles or the Plan of Merger by Brunswick, nor the consummation by
Brunswick of the transactions contemplated herein or therein, nor com-
pliance by Brunswick with any of the provisions hereof or thereof will (i)
conflict with or result in a breach of any provision of the charter or by-
laws of Brunswick, or (ii) constitute or result in the breach of any term,
condition or provision of, or
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<PAGE>
constitute a default under, or give rise to any right of termination,
cancellation, or acceleration with respect to, or result in the creation
of any lien, charge or encumbrance upon, any property or assets of
Brunswick, pursuant to any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which it is a party
or by which its properties or assets may be subject, and that would, in
any such events, have a material adverse effect on the financial condition
or results of operations of the Brunswick Companies on a consolidated
basis or the transactions contemplated hereby, or (iii) subject to receipt
of the requisite approvals referred to in Section 9.6 of this Agreement,
to the knowledge of Brunswick's management, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Brunswick or
any of its Subsidiaries or any of their properties or assets.
(c) Other than in connection or compliance with the provisions of the
applicable state corporate law, the 1933 Act, the 1934 Act and the rules
and regulations thereunder, applicable state securities laws and rules of
the National Association of Securities Dealers, Inc., and the New York
Stock Exchange, Inc.; and other than consents, authorizations, approvals,
or exemptions required from the Federal Reserve Board, the FDIC, the OTS
and the Georgia Commissioner; and other than notices to or filings with
the Internal Revenue Service or the Pension Benefit Guaranty Corporation
with respect to any employee benefit plans, no notice to, filing with,
authorization of, or exemption by, or consent or approval of any public
body or authority is necessary for the consummation by Brunswick of the
Thrift contemplated in this Agreement, the Plan of Thrift Conversion, the
Amended Brunswick Articles or the Plan of Merger.
15. Section 4.18 of the Agreement shall be revised by deleting the
last sentence of such Section 4.18 and substituting in its place the following:
All documents that Brunswick is responsible for filing with the OTS or any
other Regulatory Authority in connection with the Thrift Conversion, the
Bank Conversion or the Merger will comply as to form in all material
respects with the provisions of applicable law.
16. Section 5.1 of the Agreement shall be revised by including the
phrase "Except as contemplated by this Agreement, the Plan of Thrift Conversion,
the Amended Brunswick Articles or the Plan of Merger," immediately prior to the
first sentence of Section 5.1.
17. Section 5.12 of the Agreement shall be deleted in its entirety
and replaced with the following:
5.12 Agreement as to Efforts of Consummate. Subject to the terms
and conditions of this Agreement, Brunswick hereby agrees to use all
reasonable efforts to take, or cause to be taken, all
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<PAGE>
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable laws and regulations to consummate and make
effective, as soon as practicable after the date of this Agreement, the
transactions contemplated by this Agreement, the Plan of Thrift Conversion,
the Amended Brunswick Articles and the Plan of Merger, including, without
limitation, using reasonable effort to lift or rescind any
injunction or restraining order to other order adversely affecting the
ability of the Parties to consummate the transactions contemplated herein.
Brunswick shall use, and shall cause each of the Brunswick Subsidiaries to
use, its bodies necessary or desirable for the consummation of the trans-
actions contemplated herein. Brunswick shall use, and shall cause each of
the Brunswich Subsidiaries to use, its best efforts to obtain consents of
all third parties and governmental bodies necessary or desirable for the
consummation of the transactions contemplated by this agreement.
18. Section 5.14 of the Agreement shall be revised by substituting
the phrase "Article 13 of the Georgia Business Corporation Code" for the
phrase "12 C.F.R. ss 552.14" where such phrase appears in the fourth line of
Section 5.14.
19. Subsection (c) of the Section 6.5 of the Agreement shall be
revised by adding the words "the FDIC," after the words "required from the
Federal Reserve Board," where such words appear on the sixth line of such
subsection (c).
20. Article Seven of the Agreement is revised by including the
phrase "Subject to the consummation of the transactions contemplated by the
CSC Reorganization," immediately preceding the first sentence of Article Seven.
21. Section 7.6 of the Agreement shall be deleted in its entirety
and replaced with the following:
7.6 Organization of Brunswick Interim. C&S (or CSC in the event the
CSC Reorganization is consummated) shall effect all action necessary to
organize Brunswick Interim as a Georgia business corporation. The
authorized stock of Brunswick Interim shall consist of 1,000 shares of
Brunswick Interim Common Stock, all of which shares shall be held by C&S
(or CSC in the event the CSC Reorganization is consummated). Except as
contemplated by this Agreement or the Plan or Merger, Brunswick Interim
shall engage in no business activities or acquire any assets until
consummation of the Merger.
22. Section 7.7 of the Agreement shall be deleted in its entirety
and replaced with the following:
7.7 Applications. C&S shall diligently prepare and file, or shall
cause to be prepared and filed, and pursue applications with the Federal
Reserve Board, the FDIC, the OTS and the Georgia Commissioner seeking the
requisite approvals necessary to consummate the transactions contemplated
by this Agreement, the Plan of Thrift
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<PAGE>
Conversion, the Amended Brunswick Articles and the Plan of Merger and shall
take such other steps and actions in furtherance thereof as it deems
appropriate.
23. Section 7.8 of the Agreement shall be deleted in its entirety
and replaced with the following:
7.8 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, C&S agrees to use all reasonable efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective, as soon as practicable after the date of
this Agreement, the transactions contemplated by this Agreement, the Plan
of Thrift Conversion, the Amended Brunswick Articles and the Plan of
Merger, including, without limitation, using reasonable effort to life or
rescind any injunction or restraining order or other order adversely
affecting the ability of the Parties to consummate the transactions
contemplated herein. C&S shall use, and shall cause each of the C&S
Subsidiaries to use its best efforts to obtain consents of all third
parties and governmental bodies necessary or desirable for the consummation
of the transactions contemplated by this Agreement, the Plan of Thrift
Conversion, the Amended Brunswick Articles and the Plan of Merger.
24. Section 8.1 of the Agreement shall be deleted in its entirety and
replaced with the following:
8.1 Registration Statement: Stockholder Approval. At such time as
determined in the sole discretion of C&S, C&S shall prepare and file the
Registration Statement with the SEC and Brunswick shall file the Proxy
Statement with the OTS and C&S and Brunswich shall use their best efforts
to cause the Registration Statement to become effective under the 1933 Act
and shall take any action required to be be taken under the applicable
state Blue Sky or securities laws in connection with the issuance of the
shares of C&S Common Stock upon consummation of the Merger. Each Party
shall furnish all information concerning it and the holders of its capital
stock as the other party may reasonably request in connection with such
action. Brunswick shall call a Stockholders' meeting to be held as soon as
practicable after the date of this Agreement for the purposes of voting
upon the Agreement, the Plan of Thrift Conversion, the Amended Brainsick
Articles and the Plan of Merger, and such other related matters as it
deems appropriate. In connection with the Stockholder's Meeting, (i)
Brunswick shall mail the Proxy Statement included as part of the
Registration Statement and as filed with the OTS to its stockholders, (ii)
the Board of Directors of Brunswick shall recommend (subject to compliance
with its legal obligations as advised by counsel and subject to receipt of
the investment banking letter referred to in Section 9.13 of this Agree-
ment) to its stockholders the approval of
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<PAGE>
this Agreement, the Plan of Thrift Conversion, the Amended Brunswick
Articles and the Plan of Merger, and (iii) Brunswick shall use its best
efforts to obtain such stockholders' approval. As soon as practicable after
the Stockholders' Meeting, Brunswick shall deliver to C&S a certificate of
the Secretary of Brunswick containing the names of the stockholders of
Brunswick that have either: (x) not voted for the Merger contemplated by
this Agreement; or (y) given written notice at or prior to the
Stockholders' Meeting that they dissent from the Merger ("Certificate of
Objections"). The Certificate of Objections shall include the number of
shares of Brunswick Common Stock held by each such stockholder and the
mailing address of each such stockholder.
25. Paragraph (iii) of Section 9.1 of the Agreement shall be deleted in
its entirety and replaced with the following:
(iii) changes resulting from effecting the transactions specifically
contemplated by (x) this Agreement, the Plan of Thrift Conversion, the
Amended Brunswick Articles or the Plan of Merger, including the fees and
expenses incurred in connection therewith, and (y) the CSC Reorganization
in the case of C&S, including the fees and expenses incurred in connection
therewith.
26. Sections 9.3, 9.4, 9.5, and 9.6 of the Agreement shall be deleted
in their entirety and replaced with the following:
9.3 CERTIFICATES. Each of the Parties shall have delivered to the other
a certificate, dated as of the Effective Date and signed on its behalf by
its Chairman of the Board or its President and its Treasurer, to the effect
that (i) the conditions of its obligations set forth in Sections 9.1 and
9.2 of this Agreement have been satisfied and (ii) there has been no
material adverse change in the consolidated financial condition or
consolidated results of operations of such Party from that reflected on the
(a) September 30, 1987 and December 31, 1987, financial statements referred
to in Section 4.5 as to Brunswick and (b) December 31, 1987, financial
statements referred to in Section 6.6 as to C&S, other than changes in the
consolidated financial condition or consolidated results of operations of
such Party resulting from effecting the transactions specifically
contemplated by (x) this Agreement, the Plan of Thrift Conversion, the
Amended Brunswick Articles or the Plan of Merger and (y) the CSC
Reorganization in the case of C&S, all in such reasonable detail as the
other Party shall request.
9.4 CORPORATE AUTHORIZATION. All action necessary to authorize the
execution, delivery and performance of this Agreement, the Plan of Thrift
Conversion, the Amended Brunswick Articles and the Plan of Merger and the
consummation of the transactions contemplated hereby and thereby shall have
been duly and validly taken by the Parties. Each Party shall have furnished
to the other certified copies of
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<PAGE>
resolutions duly adopted by such Party's Board of Directors evidencing the
same.
9.5 STOCKHOLDER APPROVALS. The stockholders of Brunswick shall have
approved this Agreement, the Plan of Thrift Conversion, the Amended
Brunswick Articles and the Plan of Merger, and the consummation of the
transactions contemplated hereby, including the Thrift Conversion, the
Bank Conversion and the Merger, as and to the extent required by law and
by the provisions of any governing instruments, and Brunswick shall have
furnished to C&S certified copies of resolutions duly adopted by
Brunswick's stockholders evidencing the same. In addition, the holders of
no more than seven percent (7%) of the issued and outstanding shares of
Brunswick Common Stock shall have filed written notice with Brunswick at or
prior to the Stockholders' Meeting that they dissent from the Merger or
have voted against adoption of this Agreement, the Plan of Thrift
Conversion, the Amended Brunswick Articles or the Plan of Merger.
9.6 CONSENTS AND APPROVALS. All approvals and authorizations of ,
filings and registrations with, and notifications to, all federal and state
authorities required for consummation of the Thrift Conversion, the Bank
Conversion and the Merger and for the preventing of any termination of any
right, privilege, license or agreement of either Party or any of its
respective Subsidiaries which, if not obtained or made, would have a
material adverse impact on the financial conditions or results of operation
of such Party and its Subsidiaries on a consolidated basis, shall have been
obtained or made and shall be in full force and effect and all waiting
periods required by law shall have expired. To the extent that any lease,
license, loan or financing agreement or other contract or agreement to
which Brunswick or any of its Subsidiaries, as the case may be, is a party
requires the consent of or waiver from the other party thereto
as a result of the transactions contemplated by this Agreement, the Plan of
Thrift Conversion, the Amended Brunswick Articles or the Plan of Merger,
such consent or waiver shall have been obtained, unless (i) waived by the
appropriate Party in accordance with Section 11.5 of this Agreement, or
(ii) the failure to obtain such consent or waiver would not have a material
adverse impact on the business, operations or financial condition of
Brunswick or any of its Subsidiaries following the Thrift Conversion, the
Bank Conversion, the Merger or the transactions contemplated hereby.
Any approval obtained from any Regulatory Authority which is necessary to
consummate the transactions contemplated hereby shall not be conditioned
or restricted in a manner in which, in the judgment of the Board of
Directors of either Party, materially adversely affects the economic
assumptions of the transactions contemplated hereby or the business
of either Party so as to render inadvisable the consummation of the
Thrift Conversion, the Bank Conversion or the Merger.
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<PAGE>
27. Section 9.8 of the Agreement shall be deleted in its entirety and
replaced with the following:
9.8 MATERIAL ADVERSE CHANGE. There shall have been no determination by
the Board of Directors of either Party that the Thrift Conversion, the Bank
Conversion, the Merger or the other transactions contemplated by this
Agreement have become impractical because any state of war, national
emergency or banking moratorium shall have been declared in the United
States or a general suspension of trading on the New York Stock Exchange
occurred. There shall have been no determination by the Board of Directors
of either Party that the consummation of the Thrift Conversion, the Bank
Conversion, the Merger or the other transactions contemplated by this
Agreement is not in the best interests of such Party or its stockholders by
reason of material adverse change in the consolidated financial condition
or consolidated results of operations of the other Party from that
reflected in the (i) September 30, 1987 and December 31, 1987, financial
statements referred to in Section 4.5 as to Brunswick and (ii) the December
31, 1987, financial statements referred to in Section 6.6 as to C&S, other
than changes in the consolidated financial condition or consolidated
results of operations of such Party resulting from effecting the
transactions specifically contemplated by (x) this Agreement, the Plan of
Thrift Conversion, the Amended Brunswick Articles or the Plan of Merger and
(y) the CSC Reorganization in the case of C&S.
28. Sections 10.1 and 10.2 of the Agreement shall be deleted in their
entirety and replaced with the following:
10.1 TERMINATION. Notwithstanding any other provision of this
Agreement, the Plan of Thrift Conversion, the Amended Brunswick Articles or
the Plan of Merger, and notwithstanding the approval of this Agreement, the
Plan of Thrift Conversion, the Amended Brunswick Articles and the Plan of
Merger by the stockholders of Brunswick, this Agreement may be terminated
and the Thrift Conversion, the Bank Conversion and the Merger abandoned at
any time prior to the Effective date:
(a) By a vote of a majority of the Board of Directors of both
C&S and Brunswick; or
(b) By a vote of a majority of the Board of Directors of
either C&S or Brunswick in the event of a material breach by the other
Party of any representation, warranty, covenant or agreement contained
herein which cannot be or has not been cured within thirty (30) days
after the giving of written notice to the breaching Party of such
breach; or
(c) By a vote of a majority of the Board of Directors of
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<PAGE>
either C&S or Brunswick in the event that the Thrift Conversion, the
Bank Conversion and the Merger shall not have been consummated by March
31, 1991; or
(d) By a vote of a majority of the Board of Directors of
either C&S or Brunswick in the event (i) any approval of any
governmental or other Regulatory Authority required for consummation of
the Thrift Conversion, the Bank Conversion, the Merger and the other
transactions contemplated hereby shall have been denied by final
non-appealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal or (ii) if
the stockholders of Brunswick fail to vote their approval of the Thrift
Conversion, the Bank Conversion, the Merger and the transactions
contemplated hereby as required by the Home Owners' Loan Act of 1933,
as amended, and the Georgia Financial Institutions Code at the
Stockholders' Meeting where the transactions were presented to such
stockholders for approval; or
(e) By a vote of a majority of the Board of Directors of
either C&S or Brunswick in the event (i) of the acquisition, by any
person or group of persons, of beneficial ownership of forty percent
(40%) or more of the outstanding shared of common stock of the other
Party (the terms "group" and "beneficial ownership" having the meanings
assigned thereto in Section 13(d) of the 1934 Act and the regulations
promulgated thereunder), or (ii) the Board of Directors of the other
Party accepts or publicly recommends acceptance of an offer from a
third party to acquire fifty percent (50%) or more of its common stock
or consolidated assets, provided that consummation of the
transactions contemplated by the CSC Reorganization shall not be
deemed to provide Brunswick a right of termination under the
provisions of this Section 10.1 (e); or
(f) By a vote of majority of the Board of Brunswick in the
event the Base Period Trading Price is less than $17.00 (subject to
appropriate adjustment in the event of stock splits or stock dividends
with respect to shares of C&S Common Stock prior to the Effective
Date).
10.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement, the Plan of Thrift Conversion, the Amended
Brunswick Articles and the Plan of Merger pursuant to Section 10.1 of this
Agreement, this Agreement, the Plan of Thrift Conversion, the Amended Brunswick
Articles and the Plan of Merger shall become void and have no effect, except
that the provisions of Sections 5.5, 7.3 and 11.1 of this Agreement shall
survive any such termination and abandonment.
29. Subsection (b) of Section 11.1 of the Agreement shall be deleted in
its entirety and replaced with the following:
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(b) Notwithstanding the provisions of Section 11.1 (a) of this
Agreement, if this Agreement, the Plan of Thrift Conversion, the
Amended Brunswick Articles and the Plan of Merger are terminated (i) by
Brunswick before the Closing is concluded for any of the reasons set
forth in Sections 10.1(b), 10.1(d)(i) or 10.1(f) of this Agreement,
(ii) by C&S before the Closing is concluded for any of the reasons set
forth in Section 10.1(d)(i) of this Agreement or (iii) by mutual
agreement of the Parties before the Closing is concluded pursuant to
Section 10.1(a) of this Agreement but only for the specific reasons
specified in Section 10.1(d)(i) of this Agreement, C&S shall reimburse
Brunswick for any and all of the expenses of Brunswick (including, but
not limited to, fees and expenses of its accountants, counsel and
investment bankers) reasonably incurred in attempting to effect the
transactions contemplated by this Agreement. Notwithstanding the
foregoing, if this Agreement, the Plan of Thrift Conversion, the
Amended Brunswick Articles and the Plan of Merger are terminated by C&S
or Brunswick pursuant to Section 10.1(b) of this Agreement because of
the willful breach by the other of any representation, warranty,
covenant, undertaking or restriction contained herein, if the
terminating Party shall not have been in breach (in any material
respect) of any representation, warranty, covenant, undertaking or
restriction contained in this Agreement, then the breaching Party shall
pay for any and all of the expenses of the terminating Party (including
but not limited to, fees and expenses of its accountants, counsel and
investment bankers) reasonably incurred in attempting to effect the
transactions contemplated by this Agreement. Final settlement with
respect to payment of such fees and expenses by the Parties shall be
made within thirty (30) days of the termination of this Agreement, the
Plan of Thrift Conversion, the Amended Brunswick Articles and the Plan
of Merger.
30. Section 11.3 of the Agreement shall be deleted in its entirety and
replaced with the following:
11.3 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein or in the Amendment Number One, this Agreement and the Plan of
Merger contain the entire agreement between the Parties with respect
to the transactions contemplated hereunder and thereunder, and such
agreements supersede all prior arrangements or understandings with
respect thereto, written or oral. The terms and conditions of this
Agreement and the Plan of Merger shall inure to the benefit of and be
binding upon the Parties and their respective successors. Nothing in
this Agreement, the Plan of Thrift Conversion, and Amended Brunswick
Articles or the Plan of Merger expressed or implied, is intended to
confer upon any Party, other than the Parties or their respective
successors, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, the Plan of Thrift Conversion, the
Amended Brunswick Articles or the Plan of Merger, except as expressly
provided herein or therein.
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<PAGE>
31. Section 11.4 shall be deleted in its entirety and replaced with the
following:
11.4 AMENDMENTS. To the extent permitted by law, this Agreement and the
Plan of Merger may be amended by a subsequent writing signed by all of
the Parties upon the approval of the Board of Directors of each of the
Parties; provided, however, that, except as contemplated in Section 8.4
of this Agreement, the provisions of Section 2.3 of this Agreement
relating to the manner or basis in which shares of Brunswick Common
Stock will be exchanged for C&S Common Stock shall not be amended after
the Stockholders' Meeting without the requisite approval of the holders
of the outstanding shares of Brunswick Common Stock, and that no
amendment to this Agreement shall modify the requirements of regulatory
approval set forth in Sections 9.4 and 9.6 of this Agreement.
32. The Exhibit 1 which was originally attached to the Agreement shall
be removed and Exhibit 1 attached to this Amendment Number One shall be
substituted in its place as Exhibit 1.
33. The Agreement shall be amended to incorporate Exhibits 8 and 9
attached to this Amendment Number One as exhibits to the Agreement.
34. No other amendments to the Agreement, except as set forth in this
Amendment Number One, are intended by this Amendment Number One. The Agreement,
as amended hereby, shall continue in full force and effect. The agreements set
forth herein do not constitute the waiver of any right or claim that the Parties
might have under the Agreement.
35. This Amendment Number One may be executed in two counterparts, each
of which shall be deemed an original, but both of which when taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties have caused this Amendment Number One
to be duly executed and delivered on its behalf and its corporate seal to
be hereunto affixed and attested by officers thereunto duly authorized as of
the date and year first above written.
THE CITIZENS AND SOUTHERN CORPORATION
By: /s/ Bennett A. Brown
-----------------------------------
Bennett A. Brown
Chairman of the Board
Attest: /s/ Enoch J. Prow
---------------------------------
Enoch J. Prow
Secretary
[CORPORATE SEAL]
[Signatures continued on next page]
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<PAGE>
CITIZENS AND SOUTHERN GEORGIA
CORPORATION
By: /s/ John W. McIntyre
---------------------------------
John W. McIntyre
Chairman of the Board
Attest: /s/ Enoch J. Prow
-------------------------------
Enoch J. Prow
Secretary
[CORPORATE SEAL]
THE CITIZENS AND SOUTHERN NATIONAL
BANK
By: /s/ William J. VanLandingham
-----------------------------------
William J. VanLandingham
President
Attest: /s/ Enoch J. Prow
-------------------------------
Enoch J. Prow
Secretary
[ASSOCIATION SEAL]
FIRST FEDERAL SAVINGS BANK
OF BRUNSWICK, GEORGIA
By: /s/ Ben T. Slade III
---------------------------------
Ben T. Slade III
Chairman of the Board
Attest: /s/ Robert B. Sams
-----------------------------
Robert B. Sams
Secretary
[SAVINGS BANK SEAL]
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<PAGE>
Supplement to Amendment Number One to
Amended and Restated Agreement
and Plan of Reorganization
This Supplement ("Supplement") to the foregoing Amendment Number One to
Amended and Restated Agreement and Plan of Reorganization ("Agreement") is
executed by C&S/Sovran Corporation (formerly named Avantor Financial
Corporation) ("CSC") pursuant to Section 8.4(a) of the Agreement and in
consideration of the premises of the Agreement, the representations, warranties,
covenants, and agreements of First Federal Savings Bank of Brunswick, Georgia
and The Citizens and Southern Corporation set forth in the Agreement, the
benefits to be derived by CSC under the terms of the Agreement, and
other good and valuable consideration the receipt and sufficiency of which
is hereby acknowledged. By execution of this Supplement, CSC represents
that its Board of Directors has duly and validly authorized and approved the
obligations of CSC under the Agreement and the transactions contemplated
thereby and undertakes and agrees to perform all obligations and covenants to
be performed by CSC under the terms of the Agreement and the related Plan of
Merger and to abide by the Agreement and such Plan of Merger in accordance
with their respective terms.
C&S/SOVRAN CORPORATION
By: /s/ Albert B. Gornto, Jr. By: /s/ Bennett A. Brown
---------------------------------- ---------------------------
Albert B. Gornto, Jr. Bennett A. Brown
Chairman of the Executive Chairman of the Board
Committee
ATTEST: /s/ Page D. Cranford
--------------------------------
Page D. Cranford [CORPORATE SEAL]
Secretary
<PAGE>
AMENDMENT NUMBER TWO
TO
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT NUMBER TWO TO AMENDED AND RESTATED AGREEMENT AND PLAN
OF REORGANIZATION ("Amendment Number Two") is made and entered into as of this
19th day of December, 1990, by and among C&S/SOVRAN CORPORATION ("CSC")
(formerly named Avantor Financial Corporation), THE CITIZENS AND SOUTHERN
CORPORATION ("C&S"), CITIZENS AND SOUTHERN GEORGIA CORPORATION ("CSGA"), THE
CITIZENS AND SOUTHERN NATIONAL BANK ("CSNB") and FIRST FEDERAL SAVINGS BANK OF
BRUNSWICK, GEORGIA ("Brunswick").
This Amendment Number Two is made pursuant to Section 11.4 of the
Amended and Restated Agreement and Plan of Reorganization ("Agreement"), dated
as of April 19, 1988, and amended and restated as of November 20, 1989, by and
among C&S, CSGA, CSNB and Brunswick and supplemented by the Supplement to the
Agreement executed by CSC. Each term appearing with initial capitalization
which is not otherwise defined in this Amendment Number Two shall have the
meaning set forth in the Agreement.
PREAMBLE
Section 10.1(c) of the Agreement, as amended by Amendment Number One
to this Agreement (collectively, the Agreement as amended by Amendment Number
One shall be referred to as the "Agreement"), dated as of August 20, 1990, by
and among C&S, CSGA, CSNB, and Brunswick and adopted by CSC, provides that CSC
and Brunswick each have the right, after March 31, 1991, to terminate the
Agreement and the transactions contemplate by the Agreement. CSC and
Brunswick wish to amend the Agreement to extend the date provided in 10.1(c)
of the Agreement to September 30, 1991.
IN WITNESS WHEREOF and in consideration of the foregoing, the mutual
warranties, representations, convenants and agreements set forth in the
Agreement and herein, the Parties hereby agree as follows:
1. Section 10.1(c) of the Agreement shall be amended by
substituting "September 30, 1991" where "March 31, 1991" appears in such
Section 10.1(c).
2. In accordance with Section 11.4 of the Agreement, the provisions
of Paragraph 1 of this Amendment Number Two are subject to the approvals of
the Board of Directions of each of the Parties at the next regularly scheduled
meeting of each such Board of Directors. In the event that the approval of
the Board of Directors of any of the Parties is not obtained as provided
herein, this Amendment Number Two and any approval by the Board of Directors
of the other Parties shall be deemed void ab initio.
<PAGE>
3. No other amendments to the Agreement, except as set forth in
this Amendment Number Two, are intended by this Amendment Number Two. The
Agreement, as amended hereby, shall continue in full force and effect. The
agreements set forth herein do not constitute the waiver of any right or claim
that the Parties might have under the Agreement.
4. This Amendment Number Two may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties have caused this Amendment Number Two
to be duly executed and delivered on its behalf and its corporate seal to be
hereunto affixed and attested by officers thereunto duly authorized as of the
date and year first above written.
C&S/SOVRAN CORPORATION
By: /s/ Hugh M. Chapman
------------------------------------
Name: Hugh M. Chapman
-----------------------------
Title: Vice Chairman
-----------------------------
Attest: /s/ Frankie S. Hunter
----------------------------
Name: Frankie S. Hunter
--------------------
Title: Assistant Secretary
--------------------
[CORPORATE SEAL]
THE CITIZENS AND SOUTHERN CORPORATION
By: /s/ Hugh M. Chapman
------------------------------------
Name: Hugh M. Chapman
-----------------------------
Title: Vice Chairman
-----------------------------
Attest: /s/ Frankie S. Hunter
----------------------------
Name: Frankie S. Hunter
--------------------
Title: Assistant Secretary
--------------------
[CORPORATE SEAL]
[signatures continued on next page]
-2-
<PAGE>
CITIZENS AND SOUTHERN GEORGIA
CORPORATION
By: /s/ William J. VanLandingham
------------------------------------
Name: William J. VanLandingham
-----------------------------
Title: President
-----------------------------
Attest: /s/ Frankie S. Hunter
----------------------------
Name: Frankie S. Hunter
--------------------
Title: Assistant Secretary
--------------------
[CORPORATE SEAL]
THE CITIZENS AND SOUTHERN NATIONAL
BANK
By: /s/ William J. VanLandingham
-----------------------------------
Name: William J. VanLandingham
-----------------------------
Title: President
-----------------------------
Attest: /s/ Frankie S. Hunter
----------------------------
Name: Frankie S. Hunter
--------------------
Title: Assistant Secretary
--------------------
[ASSOCIATION SEAL]
FIRST FEDERAL SAVINGS BANK
OF BRUNSWICK, GEORGIA
By: /s/ Ben T. Slade III
------------------------------------
Ben T. Slade III
Chairman of the Board
Attest: /s/ Robert B. Sams
-----------------------------------
Robert B. Sams
Secretary
[SAVINGS BANK SEAL]
-3-
<PAGE>
<PAGE>
IN THE SUPERIOR COURT OF GLYNN COUNTY
STATE OF GEORGIA
FIRST FEDERAL SAVINGS
BANK OF BRUNSWICK, GEORGIA,
Plaintiff
vs. CIVIL ACTION NO 91-01709-2
C&S/SOVRAN CORPORATION
THE CITIZENS AND SOUTHERN
CORPORATION, CITIZENS AND
SOUTHERN GEORGIA CORPORATION,
and THE CITIZENS AND SOUTHERN
NATIONAL BANK
Defendants.
ORDER
This case is before the Court on Defendants' motion for summary
judgment on the issue of damages. Said motion, Plaintiff's response
thereto, and all pleadings, affidavits, and other matters of record having
been read and considered, and argument of counsel having been heard,
the Court finds as follows:
<PAGE>
PLAINTIFF'S PRAYER FOR DAMAGES BASED ON EFFECT OF FAILED
MERGER ON ITS SHAREHOLDERS
Corporations are artificial, invisible, intangible beings existing only
in the contemplation of the law. Frederick v. City council of Augusta,
5 Ga. 561 (1848). In earlier times, it was common for the General
Assembly to condition grants of bank charters upon the agreement of
stockholders to be personally liable for the debts of the bank. Lowry v.
Parsons, 52 Ga. 356 (1874). When the incorporating act rendered
shareholders personally liable for corporate debts, a judgment against
the corporation was conclusive against the shareholders even though
they received no notice of suit prior to levy against their property.
Mason and Field v. Force Brothers & Co., 30 Ga. 99 (1860).
Corporate law has evolved greatly over the past hundred years, in
recognition of the need to promote economic expansion by providing
investors with the protection of limited financial liability in the event a
new enterprise is unsuccessful. Today, a corporation is "prima facie a
distinct legal entity with rights and liabilities which are separate from
those of [its shareholders]" Midtown Properties, Inc. v. George F.
Richardson, Inc., 139 Ga. App. 182, 185 (1976). The limited
shareholder liability afforded by modern corporate law can be lost if
2
<PAGE>
shareholders make a corporation an instrumentality for the transaction
of their own affairs, creating a unity of interest between them and the
corporation. Farmers Warehouse of Pelham, Inc. v. Collins, 220 Ga.
141, 150 (1964). In short, the price corporate investors pay for
protection from personal liability is loss of the right to utilize the
corporate entity for purely personal purposes.
First Federal seeks to recover damages based in part upon the
losses allegedly incurred by its shareholders due to Defendant's breach
\of their merger agreement, as determined by the jury in the liability
phase of this litigation. The question thus presented is whether the
need to provide a remedy for breaches of merger agreements warrants
some relaxation of the strict separation between corporate interests and
shareholder interests imposed by current law. From the perspective of
a corporation, stock is an instrument utilized to raise capital. Once
stock is issued and sold, fluctuations in its value are not reflected on the
corporation's balance sheet or income statement (unless it owns
treasury shares). In the real world, a corporation has a substantial
interest in the marketplace performance of its securities, because of its
effect on efforts to secure additional capital. But a corporation suffers
3
<PAGE>
no "legal damages" by reason of a decline in the value of its stock.
Similarly, the fact the shares of one corporation would have been
exchanged for shares of another corporation but for a failed merger
agreement does not produce an actual financial loss to the corporate
entity whose shareholders were denied the opportunity to enter into
such an exchange of shares.
Corporate law is frequently made by judicial construction rather
than legislative enactment. In rendering a construction which would
have the effect of creating a remedy where none is clearly established
under existing law, a court should consider the same factors as would
be applied to determining the meaning of remedial legislation. The
results and consequences of the new remedy must be evaluated to
ensure that it does not produce unreasonable unintended
consequences. State v. Mulkey, 252 Ga. 201, 204 (1984).
First Federal, in pursuit of its breach of contract claim, is entitled
to charge off its litigation expenses against current income. Its
shareholders, on the other hand, would not be entitled to deduct
litigation expenses related to recovery of alleged damages to their
personal investments against current income. Those expenditures
4
<PAGE>
would be added to the basis of their stock. A rule of law that would
allow a corporation to deduct from its taxable income litigation expenses
related to pursuit of damages to the value of its shareholders'
investments would have the effect of avoiding taxation in a manner
which would not occur if the traditional separation between corporate
interests and shareholder interests were maintained. Thus, if Plaintiff is
permitted to assume the substantial cost of litigating damages to the
value of the investments of its shareholders, there would be significant
tax consequences, and loss of public revenue, which would not occur
if the shareholders were required to personally bear that cost.(1) Utilization
of the corporate form to obtain favorable tax treatment of expenses
related to protection of non-corporate assets is not permitted under
current law, and the Court finds no support in the law for creating an
exception when corporations seek to vindicate their rights in the context
of merger agreement breach litigation.
(1) The court emphasizes what this case presents is a novel issue,
and there is no evidence whatever suggesting any actions have
been taken by any party or non-party to avoid payment of taxes.
5
<PAGE>
Plaintiff cites Grace Brother, Ltd. v. Farley Industries, GA.
Case Nos. S94A0791, S94A0792, October 31, 1994, (94 FCDR 3576) to
support an argument that if shareholders may not bring direct actions
against parties to merger agreement, their corporations should be
permitted to do so. In that case, while the litigation commenced as a
suit to recover damages for a failed merger, a different merger
agreement was concluded before the case was decided. The Supreme
Court held that minority shareholders cannot bring direct actions against
majority shareholders to challenge merger decisions made by them, and
also held that once a merger is completed, former shareholders of the
merged corporation have no standing to maintain derivative actions.
The issue of whether shareholders in one corporate party to a failed
merger agreement can seek damages against the other corporate party
to the agreement was not addressed by the Court.
SPECIFIC PERFORMANCE
Plaintiff seeks specific performance of the merger agreement, an
equitable remedy. Defendants contend that extraordinary remedy
cannot be imposed because the only consideration now available to
6
<PAGE>
comply with the offer contemplated under the merger agreement, shares
of NationsBank stock, is not unique. Plaintiffs also contend that if
specific performance is ordered, Defendants are liable to Plaintiff in
equitable damages, resulting from delayed implementation of the merger.
Unlike the situation presented by Plaintiff's attempt to seek
damages related to the value of its shareholders' investments, Plaintiff's
prayer for specific performance relates to a remedy in which Plaintiff is
vitally interested. If the merger is approved by its shareholders, Plaintiff
will cease to exist. The right First Federal bargained for in the merger
agreement was the right to require Defendants to present a proposal to
its shareholders conforming to the terms of the agreement. In seeking
specific performance, Plaintiff is acting independently of its
shareholders, rather than as their alter ego, as acknowledged by the
stipulation in the agreement which requires the approval of First Federal
shareholders as a precondition to consummation of the merger. The
policy considerations which led the Court to conclude that Plaintiff may
not pursue a claim for damages incurred by its shareholders are not
involved in the claim for specific performance. However, those
7
<PAGE>
considerations do limit the scope of the remedy, in that First Federal
cannot recover compensation based on projections or speculation as to
the effect the failure to consummate the merger in a timely fashion had
on its shareholders. As noted above, First Federal contracted only for
the right to have Defendants present an offer to its shareholders, and its
right to vindicate a breach of that contract must end at that point.
Therefore, the most relief it can recover is an Order of this Court that
such an offer be made, in terms which are equivalent to what the offer
would had been in the absence of a breach, plus its own out of pocket
expenses proximately caused by the delay in consummating the merger.
The merger agreement contained a formula for determining the
exchange ratio of C&S shares for First Federal shares. It was arrived
at by the parties after arms length negotiations. The Court finds that
ratio must be preserved and followed in setting the parameters for the
offer Defendants will be required to make to Plaintiff's shareholders.
The jury in the damages phase of the trial will determine the date
the merger would have closed but for the breach. The agreement
included "collars" to reflect market fluctuations in the value of C&S
stock between the date of the agreement and the date of the offer to
8
<PAGE>
shareholders. Those collars shall be applied to the merger close date
found by the jury, to arrive at the number of C&S shares which would
have been offered to the First Federal shareholders had there been no
breach. Those shares would have represented a fractional ownership
of the surviving corporation. The Court believes the parties can stipulate
as to the facts necessary to carry that same fractional ownership
forward through the course of the C&S merger with NCNB, to arrive at
the number of NationsBank shares which will need to be offered to the
First Federal shareholders to provide them with the same percentage of
ownership in NationsBank as of the date of the offer as they would
possess had they received C&S/Sovran shares in 1991.
The Court finds the foregoing to be the only means of granting
specific performance which adequately protects the rights of the party
not in breach, and imposes no penalty on the party in breach beyond
what was or should have been reasonably contemplated by the parties
at the time the agreement was negotiated. Defendants agreed to
convey a certain percentage of its stock to acquire Plaintiff. While
market forces have affected the value at which that stock is publicly
traded and its book value, from the perspective of the corporate Plaintiff
9
<PAGE>
and the corporate Defendants, their original bargain was as to the
exchange ratio and the ownership and control in the surviving corporation
it represented. That bargain is what the Court is empowered to enforce.
ATTORNEYS FEES
Under the unique situation this case presents, the Court finds it
must retain equitable jurisdiction for the purpose of determining the
issue of Defendant's liability for attorneys fees. If the stock tender offer
Defendants present to Plaintiff's shareholders after the damages phase
of the trial is accepted, Defendants (or their successor entity) will
become the owners of Plaintiff. They will thus obtain all Plaintiff's
assets, including any judgment awarding it attorneys fees. While it
could be argued that First Federal should be permitted to recover its
attorneys fees and distribute them to its shareholders as some type of
extraordinary dividend just before the exchange of stock occurs, specific
performance is an equitable remedy, and the Court finds it would be
inequitable to permit something of that nature to occur. The value of
what Defendants acquire will have been diminished by those
expenditures. However, in the event the First Federal shareholders
10
<PAGE>
ultimately reject Defendants' offer, Plaintiff's entitlement to attorneys
fees will need to be determined, and that will require further proceedings
herein.
11
<PAGE>
CONCLUSION
The practical effect of the remedy ordered herein will be to provide
First Federal an acquisition offer which is, from the perspective of the
corporate Plaintiff, equivalent in value to the offer which would have
been made by Defendants but for their breach of the merger agreement.
The Court acknowledges that this approach may not provide First
Federal shareholders with the benefit of increases in the value of
Defendants' stock which have occurred since the breach. After
considering the well-reasoned written and oral presentations of counsel
and the state of the law, the Court is compelled to conclude that such
relief cannot be granted in this case. The investment-related and tax
consequences which Plaintiff proffers as grounds for an award of money
damages are irrelevant insofar as First Federal's legally cognizable
interest is concerned, since adverse consequences impacting only upon
Defendant's shareholders cannot be the basis of an award of damages
to Plaintiff under our law, which mandates that corporations cannot
pursue the personal interests of their shareholders. It may be that when
12
<PAGE>
investors elect to come under the protection of limited personal liability
the corporate form offers, failed mergers are one of the many risks of
investing they must bear. But since the shareholders are not parties to
this case, the question of whether they have rights beyond those
discussed in Grace Brother, Ltd. v. Farley Industries, supra, is not
before the Court.
Consistent with the foregoing, Defendants' motion for summary
judgment is GRANTED IN PART, in that Plaintiff will not be entitled to
recover money damages based on the alleged effects of Defendants'
breach of the merger agreement on its shareholders, and DENIED IN
PART, in that Plaintiff will be entitled to the remedy of specific
performance, the terms of such performance to be defined by this Order
and the jury's determination of when the merger would have occurred
but for the Defendants' breach, and to recovery of actual out of pocket
expenses Plaintiff shows to have been proximately cased by said breach.
13
<PAGE>
IT IS FURTHER ORDERED that, consistent with the foregoing,
Defendants shall immediately, within sixty (60) days of this order,
prepare and file with the court's approval all applications with Federal
and State regulatory authorities necessary to accomplish the merger.
Furthermore, Defendants shall, consistent with this order, prepare all
documents necessary that must be received by Plaintiff's shareholders
for an election to be made by them of acceptance or rejection of the
merger.
THEREFOR, this Order does not mandate damages to be paid by
one party to another. Likewise, the Court is not imposing an absolute
merger. The effect of this Order is to require all parties to honor the
original and amended agreement for merger, with an adjustment to
account for the mergers with Sovran and NationsBank by C&S. Thus,
First Federal's shareholders will then determine their own future, after
equitable adjustments by the Court. Those shareholders, not the Court,
attorneys, board of directors, officers of the banks or anyone else, will
decide their own fate and future. This method of resolution is the most
fair and equitable solution to this controversy after weighing all factors
in aggravation and mitigation in the litigation.
14
<PAGE>
The Court is aware that certain legal and financial documentation
must be prepared by First Federal for presentation to Defendant in order
for applications to State and Federal regulatory authorities to be timely
and complete. Furthermore, such documentation must be prepared and
furnished to the shareholders of First Federal to give them a full and
honest disclosure of the terms of the proposed merger prior to casting
their vote for or against such merger. First Federal shall, with all haste,
cooperate with Defendant, and others, to accomplish this requirement.
The Court recognizes the above time constraints may necessarily
require adjustment. If so, application should be made to the Court with
reasons stated therein. All parties will be afforded an opportunity to be
heard.
This case has taken much time and effort on everyone's part. It
is now time to bring this matter to a final resolution. Any further delays
are not acceptable. The court shall use all of its power and authority to
promptly bring this matter to a conclusion. The parties and attorneys
are thus placed on notice to make this case their utmost matter of priority.
15
<PAGE>
Failure to implement the terms of this Order without just and legal
excuse shall subject the offending party to a penalty of a minimum of
$500.00 per day fine for contempt of court.
SO ORDERED, this the 16th day of December, 1994 at 6:33 p.m.
(Signature of A. Blenn Taylor, Jr.)
A. BLENN TAYLOR, JR.,
CHIEF JUDGE, SUPERIOR COURTS
BRUNSWICK JUDICIAL CIRCUIT
IN THE SUPERIOR COURT FOR THE COUNTY OF GLYNN
STATE OF GEORGIA
FIRST FEDERAL SAVINGS )
BANK OF BRUNSWICK )
GEORGIA, )
)
)
Plaintiff, )
)
)
vs. ) CIVIL ACTION NO. 91-01709-2
)
)
)
NATIONSBANK, as successor to )
C&S/SOVRAN CORPORATION )
THE CITIZENS AND )
SOUTHERN CORPORATION, )
CITIZENS AND SOUTHERN
GEORGIA CORPORATION,
and THE CITIZENS AND )
SOUTHERN NATIONAL BANK )
)
)
Defendants. )
ORDER AND JUDGEMENT
INTRODUCTION
This litigation, which commenced in September of 1991, involves a merger
agreement between Plaintiff and Defendant, the successor in interest to Citizens
& Southern National bank and related corporations. Two jury trials have been
conducted. The first trial resulted in a finding C&S had breached the merger
agreement by failing to file a Y-2 application with the Federal Reserve Board,
through the Federal Reserve Bank of Atlanta on March 8, 1991, a necessary step
for obtaining the regulatory approval required to consummate the merger. The
Court determined money damages were not available because the actual damages
Plaintiff sought related to alleged investment losses of its shareholders, and
it is settled law
Page 1
<PAGE>
that corporations cannot be used as a conduit for pursuit of such private
interests. Specific performance of the merger agreement was found to be the
appropriate remedy. That finding by the Court and its Order accepting the jury
verdict which determined the date of breach of the agreement to be March 8,
1991, were affirmed by the Supreme Court of Georgia in C&S/Sovran Corporation et
al. v. First Federal Savings Bank of Brunswick. 266 Ga. 104 (1995).
Under the merger agreement, the consideration to be offered to Plaintiff's
shareholders was to be determined in part by the date on which the merger would
have been consummated had there been no breach. Evidence on the nature of the
regulatory approval process and the facts which were arguably relevant to the
issue of when regulatory approval would have been obtained and the closing would
have occurred had the process proceeded forward as of March 8, 1991 was
presented to a second jury. That jury, which was instructed to assume that the
required regulatory approval for the transaction would have been obtained at
some point subsequent to March 9, 1991, found the merger would have been
completed as of June 19, 1991. 1
CONSIDERATION OF POSSIBLE REMEDIES
The remedy to be provided to Plaintiff was selected after other possible
remedies were considered and rejected. The traditional remedy at law for breach
of contract is money damages. In this case, damages would consist of the value
of the contract to the party not in
- ----------------------------------
1 The jury served in an advisory capacity. Their verdict was accepted by
the Court, pursuant to Findings of Fact and Conclusions of Law filed
contemporaneously with this Order and Judgement.
Page 2
<PAGE>
breach, plus allowable consequential damages. The value of the contract would
have been determined by calculating the dollar value of the relevant number of
C&S/Sovran shares as of March 8, 1991, and subtracting from that figure the
value of the First Federal shares as of that date, under the pricing mechanism
provided in the merger agreement. To that sum would be added allowable
consequential damages, such as interest on that sum at the legal rate from March
8, 1991, to the date of satisfaction of the judgment, and reasonable attorneys
fees. (As noted above, losses Plaintiff's shareholders allegedly incurred
related to investment consequences of the delay in completing the merger are not
recoverable in an action brought by Plaintiff.) The Court found such a remedy at
law to be inadequate. Plaintiff bargained for an offer to be merged into
C&S/Sovran, a unique event which would end Plaintiff's existence. The Court
ordered specific performance of the merger agreement.
There remained the question of what would constitute the compensation
Defendant would be required to offer to Plaintiff's shareholders. The medium of
exchange provided in the parties' agreement, shares in C&S/Sovran, was no longer
available because that entity ceased to exist at the end of 1991, having been
merged into NationsBank, a merger under which the other merging institution,
North Carolina National Bank (NCNB), was the surviving corporation. The Court
recognized it would be improper to convert the medium of exchange from stock to
cash, because what was bargained for was a stock for stock transaction.
The Court evaluated several possible methods for effectuating the intent of
the merger agreement, and providing adequate but not excessive compensation to
the party not in breach. It would have been possible to cash out the
transaction, as if it had occurred on June 19, 1991, and to convert the cash to
an appropriate number of NationsBank shares as of the date the
Page 3
<PAGE>
merger offer is actually made to Plaintiff's shareholders.2 Upward
adjustments could be made to that sum, to reflect interest to legal rate, any
differential between dividends paid by C&S/Sovran and NationsBank and dividends
paid by First Federal, increases in the net worth of First Federal, or a
combination of these factors. The resulting dollar amount could then be
converted into however many NationsBank shares could be purchased for that sum
as of the date of Defendant's offer to Plaintiff's shareholders.
Although the effect of the delay in consummating the merger on
Plaintiff's shareholders in their individual capacities is not a relevant
consideration in this case, Plaintiff should have standing to insist that the
consideration for the merger be equivalent to what it would have been but for
the breach. When parties agree to use stock as the medium of exchange for a
transaction, they do so with full knowledge that market forces operating between
the agreement date and the closing date may make the transaction more attractive
to one party and less attractive to the other prior to its consummation. A
remedy for breach of merger agreements which ignores this reality would serve as
a disincentive to good faith performance of such agreements. The Court elected
to fashion a remedy which fixes the rights of the party not in breach by an
ascertainable standard not totally dependent upon market forces, although the
economic value of those rights is highly sensitive to market forces. Such a
remedy may produce a disparity between what the acquiring corporation actually
pays to complete the
- ----------------------------------
2. The evidence was that as of June 19,1991, there were 1,530,250 First
Federal shares outstanding or subject to issuance pursuant to the merger
agreement. Under the agreement they were valued at $19.372, and C&S/Sovran
shares were valued at $19.450. Had the merger actually closed on June 19,1991,
the consideration offered by Defendant would have been 1,524,129 C&S/Sovran
shares, with a cash value approximately $30,000,000.
Page 4
<PAGE>
merger and what is would have paid there been no breach which greatly exceeds
the monetary relief the party not in breach would have obtained under a
traditional remedy at law. But the courts must address litigation over failed
merger agreements in their proper context. Parties to such agreements must
recognize that, since their agreements are market-sensitive, one risk of
protracted litigation is an outcome that may appear irrational if it is compared
to what would be produced if traditional rules governing damages for breach of
contract were applied.
The prior Order entered herein on December 19,1994 provided that:
Those collars [in the merger agreement] shall be applied to the merger
close date found by the jury, to arrive at the number C&S shares
which would have been offered to the First Federal shareholders had
there been no breach. Those shares would have represented a fractional
ownership of the surviving corporation. The Court believes the parties
can stipulate as to the facts necessary to carry that same fractional
ownership forward through the course of the C & S merger with NCNB, to
arrive at the number of NationsBank shares which will need to be
offered to the First Federal shareholders to provide them with the same
percentage of ownership in NationsBank as they would possess had they
received C&S/Sovran shares in 1991.
The Court concludes from the evidence presented at the post-trial
hearing that as of June 19,1991, the merger closing date found by the second
jury, Plaintiff's shares had a Per Share Purchase Price of $19.372. Pursuant to
(Paragraph symbol)1.8 of the Merger agreement, C&S/Sovran stock as of the date
carried a valuation of $19.450 per share. Due to the merger of C&S/Sovran with
North Carolina National Bank (a merger which had not been announced prior to
June 19,1991), the consideration Defendant will offer for the First Federal
shares, in lieu of C&S/Sovran shares, will be NationsBank shares, which were
trading at roughly $90.00 per share as of August 15, 1996. Defendant contends
the Court's use of a "percentage of
Page 5
<PAGE>
ownership" formula in lieu of the contractual formula results in a windfall to
Plaintiff's shareholders which was not contemplated by the parties at the time
of their agreement. However, as noted above, the Court determined that no other
remedy would do complete justice under the unique circumstances presented
herein. O.C.G.A. SS23-1-7.
ISSUES TO BE DECIDED BY THE COURT
The second jury verdict did not resolve all remaining issues in this
equity case. The Court conducted a post-trial evidentiary hearing on three
issues which it elected to decide without a jury.3
1. The formula to be applied to determine the appropriate consideration
for the merger;
2. The right of Defendant to claim an offset against said consideration
to reflect changes in Plaintiff's executive compensation structure which
allegedly violated Plaintiff's covenants in the merger agreement; and
3. The extent to which Defendant will be required to absorb the
attorneys fees Plaintiff agreed to pay its counsel under an agreement which
included a contingent fee component.
THE STOCK EXCHANGE FORMULA
The remedy fashioned by the Court in its Order of December 19, 1994
had not been suggested by any party. No evidence concerning it was presented
to the Court prior to the
- ----------------------------------
3. The three issues addressed infra. primarily involve questions of
law. The issues of fact they present, such as stock valuations at relevant
times, are for the most part undisputed by the parties.
Page 6
<PAGE>
entry of said Order. Had there been no changes in the character of Defendant's
stock between 1991 and 1996, the Court's prediction the parties could stipulate
to the facts necessary to frame Defendant's offer to Plaintiff's shareholders
would have been accurate. It was not accurate, due to developments which made
the phrase "the same percentage of ownership in NationsBank as they [Plaintiff's
shareholders] would possess had they received C&S/Sovran shares in 1991" subject
more than one interpretation.
Defendant presented evidence which establishes that C&S/Sovran
shareholders who have held their stock since June of 1991 have incurred a
dilution of their percentage of ownership in NationsBank since that corporation
was created by the C&S/Sovran merger with NCNB. This has occurred primarily
because NationsBank has issued new stock to fund new acquisitions and other
events which have increased the number of outstanding shares, and in a few
instances there have also been buyback of NationsBank stock. Defendant contends
these events have produced an increase in the intrinsic worth of NationsBank
shares, which should be reflected in the number of shares it should be required
to include in its offer to Plaintiff's shareholders. While C&S/Sovran
shareholders who received NationsBank stock at the end of 1991 and held it have
incurred a diminution in their percentage of ownership in the new institution
their shares have increased in value, because they now represent the ownership
of a more valuable corporation, due to assets purchased with the new shares.
Defendant therefore contends it should not be compelled to offer First Federal
shareholders enough shares to preserve their 1991 ownership percentage because
that would favor them over all other former C&S/Sovran shareholders. Defendant
asserts this would be contrary to the
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Court's expressed intention to provide shareholders the same treatment as was
received by other former C&S/Sovran shareholders.
Plaintiff argues the Court's prior Order should be interpreted to
preserve the 1991 ownership percentage. It presented evidence on NationsBank's
dividend reinvestment program, and contended that if all of its shareholders had
participated fully in that program since June 19, 1991, they would have acquired
enough additional NationsBank shares to bring their current percentage of
ownership in NationsBank close to the level Plaintiff seeks to establish as the
proper stock exchange formula, that is, an undiluted percentage of ownership
notwithstanding the changes in the character of NationsBank stock which have
resulted in dilution of the ownership share of other C&S/Sovran shareholders and
NCNB shareholders. The Court finds this theory speculative to serve as the basis
for establishing the proper consideration for the merger.4 A reasonable and less
speculative manner of dealing with the passage of time between the date the
merger should have closed and the date it will close is available, and it will
be utilized.
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4.Plaintiff, with the benefit to perfect hindsight, seeks to capitalize
on the substantial increase in the value of NationsBank stock by taking the
position its shareholders would have used their dividends to acquire more
shares. However, Plaintiff presented no evidence whatever on the percentage of
shareholders in NationsBank or any other corporation who actually avail
themselves of dividend reinvestment plans, or of the percentage of its own
shareholders who use, or would have used, that investment device. Plaintiff's
use of that mechanism as a basis for asserting what relief it should receive is
self-serving. Defendant's contention there should be no consideration whatever
given to the effects of the passage of time between the date the merger should
have closed and the date it will close is equally unreasonable.
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The starting point for Defendant's offer to Plaintiff's shareholders
shall be the number of its shares required to provide them with the so-called
"diluted" percentage of NationsBank ownership. This reflects the Court's
intention to place Plaintiff's shareholders in the same posture they would have
occupied had there been no breach of the merger agreement. The Court finds that
number of NationsBank shares to be 1,280,268. However, limiting the amount of
consideration to be included in Defendants's offer to that amount would unfairly
reward Defendant for its breach. It was within the contemplation of the parties
that a breach of the merger agreement would result in some reasonable sanction
against the breaching party, and lost dividends are an obvious basis for
determining the amount of such sanction.5 Therefore, the number of shares in
the offer will be increased by the number of NationsBank shares which can be
purchased, as of the date the offer is tendered, for an amount equal to the
difference between dividends paid on 1,280,268 NationsBank shares since
December,1991, and dividends
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5. The Court recognizes the apparent inconsistency between its prior
determination Plaintiff no standing to recover for investment losses of
Plaintiff's shareholders and its use of dividends as the measure for reconciling
Plaintiff's claim to an undiluted ownership percentage in NationsBank and
Defendant's assertion the dilution incurred by all former C&S/Sovran share-
holders should be fully applied, without any adjustment, to the shares to be
offered as consideration for the merger. The Court views the use of dividends
in this manner as a logical means of preserving the concept that the parties
should be placed in the positions they would have occupied had there been no
breach. Assuming Plaintiff's shareholders would have held their shares and
received dividends produces a more reasonable outcome than the alternatives
presented by the parties. The Court further notes that while Plaintiff's
shareholders would have obtained additional benefits by having the amount of
dividends on their stock available for their use over the past five years, its
decision on this issue increases the number of NationsBank shares they will be
offered by the pre-tax dividend differential between the two corporations. This
provides a substantially larger net return on that differential than would be
the case if it had been actually received, which is ample compensation for the
loss of use of those funds.
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paid on all First Federal shares from June 19, 1991, to the date the offer is
tendered.6 The number of shares to be contained in said offer under this
computation is subject to the adjustments required by the Court's ruling herein-
after.7
Plaintiff argued that its shareholders were deprived of other incidents
of ownership in NationsBank besides the loss of dividends. They could not borrow
against their NationsBank shares, participate in the governance of the
corporation, or dispose of their shares at any time. There was no evidence
presented upon which the Court could make findings as to the frequency with
which shareholders actually borrow against their shares, or the difference in
loan value between First Federal shares and NationsBank shares. There was also
no evidence any matter decided by a vote of NationsBank shareholders passed or
failed by a margin which would have been overcome had the First Federal
shareholders obtained their NationsBank shares and voted them as a block against
the prevailing position.8 The Court finds that Plaintiff is not entitled to
any increase in the number of NationsBank shares to be tendered to its
shareholders by reason of these factors.
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6. Between June 19,1991 and December 31, 1991, the dividend
differential shall be based upon what would have been paid in dividends during
that period on 1,524,129 C&S/Sovran shares, which is the amount of such shares
the Court finds would have been the consideration for the Merger Offer had it
been made in C&S/Sovran shares.
7. The provision of the parties' Agreement governing the effect of
issuance of new shares not in exchange for new value is not affected by this
Order.
8. For example, the First Federal shareholders could have nominated Mr.
Ben Slade or Mr. John Rogers to serve as a NationsBank Director. While they
would undoubtedly have rendered exceptional services in that capacity, there was
no evidence they or any other potential Directors could have improved
NationsBank's performance.
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EXECUTIVE COMPENSATION AGREEMENTS
As a condition of obtaining specific performance of the parties' merger
agreement, Plaintiff must fully perform its obligations thereunder. Plaintiff
agreed to limit changes to its executive compensation structure pending the
merger. The applicable agreement provision is:
(paragraph symbol)5.1 Conduct of Business - Negative Covenants. From
the date of this agreement until the earlier of the Effective Date or
until the termination of this Agreement, [Plaintiff] covenants and
agrees that it will not do or agree or commit to do, any of the
following without the prior written consent of chief executive officer
or chief financial officer of C&S, which consent shall not be
unreasonably withheld:
* * *
(h) Grant any general increase in compensation to its employees as a
class or its officers, except in accordance with its past practice or
as required by law; pay any bonus except in accordance with past
practice or the provisions of any applicable program or plan adopted by
the Board of Directors of [Plaintiff] prior to the date of this
Agreement[.]
Beginning in 1992, Plaintiff entered into a series of contracts with
several of its officers, under which they were granted the right to receive
certain benefits in the event their employment was terminated. It is undisputed
no such termination packages were in place at the time the merger agreement was
executed, and Plaintiff does not contend it obtained approval of the packages
from C&S/Sovran or any successor entity.
Defendant contends the termination packages, which exceed one million
dollars in value, violate the foregoing negative covenant. Plaintiff argues the
packages should not be found to violate said covenant, because they were made
necessary by the breach of the merger agreement by C&S/Sovran, as those key
personnel had to be induced to remain with First Federal while it was under the
cloud of this litigation. This argument might have merit with
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respect to the packages entered into for calendar years 1991 through 1995, which
have expired. However, in 1995 the Supreme Court of Georgia affirmed this
Court's determination that specific performance would be ordered, meaning the
merger would take place. Thus, the uncertainty which may be argued to have
justified Plaintiff's departure from the covenants in prior years had
been eliminated as of January 1, 1996, the effective date of the termination
packages Defendant challenges. Plaintiff knew, or should have known, that the
Court's imposition of an equitable remedy would be conditioned upon Plaintiff's
compliance with all of its obligations under the merger agreement.9
There is another reason Defendants must prevail on this issue. The
legitimate purpose of a termination package is to protect key employees from
harm in the event an acquisition produces changes in top management and thereby
to promote stability in management by encouraging management to remain with the
employer. But Plaintiff did not provide typical termination packages. Under its
agreements with its key personnel, once the merger is completed, Defendant will
not have the option of retaining some or all of those employees,
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9. Plaintiff argued this issue should be governed by the same legal
principle the Court gave in its charge to the jury at the first(liability phase)
trial: a breach of a contract by one party excuses the other from performance.
Defendant had implied the failure of the First Federal shareholders to approve
the agreement was a failure of performance on the part of Plaintiff, and the
jury need to be instructed that was not a legally sound contention, since
Defendant's breach, if a breach occurred, was the reason Plaintiff's share-
holders had not had an opportunity to accept the offer. This principle of law
has no application to the obligations of the party not in breach when specific
performance is ordered. The relevant statutory provision is O.C.G.A. SS 23 1-10.
Under these circumstances, the performance of the nonbreaching party under the
obligation it seeks to enforce in equity cannot be excused, but it may be
deferred until the party in breach has performed its obligations under contract.
Jordan V. Flynt 240 GA. 359,364(1977).
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and an opportunity to avoid liability for their termination by paying them their
regular compensation. Plaintiff's termination packages give those employees the
absolute right to voluntarily leave their jobs and receive three full years of
compensation when the merger is concluded. As noted above, as of the effective
date of the current termination packages, a change of control of First Federal
was not a contingency, it was a known, court-ordered fact. The affected
employees have not been "protected" from involuntarily termination after the
merger, a legitimate objective when a merger is contemplated. Instead, they
have been guaranteed substantial additional compensation at the time the merger
occurs. The arrangements entered into by Plaintiff are not true involuntary
termination packages, they are already-assured bonuses, although the time of
payment is deferred.
The Court finds Plaintiff has breached the above-stated negative
covenant by entering into employment termination agreements with Mr. Slade, Mr.
Rogers, Mr. Gash, and Mr. Sams. In the event the merger closes prior to the end
of 1996, Defendant will be entitled to reduce its offer to Plaintiffs
shareholders by the amount of liability it will assume under the existing
agreements at the time of the merger.10 The current termination packages are
subject to modification at will by Plaintiff at the end of 1996. In the event
Plaintiff decides to continue
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10. If one or more of these employees continues their employment with
Defendant subsequent to the merger, the amount of liability under the
termination packages not actually incurred by Defendant shall be distributed to
Plaintiff's shareholders of record as of the date of the merger, when potential
liability thereunder has expired.
Defendant's offer to Plaintiff's shareholders shall include a
disclosure of this provision, as well as, the future distribution which would be
made to them in the event an agreement consistent herewith is made, but not paid
due to continued employment to affected individuals.
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those packages beyond the end of 1996, Plaintiff shall modify them to include a
condition that if any First Federal funds are utilized to fund them prior to
consummation of the merger with NationsBank, that will result in a reduction of
the number of NationsBank shares to be received by First Federal shareholders in
the merger. Such termination packages shall also disclose that if they remain
in effect as of the consummation of the merger, NationsBank will convert an
appropriate number of its shares to cash to fund the termination packages by
means of an interest bearing escrow account, and that number of NationsBank
shares shall be deducted from the number of shares which would otherwise be
received by First Federal shareholders in the merger. Any new termination
packages Plaintiff elects to provide shall contain similar conditions.
DEFENDANT'S LIABILITY FOR PLAINTIFF'S ATTORNEYS FEES
This Court's Order of December 19, 1994 provided as follows:
Under the unique situation this cash presents, the Court finds it must
retain equitable jurisdiction for the purpose of determining the issue
of Defendant's liability for attorney's fees. If the stock tender offer
Defendants present to Plaintiff's shareholders after the damages phase
of the trial is accepted, Defendants (or their successor entity) will
become the owners of the Plaintiff. They will thus obtain all
Plaintiff's assets, including any judgment awarding attorney fees.
While it could be argued that First Federal should be permitted to
recover its attorneys fees and distribute them to its shareholders as
some type of extraordinary dividends just before the exchange of stock
occurs, specific performance is an equitable remedy, and the Court
finds it would be inequitable to permit something of that nature to
occur. The value of what Defendants acquire will have been diminished
by those expenditures. However, in the event the First Federal
shareholders ultimately reject Defendant's offer, Plaintiffs
entitlement to attorney fees will need to be determined, and that will
require further proceedings herein.
Plaintiff contends the foregoing discussion of the attorneys fee issue
constitutes a final
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and binding determination it can pay its attorneys fees, whatever they may be,
prior to the merger, thus effectively requiring Defendant to absorb them in
full. At the evidentiary hearing on this issue, Plaintiff stipulated that
neither the Court nor Defendant had been provided with the attorneys fee
contract in 1994, although the Court and Defendant were aware (as part of
settlement negotiations which the Court participated with the consent of all
parties) that it contained a contingency component in an undisclosed percentage.
The fee contract was not made a part of the record in this case until August 15,
1996. Under the facts stipulated above, it would have been a violation of due
process if the Court, on December 19,1994,had made Defendant liable for
Plaintiff's attorneys fees in an amount which was then unknown to both the Court
and Defendant.11 The amount of fees Defendant will be required to absorb will
be determined under the evidence presented to the Court at the post-trial
hearing.12
Plaintiff's expert witness, Wallace Harrell, testified the fee contract
between Plaintiff and its counsel is reasonable. However, the relevant
issue is the extent to which fees shall be awarded against Defendant, and the
contract for legal services entered into by Plaintiff, at a
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11. The fundamental requirement of due process is the opportunity to be
heard at a meaningful time and in a meaningful manner. Mathews V. Eldridge, 424
U.S. 319, 333, 96 S. Ct. 893, 47L.Ed.2d 18, (1976). Defendant was not afforded
any such opportunity until the post-trial hearing.
12. Defendants will not be required to make a direct payment of
attorneys fees to Plaintiff, because the payments made by Plaintiff to its
attorneys, to the extent they are deemed infra to be allowable charges against
the assets Plaintiff agreed to preserve under the merger agreement, will reduce
the assets Defendant would have received in the merger but for the breach of the
merger agreement by C&S/Sovran.
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time when it was intending to enforce the merger agreement, must be evaluated
under that agreement. Defendant had no objection to the hourly rate contained in
the fee agreement ($175 per hour). Its objection was to the contingent component
of the agreement, which as applied to the merger to be consummated under the
formula adopted above would result in an attorneys fee of over $10 million. 13
This is alleged to be excessive.
Defendant contends Plaintiff's attorneys fee contract, if fully paid
out of pre-merger First Federal assets, would violate the merger agreement.
(paragraph symbol)5.2 of said agreement provides in part:
(ii) [Plaintiff and its subsidiaries shall] preserve intact their
respective business organizations and assets...
The Court concludes that the contingent fee contract, if it were
constructed to authorize payment to its counsel out of the net worth of First
Federal, would be a breach of the merger agreement, and that such breach would
be so substantial as to bar the equitable remedy of specific performance. It
would constitute a willful dissipation by Plaintiff of a significant portion of
the assets it contracted to transfer to Defendant upon completion of the merger.
14
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13. Under the fee contract, the contingent component is based on a set
of percentages "applied to the gross value of the recovery in excess of the
value of First Federal Stock determined by the per share Purchase Price
according to the agreement." Plaintiff will obtain a substantial "excess
recovery" as defined in the fee contract under the remedy established herein.
14. According to attorneys fee contract, a First Federal per share
purchase price of $22 would mean First Federal was worth approximately $33
million. The per share purchase price on June 19,1991 ($19.372) would make its
worth more at the time roughly $29 million. At the post-trial hearing, Plaintiff
declined to present evidence of First Federal's current net worth,
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As well as being a violation of the merger agreement, this would be also be a
breach of the general obligation of good faith performance which the law imposes
upon all contracting parties.15 However, the Court does not construe the fee
contract in that fashion. By its terms, the contingency is to be payable solely
out of any "excess recovery" obtained in this litigation. As noted above, the
term "excess recovery" is defined in the fee contract as the amount First
Federal's shareholders will receive as a result of the merger which is over and
above the value of First Federal.16 The fee contract does not contemplate the
attorneys will receive anything
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contending that issue was irrelevant. The evidence presented by Defendant
showed First Federal is currently worth approximately $50 million. Plaintiff
contends its stock has dramatically increased in value due to this litigation,
but that is irrelevant, because the merger agreement relies upon the stock's
value as of the date of the original agreement ($16.80) plus increases in book
value, rather than the stock's trading price. This is reasonable, since from
the perspective of the acquiring corporation, the value it obtains from the
acquired corporation is its value as an asset.
15. Plaintiff successfully prevailed in the liability phase of this
case by contending that Defendant was obligated to go forward with efforts to
obtain regulatory approval for the merger, notwithstanding its legitimate
concerns about their liability to do so successfully, because to do otherwise
would constitute less than good faith efforts to consummate the transaction. The
same standard will be applied to Plaintiff's attorney fee contract, and the
Court will not assume Plaintiff entered into it with the bad faith intent of
depriving Defendant of a substantial portion of its consideration.
16. Plaintiff's contention is "value" should reflect the market of its
stock, if accepted, would have dramatic and unintended consequences for
Plaintiff's counsel. It is likely that as of the close of trading the day prior
to consummation of the merger, the market value of all First Federal Stock will
be roughly equivalent to the market value of the NationsBank stock to be
exchanged for it. If stock values are the relevant base for deciding when the
contingent portion of the attorneys fees agreement becomes operative, it is
unlikely any contingency would be deemed to have been earned by Plaintiff's
counsel, since there will be little or no "excess recovery" under that frame of
reference if, as anticipated, the NationsBank shares obtained by the First
Federal shareholders and all outstanding First Federal shares have roughly the
same market value at the time the merger is consummated.
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from the pre-merger assets of First Federal. Instead, it specifically provides
that First Federal's value as an asset, as of the date of the merger, will
remain intact, and that any contingency earned will come out of the excess
recovery to Plaintiff's shareholders. Under this construction, the attorneys fee
contract, which proscribes payment of fees out of anything other than the
"excess recovery" Plaintiff's shareholders will receive, does not violate
(paragraph symbol)5.2(ii) of the merger agreement.
The Court does not conclude from the evidence presented that Plaintiff
would have bee unable to retain competent counsel by offering an hourly fee of
$175 in 1991. Plaintiff's expert witness, Wallace Harrell, testified that rate
was roughly what his prevailing hourly rate was at that time. Mr. Harrell's
experience considerably exceeds that of Plaintiff's counsel, and this Court
considers him to stand at the top of the legal professional in terms of
competence as well as integrity.17
Whether a fee award to a prevailing party should be increased beyond
what is a reasonable fee calculated by use of an hourly rate and applicable
enhancements 18 due to the
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17. The Court also has great respect for Plaintiff's counsel and Defendant's
counsel, who have performed with great skill and competence in this
litigation, which involves an area of the law where precedent is largely
unavailable.
18. Georgia has no precedent on determining attorneys fee awards against
the losing party in cases when counsel for the prevailing party have a
guaranteed fee at a reasonable hourly rate, and a supplemental contingency
agreement. Under federal law, the prevailing hourly rate may be enhanced under
the factors set out in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714
(5th Cir. 1974), although their application has been somewhat modified by the
additional emphasis placed upon the hourly rate as a benchmark in Norman v.
Housing Auth. of City of Montgomery, 836 F.2d 1292 (11 Cir. 1988). Those factors
are:
(1) The time and labor required;
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contingency of recovery of any fee was addressed by the United States Supreme
Court in Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 483
U.S. 711, 107 S. Ct. 3078, 97 L. Ed. 2d 585 (1987). Five justices indicated that
in a "rare case" enhancement may be appropriate to compensate for the risk of
non-recovery of any fee in the case. Justice White, who delivered the opinion
of the Court, stated that an upward adjustment for contingent recovery should
not be awarded if the lawyer preserved any right of recourse against his client
for fees. In this case, while the Court finds that qualified counsel could have
been obtained by Plaintiff without the necessity for a supplemental contingent
fee arrangement, this factor, standing alone, is not sufficient to deny
Plaintiff an enhancement of its attorneys fee award beyond those called for
under the hourly rate portion of the fee agreement.
Plaintiff's counsel has already received fees from Plaintiff in excess
of one million dollars, and while there was testimony in general terms
concerning the effect of this litigation on their practice, they presented no
evidence they were impaired from maintaining an
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(2) the novelty and difficulty of the question
(3) the skill requisite to perform the legal services properly;
(4) the preclusion of other employment by the attorney due to the acceptance
of the case
(5) the customary fee;
(6) whether the fee is fixed or contingent;
(7) time limitations imposed by the client or circumstances;
(8) the amount involved and the result obtained;
(9) the experience, reputation, and ability of the attorney;
(10) the undesirability of the case;
(11) the nature and length of the professional relationship with the client;
and
(12) awards in similar cases.
These guidelines were found by the Court in Johnson to be consistent
with those contained in the relevant provisions of the American Bar
Association's Code of Professional Responsibility, Ethical Consideration 2-18
and Disciplinary Rule 2-106, which have been adopted in this State. The Court
therefore considers Johnson to be persuasive authority.
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economically successful practice because they had to forego other litigation
between 1991 and 1996. Nonetheless, the Court finds some enhancement of the fee
award to Plaintiff is justified, in light of the novelty and difficulty of the
questions presented in this litigation, the skill required to pursue it, and the
successful results obtained by Plaintiff's counsel. Therefore, Defendant will
be required to compensate 19 Plaintiff for its attorneys fees at the rate of
$200 per hour, plus a lump sum enhancement of $250,000.20 Defendant shall be
entitled to reduce the consideration in its offer to Plaintiff's shareholders
by an amount equal to any fees paid by Plaintiff to its counsel prior to the
completion of the merger which exceed the foregoing sum.21
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19. The "award" will not be a payment by Defendant. It will be
reflected by payments already made and to be made to Plaintiff's counsel out of
the assets of First Federal.
20. Defendant is entitled to a hearing on the reasonableness of the
fees charged by Plaintiff's counsel. To accommodate that right while not
interfering with the mechanics of the merger procedure, Defendant will give
Plaintiff at least ten days advance notice of the date on which it expects to
present the merger offer to Plaintiff's shareholders. Plaintiff's counsel shall
provide Defendant's counsel with all fee records not less that five days before
that offer is scheduled to be made. Defendant will be entitled to object to the
amount of fees claimed by Plaintiff's counsel not later than the day prior to
the date the offer is scheduled to be made. The amount of NationsBank shares
sufficient to cover the amount of the disputed fees shall be escrowed, to be
held pending the outcome of the dispute. The merger offer will not be delayed
due to a dispute concerning attorney fees. If there is such a dispute, the offer
shall contain an appropriate disclosure and explain the escrowing of shares and
the manner in which they will be distributed pursuant to the outcome of the
controversy.
21. There is a final logistical problem with the attorney fee award.
Defendant must know how precisely the extent to which it will be entitled to
reduce the number of shares in its offer to Plaintiff's shareholders. Once that
offer is made, the cost of having Plaintiff's counsel review it to determine its
conformity to this Decree would, in theory, authorize Defendant to reduce the
consideration further. To eliminate this problem, the Court will allow Plaintiff
to incur an
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CONCLUSION
It is ADJUDGED AND DECREED that the parties shall consummate the merger
agreement, as promptly as possible consistent with applicable law and
regulations governing such transactions. The terms of the offer Defendant shall
make to Plaintiff's shareholders shall conform to this Order, and the parties
are ENJOINED from failing to comply herewith, and from failing to use their best
efforts to do so.
SO ORDERED this the 11th day of October, 1996
(Signature of E.M. Wilkes III)
____________________________
E.M. WILKES III, Judge
Superior Courts of Georgia
Brunswick Judicial Circuit
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additional $5,000 in fees subsequent to the submission of the merger offer by
Defendant. Plaintiff's payment of those fees shall not entitle Defendant to
further reduce its offer. This ruling, and the proceeding rulings which address
attorneys fees, are without prejudice to Plaintiff's right to spend as much on
legal representation in this case as it deems appropriate. Any such
expenditures which exceed the amounts found lawfully payable out of the assets
Defendant is entitled to obtain in the merger will be absorbed by Plaintiff's
shareholders, in the form of a reduction in the number of shares in Defendant's
merger offer.
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IN THE SUPERIOR COURT FOR THE COUNTY OF GLYNN
STATE OF GEORGIA
FIRST FEDERAL SAVING )
BANK OF BRUNSWICK )
GEORGIA )
)
Plaintiff )
) Civil Action No. 91-017092
vs. )
)
NATIONSBANK, as successor to )
C&S/SOVRAN CORPORATION )
THE CITIZENS AND )
SOUTHERN CORPORATION )
CITIZENS AND SOUTHERN )
GEORGIA CORPORATION )
and THE CITIZENS AND )
SOUTHERN NATIONAL )
BANK )
Defendants
ORDER
The advisory jury empaneled in the case having rendered its verdict on
July 18, 1996, finding that the parties' merger agreement would have closed on
June 19, 1991, had Defendants filed and pursued an application for regulatory
approval on March 8, 1991, the Court makes the following Findings of Fact and
Conclusions of Law.
FINDINGS OF FACT
1. A prior jury trial resulted in a finding Defendants had breached the
parties' merger agreement by not filing Y-2 Form with the Federal Reserve Bank
of Atlanta on March 8,
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<PAGE>
1991. That finding was affirmed by the Supreme Court of Georgia. C&S/Sovran
Corporation v. First Federal Savings Bank of Brunswick, 266 Ga. 104 (1995),
2. In the advisory jury trial, the issue was what date the merger would
have been concluded in the absence of Defendants' breach of the agreement. The
jury was instructed to assume the Y-2 Form had been filed with the Federal
Reserve Bank of Atlanta on March 8, 1991, and to further assume that all parties
subsequently exercised due diligence in seeking to get regulatory approval for
the merger.
3. The parties suggested numerous possible closing dates for the
merger, with a range of between May of 1991 and March of 1992. Plaintiff sought
an early closing date, and Defendants sought a later closing date. There were
representations by counsel that an earlier closing date would produce a
substantially higher return to Plaintiff's shareholders, but the Court
prohibited the parties from going into that matter before the jury, since the
issue was the closing date, not the financial consequences of that date.
4. The evidence was undisputed that under normal circumstances the
merger would have been approved by the Federal Reserve Bank of Atlanta, under
authority delegated by the Federal Reserve Board, within thirty days of the
filing of Y-2 Form, and that a statutory thirty day waiting period for
consummating the merger (to allow for Department of Justice to review for
possible anti-trust implications) would begin to run on the date of Federal
Reserve Bank approval. Between 85% and 90% of merger applications are processed
under delegated authority, and the balance are forwarded to the Federal Reserve
Board in Washington. Therefore, under normal circumstances the merger would have
closed approximately sixty days
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from March 8, 1991. However, there questions of fact as to whether the financial
conditions of Defendants as of March 8, 1991 would have prevented the
regulatory approval process from proceeding in a normal manner. These were the
matters presented to the advisory jury.
5. Zane Kelley, an officer of the Federal Reserve Bank of Atlanta,
testified that based on his extensive experience in deciding whether merger
applications are to be processed under delegated authority or forwarded to the
Federal Reserve Board in Washington for processing, and his knowledge of the
financial condition of Defendants, an application for this merger filed on March
8, 1991 would have been forwarded to the Federal Reserve Board. While
Plaintiffs presented evidence to the contrary, the Court concludes that had a
Y-2 been filed on March 8, 1991, it would have been processed under delegated
authority, but would have been forwarded to the Federal Reserve Board.
6. Michael Bradfield, an attorney in private practice retained as an
expert witness by Defendants, served as Chief Counsel to the Federal Reserve
Board for a number of years. He conducted a study of actions taken by the Board
during a three year period (1990-1992), and concluded that for mergers with
"issues" (generally financial concerns, but also matters like Community
Reinvestment Act problems) the average time for final Board action was 219 days.
For all mergers, including bank-thrift mergers with no such problems, the
average time required for final decision was 139 days. However, Mr. Bradfield
testified that the average processing times determined by his study should not
be applied to this merger. Based on his knowledge of the financial condition of
Defendants, it was his opinion the Board would not
Page 3
<PAGE>
have acted upon the application until after the completion of Defendants' merger
with North Carolina National Bank, which did not occur until December of 1991.
This testimony supported Defendants' contention the merger would not have been
completed until March of 1992, as the Board would be expected to approve it
within sixty days from the date of NCNB merger, which would start the thirty day
Justice Department review period running some time in late February or early
March of 1991.
7. Hall Ware, an attorney in private practice retained as an expert
witness by Plaintiff, testified that based on his experience in dealing with
bank regulators, the financial condition of Defendants was not an insurmountable
barrier to consummation of the First Federal merger. He was generally aware of
the data which support Finding No. 13 hereinafter. His testimony supported
Plaintiff's contention the merger could have been completed in June of 1991 had
the parties' used their best efforts to obtain regulatory approval.
8. The parties elicited testimony from the attorneys who were
representing them in the merger transaction. On the ultimate issue before the
Court, their testimony was consistent with the parties' experts referred to in
the preceding two findings.
9. Plaintiff contended proposed timetables provided by Defendants for
consummating and implementing the merger constituted strong evidence the merger
could have been concluded within ninety to one hundred twenty days. Milton
Jones, the C&S officer in charge of operational planning for implementation of
the merger, testified that he does not have contact with bank regulators as part
of his job, and that while he was aware of Defendants' deteriorating financial
condition, he proceeded with the development of revised First Federal
Page 4
<PAGE>
merger timetables during much of 1991. The Court does not find it to be unusual
that plans for dealing with the mechanical aspects of completing the merger
might have proceeded on a different track than plans for dealing with
Defendants' regulatory problems, to the extent they might prevent the merger
from being completed. The timetables for completing the merger constitute some
evidence as to the feelings of Defendants concerning possible dates of
regulatory approval, since the persons responsible for dealing with the
regulators would certainly notify Mr. Jones to halt his efforts if they decided
completion of the merger was unlikely. However, the court does not find them to
be as probative on the issue of the time frame for regulatory approval as
Plaintiff contended.
10. The testimony of all the witnesses would had knowledge of the
regulatory approval process supports a conclusion a bank comparable to
Defendants with a formal regulatory condition rating of "2" would not have
difficulty obtaining approval for an acquisition of the type presented in this
case, while a bank with a condition rating of "3" would have considerable
difficulty in gaining such approval.
11. As of June 19, 1996, the financial condition of Defendants was what is
known as a "Deteriorating 2." The Court concludes that this would place a Y-2
filing made on March 8, 1991 and being considered between March 8th and May 8th
into a "gray area" and that the decision of the Federal Reserve Board would be
based upon its consideration of all relevant facts and circumstances. Defendants
contend the on going review by their regulators during this period would have
had the effect of chilling their efforts to push through a pending merger
application. However, the parties' agreement required Defendants to use their
best efforts to
Page 5
<PAGE>
get the merger approved. Therefore, it is presumed Defendants would have
attempted to demonstrate to the regulators that approval of the merger was
appropriate, notwithstanding their status as a "Deteriorating 2."
12. The parties presented considerable evidence concerning Defendants'
financial condition. Its deteriorating position, commencing in 1990, was
primarily the result of a general decline in real estate values in the
metropolitan Washington area, where one component of the institution, the former
Sovran Bank, had been heavily committed in commercial real estate loans. There
was no evidence of mismanagement by Defendants' concerning their overall banking
operations, or of flawed supervision of the smaller components of the holding
company's system.
13. The amount of Defendants' non-performing assets increased considerably
during the relevant time period. The amount of loan chargeoffs also increased.
There were measures to reduce costs, such as denial of executive bonuses and
elimination of positions by attrition. On the other hand, Defendants' equity
position remained strong, and it continued to show profits and pay dividends.
14. The Court does not find the regulators would have imposed a per se bar
to acquisitions by reason of Defendants' financial condition or its status as a
"Deteriorating 2." The Court concludes regulatory concerns about the First
Federal merger, had the Y-2 been filed on March 8, 1991 and pursued with the
parties' best efforts, would have focused on whether the responsibilities of
incorporating First Federal into Defendants' system would have detracted from
their efforts to address the problems noted by the regulators.
Page 6
<PAGE>
15. The major corrective action required of Defendants between March 8,
1991 and June 30, 1991 was to improve its real estate loan portfolio management.
There is no evidence the First Federal real estate loan portfolio presented
problems which would have required Defendants' employees responsible for that
task, such as Mr. Alexander, who testified at trial, to divert any of their
attention from that task.
16. While as noted in Finding No,. 9 above the timetables for consummation
of the merger are not necessarily admissions on the question of the timing of
regulatory approval, they do demonstrate Defendants' operational arm believed a
prompt and efficient incorporation of First Federal into their system could be
accomplished without difficulty. Thus, there is no evidence completion of the
merger would have placed a drain upon Defendants' management resources.
17. The actual financial consequences of the merger to Defendants would
not have been a significant regulatory concern, in light of the respective
size of the institutions involved. There is no evidence First Federal was
fiscally unsound.
CONCLUSION OF LAW
The Court finds that a preponderance of the evidence in this case supports
a conclusion the Federal Reserve Board would have approved the First Federal
merger with Defendants within sixty days, had the Y-2 Form been filed with the
Federal Reserve Bank of Atlanta on March 8, 1991 and forwarded to the Board
shortly thereafter. The subsequent thirty day statutory period for Justice
Department review would produce a closing date in mid to late June of 1991. The
Court concludes that June 19, 1991, the date found as the merger closing
Page 7
<PAGE>
date by the advisory jury, is an appropriate date to be used to frame the
relief Plaintiff will obtain under the equitable decree which will be entered
when the remaining issues in this case are decided by the Court.
SO ORDERED this the 11th day of October, 1996.
/s/ E.M. Wilkes
---------------------------
E.M. WILKES III, Judge
Superior Courts of Georgia
Brunswick Judicial Circuit
Page 8
FIRST FEDERAL SAVINGS BANK
OF BRUNSWICK, GEORGIA
November 12, 1996
Mr. Frank Gentry
NationsBank
RE: First Federal Savings Bank of Brunswick, Georgia v. C&S/ Sovran
Corporation. The Citizens & Southern Corporation, Citizens & Southern
Georgia Corporation, and The Citizens & Southern NationalBank Superior
Court of Glynn County: Civil Action File No. 91-01709
Dear Mr. Gentry:
As you and I discussed last Monday, this letter sets forth the terms approved by
First Federal's Board of Directors to implement the Court's Order of October 15,
1996 and consummate this transaction.
As a result of discussion over the last week, we understand that NationsBank has
agreed that the correct number of shares to be awarded under the Court's Order
is 1,282,093.
In addition to these shares, the Court awarded shares for the dividend
differential from June 19, 1991 through the closing of this transaction. (Order,
pp. 9-10). Assuming a closing prior to the record date for NationsBank's second
quarter dividend, and further assuming that First Federal and NationsBank pay
only their normal and regular dividends between now and then, i.e., no special
dividends are paid, the parties have agreed that the dividend differential is
$7,544,653. These calculations are shown on the accompanying page marked Exhibit
"A".
Additionally, the Court authorized First Federal to pay additional amounts to
its attorneys equal to $250,000 (Order, p. 20), and the difference between an
hourly billing rate of $175 per hour and $200 per hour (Order, p.20). This
latter amount equals $213,350. (8,534 hours X $25 = $213,350).
First Federal's Board has approved and authorized the allocation of the
foregoing items as follows:
1. As a result of the allocations set forth below, First Federal shareholders
will receive .80 shares of NationsBank stock for each share of First
Federal. Once all First Federal options are exercised, there will be
1,530,250 shares of First Federal stock which will be
777 Gloucester Street (bullet) Brunswick, Georgia 31520-1706 (bullet)
(912) 265-1410 (bullet) Facsimile (912) 267-6546
Reply to: Post Office Box 1877 [bullet] Brunswick, Georgia 31521-1877
<PAGE>
Mr. Frank Gentry
November 12, 1996
Page 2
converted into 1,224,200 shares of NationsBank stock. That leaves 57,893
shares from beginning total of 1,282,093.
2. First Federal's four management contracts will be extended and will be paid
in the total amount of $1,260,371 at closing to Ben Slade, John Rogers, Jim Gash
and Bob Sams. The breakdown of the amounts for each individual is shown on the
attached Exhibit "B"
3. First Federal's attorneys will be paid at closing this $6,284,282 plus the
$213,350 and the $250,000 discussed above. These sums total $6,747,632. In
addition, they will be paid the market value of 57,893 shares of NationsBank
stock. This value will be determined using the 20-day average described in
(paragraph mark) 1.8 of the agreement. The total of this value and $6,747,632
will be paid at closing for attorney fees. For example, if the 20-day average
for NationsBank is $95, the shares would be worth $5,499,835 and the total
paid would be $12,247,467.
This payment, except as otherwise set forth herein, shall include and satisfy
all of the First Federal's obligations to Whelchel Brown Readdick & Bumgartner,
including the letter agreement of April 22, 1994, and it shall include and
satisfy all of the obligations of First Federal to McAlpin & Henson, including
the letter agreement of September 27, 1991.
Based on the above, the exchange ratio for First Federal shareholders as
previously stated will be .80 shares of NationsBank for each share of First
Federal.
In accordance with the Court's order, our litigation counsel may incur
additional fees up to $5,000 for services which might be rendered subsequent to
the submission of the merger offer by NationsBank and which may be paid directly
by First Federal.
Additionally, in the event of any stock splits or stock dividends First Federal
reserves the right to seek an adjustment of the exchange ratio and the value of
those shares allocated for attorney fees.
Further, usual and ordinary closing costs are reflected in the original Merger
Agreement and including legal, accounting, and investment banking services, will
be paid by First Federal without penalty or offset to its shareholders.
Please advise us of NationsBank's acceptance of these terms.
Sincerely yours,
/s/ John J. Rogers
John J. Rogers
Senior Vice President
EXHIBIT 2.7
(logo) FIRST FEDERAL SAVINGS BANK
OF BRUNSWICK, GEORGIA
January 17, 1997
Mr. Kenneth D. Lewis
President
NationsBank Corporation
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255-0065
RE; Amended and Restated Agreement and Plan of Reorganization, dated as of
November 20, 1989, as amended by Amendment Number One, dated as of August
20, 1990 ("Amendment Number One"), and Amendment Number Two, dated as of
December 19, 1990 ("Amendment Number Two"), by and between NationsBank
Corporation (as successor to The Citizens and Southern Corporation, et
al.) and First Federal Savings Bank of Brunswick, Georgia (together, the
"Agreement")--Waiver of Certain Provisions
Dear Mr. Lewis:
This letter, which reflects recent discussions between First Federal Savings
Bank of Brunswick, Georgia ("First Federal") and NationsBank Corporation
("NationsBank"), is intended to constitute an effective waiver of certain
provisions of the Agreement, in accordance with Section 11.5 thereof, as
described below. This letter is in lieu of my letter to you dated December 27,
1996, which should be disregarded in its entirety.
1. NationsBank and First Federal mutually agree that, to reduce the number
of regulatory filings and related costs, the acquisition of First Federal by
NationsBank should be accomplished by the organization of an interim federal
stock savings bank as a direct wholly owned subsidiary of NationsBank and the
merger of that entity with and into First Federal, which shall be the surviving
entity. Therefore, NationsBank and First Federal each hereby waives any and all
obligations of the other to comply with any and all of the provisions of
Amendment Number One to the Agreement, and each hereby waives any and all
conditions precedent to the obligations of the other in connection with such
waived provisions.
777 Gloucester Street o Brunswick, Georgia 31520-1706 o (912) 265-1410
o Facsimile (912) 267-6546
Reply To: Post Office Box 1877 o Brunswick, Georgia 31521-1877
<PAGE>
Mr. Kenneth D. Lewis
January 17, 1997
Page 2
2. NationsBank and First Federal each hereby waives any and all rights
under Section 10.1(c) of the Agreement and any and all obligations of the other
to comply with any and all of the provisions of Amendment Number Two, and each
hereby waives any and all conditions precedent to the obligations of the other
in connection with such waived provisions. In so waiving these provisions,
NationsBank and First Federal each acknowledge the Order and Judgement of the
Superior Court for the County of Glynn, State of Georgia, dated October 11,
1996, in which it was adjudged and decreed that "the parties shall consummate
the merger agreement, as promptly as possible consistent with applicable law and
regulations governing such transactions."
Except as to those matters specifically addressed above, the foregoing
waivers shall not prejudice any rights of First Federal or NationsBank under the
Agreement, including without limitation the separate Orders of the Superior
Court of Glynn County, Georgia dated December 16, 1994 or October 11, 1996.
By signing below, NationsBank and First Federal each agrees to the
foregoing and acknowledges compliance by the other with the notice provisions of
Section 11.8 of the Agreement.
Sincerely yours,
FIRST FEDERAL SAVINGS BANK OF
BRUNSWICK, GEORGIA
By: /S/ Ben T. Slade III
Ben T. Slade III
Chairman of the Board
<PAGE>
Mr. Kenneth D. Lewis
January 17, 1997
Page 3
Acknowledged and agreed to this 17th day of January, 1997.
NATIONSBANK CORPORATION
By: /s/ Kenneth D. Lewis
_________________________
Kenneth D. Lewis
President
<PAGE>
EXHIBIT 5.1
SMITH HELMS MULLISS & MOORE, L.L.P.
Attorneys at Law
Charlotte, North Carolina
Mailing Address Street Address
Post Office Box 31247 214 North Church Street
Charlotte, N.C. 28231-1247 Charlotte, N.C. 28202
Telephone 704/343-2000
Facsimile 704/334-8467
January 22, 1997
NationsBank Corporation
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
RE: Registration Statement on Form S-4 Related to 1,224,200 Shares of
NationsBank Common Stock
Ladies and Gentlemen:
We have acted as counsel to NationsBank Corporation, a North Carolina
corporation (the "Corporation"), in connection with the registration under the
Securities Act of 1933, as amended, pursuant to the Registration Statement on
Form S-4 (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") on January 22, 1997 related to 1,224,200 shares of
the Corporation's common stock (the "Shares") to be issued by the Corporation
in connection with the merger of Interim First Federal Savings Bank of
Brunswick, Charlotte, North Carolina, a wholly owned subsidiary of the
Corporation, with and into First Federal Savings Bank of Brunswick, Georgia, a
Federally chartered stock savings bank (the "Merger"). This opinion letter is
Exhibit 5.1 to the Registration Statement.
In rendering this opinion, we have reviewed resolutions of the Board of
Directors of the Corporation approving the Merger and issuance of the Shares.
Based on the foregoing, we are of the opinion that the Shares are legally
authorized, and when the Registration Statement shall have been declared
effective by order of the Commission and such Shares shall have been issued
upon the terms and conditions set forth in the Registration Statement, then
the Shares shall be validly issued, fully paid and nonassessable.
We hereby consent (1) to be named in the Registration Statement and in the
prospectus contained therein as attorneys who passed upon the legality of the
Shares and (2) to the filing of a copy of this opinion as Exhibit 5.1 to the
Registration Statement.
Very truly yours,
/s/ SMITH HELMS MULLISS & MOORE, L.L.P.
<PAGE>
MC ALPIN & HENSON
Attorney at Law
Eleven Piedmont Center, Suite 404
3495 Piedmont Road, N.E.
Atlanta, Georgia 30305
404-239-0774
Telecopier: 404-239-0776
September 27, 1991
Mr. John J. Rogers
Senior Vice President
First Federal Savings Bank
of Brunswick
777 Gloucester Street
P.O. Box 1877
Brunswick, Georgia 31521-1877
RE: First Federal Savings Bank of Brunswick v. C&S/ Sorvan and NCNB
Dear John:
This letter will outline and formalize our presentation of First Federal Savings
of Brunswick. We genuinely appreciate the opportunity to work with you, and we
will vigorously represent the interests of First Federal in all matters
entrusted to us.
We propose that our fees will be charged to you at the hourly rate of $175.00
per hour for Kirk McAlpin and for me. We agree to hold this rate constant for
the duration of the litigation.
We believe this hourly rate is below the market rate for complex commercial
litigation in this area. Kirk and I are committed to giving this matter our
primary attention, and one or both of us will attend all depositions and
hearings. Whenever it makes sense, we will utilize associates, contract lawyers,
law students, and paralegals at lower hourly rates to reduce your costs.
We further propose a contingency or incentive in addition to the hourly rate in
the amount of 10% of any recovery in excess of $5 million up to $15 million, 15%
of any recovery in excess of $15 million up to $25 million, and 20% of any
recovery in excess to $25 million. These percentages are based upon a recovery
that allows your shareholders to retain their shares. These percentages are also
based on the gross value of the recovery received from any or all defendants
whether obtained through litigation or settlement. The percentage do not apply
to and shall not include any recovery of expenses pursuant to Section 11.1 (b)
of the Agreement.
After January 1, 1992, these percentages shall also apply to a settlement that
involves the sale or exchange of First Federal stock. These percentages and
corresponding recovery ranges will be applied to the gross value of the recovery
in excess of the value
<PAGE>
Mr. John J. Rogers
September 27, 1991
Page 2
of First Federal stock determined by the Per Share Purchase Price (PSPP)
according to Section 1.41 of the Agreement. Again, the percentages do not apply
and shall not include any recovery of expenses pursuant to Section 11.1 (b) of
the Agreement.
For example, if we get $30 per share in a settlement that involves the sale or
exchange of First Federal stock when the PSPP is $20, the contingency would be
$1 million. There are 1.5 million shares, and the settlement value is $10 more
per share than the PSPP or $15 million. The contingency does not apply to the
first $5 million, and is 10% of the $10 million between $5 million and $15
million.
You have asked for an estimate of the hourly fees. Lawyers are afraid of
estimates because we are so often wrong; there are simply too many variables,
and every case is different. Our best estimate, though it is that the case be
tried to a verdict within 36 months from filing, and the total hourly fees over
this time period should be approximately $500,000. We hope that this is a
generous estimate, and we will make every effort to deliver our services as
economically as possible. On the key issue of termination, if we lose on that
point, we should know that long before this kind of money has been spent.
All out- of -pocket expenses and costs such as filing fees, long distance
telephone charges, parking, computerized research time (Westlaw or Lexis),
reproduction costs and the like will be billed in addition to the hourly amount.
We will not bill you for travel costs, mileage, meals or accomodations for
travel to Brunswick. For travel to other places, if any, we will bill you our
actual costs. Time spent traveling will be billed only if we are actually
working on the case while traveling.
For court reporters and other outside servcies, it is our practice for the
client to be directly responsible to the vendors or
<PAGE>
Mr. John J. Rogers
September 27, 1991
Page 3
on your behalf to retain these services when we believe they are necessary
to fully present your case. We will forward all invoices for such servcies to
you upon our receipt. If for some reason, this firm pays the outside expense,
these expenes will be included in our monthly statement to you.
For expert witnesses, consultants, and associate law firms, if any, we will
consult with you before retaining their services. We will request that these
providers bill you directly for their services with copies to us so that we may
review them for you.
It is our practice to send statements to you each month. Our statements are due
upon receipt; prompt payment is important to our ability to deliver services
efficiently. If payment is not received within thirty days of the date of the
statement, a service charge of one and one-half percent per month will be
charged on the unpaid balance. Additionally, if any statement is unpaid after
forty five days of the statement date, this firm is authorized to cease further
work until full payment is received.
If you have any questions whatever about this letter or the terms of our
representation, please call me so that we can reslove any uncertainties. If the
terms of our proposal and this letter are acceptable, please sign and date this
letter and return it to me.
Very truly yours,
McALPIN & HENSON
/s/ Carlton M. Henson
Carlotn M. Henson
CHM:jas
Enclosure\
reogers1.ltr-87.000
Acknowledged and agreed to this 10th day of October, 1991.
FIRST FEDERAL SAVINGS BANK ATTEST:
OF BRUNSWICK
By: John J. Rogers Robert B. Sams
---------------------- ----------------------------
Secretary
Title: Senior V.P.
-------------------
(CORPORATE SEAL)
Acknowledged and agreed to this 21st day of December 1992,
by execution below First Federal Savings Bank of Brunswick reaffirms and
re-executes the representation agreement with McAlphin and Henson.
/s/ Ben T. Slade, III
------------------------------------
Ben T. Slade, III, President
MCALPIN & HENSON
Attorneys at Law
Eleven Piedmont Center, Suite 400
3495 Piedmont Road, N.E.
Atlanta, Georgia 30305
404-239-0774
Telecopier: 404-239-0776
March 16, 1993
Mr. Ben T. Slade, III Perimeter Office:
First Federal Savings Bank 5775-B Glenridge Dr. Ste. 210
of Brunswick Atlanta, Georgia 30328
777 Gloucester Street 404-256-2017
P.O. Box 1877
Brunswick, Georgia 31521-1877
RE: Fee Arrangement
Dear Ben:
This letter confirms our discussions from this past Friday. Beginning with the
February 1993 statement, all monthly bills will be capped at $15,000 per month
for attorney fees. Any fees in excess of that amount will be written off. We
will continue to show expenses as separate items on each monthly statement.
Also, if monthly attorney fees are less than $15,000, then the actual amount of
time expended will be billed rather than $15,000.
The cap will not apply to the 60-90 day period of trial preparation and the
trial itself. We will deal with that time period when we get there.
Further, once we have billed a cumulative total of $500,000 in attorney fees
(the amount of my original hourly estimate), any amounts paid in excess of that
sum will be credited dollar for dollar against the contingency fee.
This summarizes my understanding of our discussion. Please let me know if this
is consistent with your understanding of the changes made to our fee
arrangement. As always, it is a pleasure to work for you and First Federal.
Sincerely yours,
McALPHIN & HENSON
/s/ Carlton M. Henson
Carlton M. Henson
CMH:pmt
FIRST FEDERAL SAVINGS BANK
Main Office 777 Gloucester Street P.O. Box 1877 Brunswick, Georgia 31521
912-265-1410
April 22, 1994
Terry L. Readdick, Esquire
Whelchel, Brown, Readdick & Bumgartner
5 Glynn Avenue
P.O. Box 220
Brunswick, Georgia 31521
Carlton M. Henson, Esquire
McAlpin & Henson
Eleven Piedmont Center, Suite 400
3405 Piedmont Road, N.E.
Atlanta, Georgia 30305
RE: FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA V. C&S/SOVRAN CORPORATION,
ET. AL.
Dear Terry and Carlton:
I have enclosed with this letter a document entitled "Bonus Schedule for
Whelchel, Brown, Readdick & Bumgartner." This schedule sets for the bonus to be
received by Terry's firm at various levels of recovery in favor of First Federal
in the above matter.
The first column represents million of dollars received by the bank either (1)
in cash or (2) in stock value in excess of value prescribed in the per share
purchase price of the Merger Agreement. For example, if the per share purchase
price is $22, the value of the bank is approximately $33 million. If we were to
settle for a stock exchange the produced $53 million, this would result in an
excess of $20 million and a bonus for Terry's firm in the amount of $50,000.
The two columns on the right hand side of the page indicate the respective
contributions to the bonus by First Federal and by the law firm of McAlphin &
Henson. In the above example, First Federal would contribute $30,000 and
McAlphin & Henson would contribute $20,000 to total the $50,000 bonus.
<PAGE>
Terry L. Readdick, Esquire
Carlton M. Henson, Esquire
April 22, 1994
Page 2
If you have any questions concerning this arrangement, please give me a call.
If this arrangement is acceptable, please execute both this letter and the
attached schedule on the indicated lines and return to me.
Sincerely yours,
/s/ John J. Rogers
John J.Rogers
Enclosure
Accepted and agreed to:
WHELCHEL, BROWN, READDICK & BUMGARTNER
By: /s Terry L. Readdick
----------------------------
Terry L. Readdick
MCALPIN & HENSON
By: /s/ Carlton M. Henson
----------------------------
Carlton M. Henson
<PAGE>
BONUS SCHEDULE FOR WHELCHEL, BROWN, READDICK & BUMGARTNER
FF M&H
Bonus Contr. Contr.
- -------------------------------------------------------------------------------
20 50 30 20
21 80 48 32
22 110 66 44
23 140 84 56
24 170 102 68
25 200 120 80
26 230 138 92
27 260 150 110
28 290 162.5 127.5
29 320 175 145
30 350 187.5 162.5
31 380 200 180
32 410 212.5 197.5
33 440 225 215
34 470 237.5 232.5
35 500 250 250
36 510 250 260
37 520 250 270
38 530 250 280
39 540 250 290
40 550 250 300
50 650 250 400
75 800 250 650
Accepted by Whelchel, Brown, Accepted by McAlphin & Henson
Readdick & Bumgartner
/s/ Terry L. Readdick /s/ Carlton M. Henson
- ------------------------------- ------------------------------
EXHIBIT 10.4
MCALPIN & HENSON
Attorneys at Law
A Professional Corporation
550 Pharr Road, N.E.
Suite 540
Atlanta, Georgia 30305
404-816-1101
Facsimile: 404-816-1109
November 8, 1996
Mr. John J. Rogers
First Federal Savings Bank
of Brunswick
777 Gloucester Street
P.O. Box 1877
Brunswick, Georgia 31521-1877
Dear John:
At your request, this letter supplements those terms set forth in the draft
letter I prepared for you to send to Frank Gentry.
1. First, we have agreed that our fee will not exceed the amount that would
have been paid under the September 1991 letter agreement. My calculations show
that NationsBank stock must drop significantly before this begins to come into
effect, but if that does happen, the fee would be reduced to the amount covered
by the previous agreement. In whatever amount the fee was reduced under these
circumstances, that amount would be paid to the shareholders either in the form
of a special dividend or additional shares. I think I can safely say that we all
hope that these circumstances do not arise.
2. Because the write down in attorney fees is being used to fund the management
contracts, if for any reason any portion of the management contracts are not
paid to the four persons named, then that money will be paid to McAlpin &
Henson. Again, I think we can safely say this is a remote possibility.
Also, in reviewing the reference to stock splits and stock dividends on page 3
of the draft to Gentry, I noticed that this did not reference the change on
page 2 that makes stock a portion of the attorney fees. When you finalize the
letter, please add the phrase "and attorney fees" to the second sentence on
page 3 of the draft.
Finally, I have also enclosed another draft to Gentry that addresses his
comment regarding the tax issue.
<PAGE>
Mr. John J. Rogers
November 8, 1996
Page 2
- --------------------
Please let me know if there are any other issues you want me to address.
Sincerely yours,
McALPIN & HENSON, P.C.
/s/ Carlton M. Henson
- -----------------------
Carlton M. Henson
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the incorporation by reference in the Proxy
Statement-Prospectus constituting part of this Registration Statement on Form
S-4 of NationsBank Corporation of our report dated January 12, 1996, which
appears on page 46 of NationsBank Corporation's 1995 Annual Report to
Shareholders, which is incorporated by reference in its Annual Report on Form
10-K for the year ended December 31, 1995. We also consent to the reference to
us under the heading "EXPERTS" in such Proxy Statement-Prospectus.
PRICE WATERHOUSE LLP
Charlotte, North Carolina
January 22, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form S-4 registration statement of our report dated
December 16, 1996, incorporated by reference in First Federal Savings Bank of
Brunswick, Georgia's Form 10-K for the year ended September 30, 1996, and to all
references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 22, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related prospectus of NationsBank
Corporation for the registration of 1,224,200 shares of its common stock and to
the incorporation by reference therein of our report dated 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) with
respect to the supplemental consolidated financial statements of Boatmen's
Bancshares, Inc. for the three years ended December 31, 1995, 1994, and 1993
incorporated by reference in NationsBank Corporation's Current Report on Form
8-K dated September 6, 1996 (as amended by Form 8-K/A-1 on September 11, 1996,
and Form 8-K/A-2 on November 13, 1996), as filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
St. Louis, Missouri
January 22, 1997
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of NationsBank
Corporation, and the several undersigned Officers and Directors thereof whose
signatures appear below, hereby makes, constitutes and appoints Paul J. Polking
and Charles M. Berger, and each of them acting individually, its, his and her
true and lawful attorneys with power to act without any other and with full
power of substitution, to execute, deliver and file in its, his or her name and
on its, his and her behalf, and in each of the undersigned Officer's and
Director's capacity or capacities as shown below, (a) a Registration Statement
of NationsBank Corporation on Form S-4 (or other appropriate form) with respect
to the registration under the Securities Act of 1933, as amended, of up to
1,500,000 shares of common stock of NationsBank Corporation to be issued in
exchange for shares of common stock , par value $1.00 per share, of First
Federal Savings Bank of Brunswick, Georgia, upon consummation of the proposed
merger of Interim First Federal Savings Bank of Brunswick, Charlotte, North
Carolina, an interim federal stock savings bank and wholly owned subsidiary of
NationsBank, with and into First Federal and any and all documents in support
thereof or supplemental thereto and any and all amendments, including any and
all post-effective amendments, to the foregoing (hereinafter called the
"Registration Statement") and (b) such registration statements, petitions,
applications, consents to service of process or other instruments, any and all
documents in support thereof or supplemental thereto, and any and all amendments
or supplements to the foregoing, as may be necessary or advisable to qualify or
register the securities covered by said Registration Statement under such
securities laws, regulations or requirements as may be applicable; and each
NationsBank Corporation and said Officers and Directors hereby grants said
attorneys and to each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorneys or attorney may deem
necessary or advisable to carry out fully the intent of this power of attorney
to the same extent and with the same effect as NationsBank Corporation might or
could do as each of said Officers and Directors might or could do personally in
his or her capacity or capacities as aforesaid, and each of NationsBank
Corporation and said Officers and Directors hereby ratifies and confirms all
acts and things which said attorneys or attorney might do or cause to be done by
virtue of this power of attorney and its, his or her signature as the same may
be signed by said attorneys or attorney, or any of them, to any or all of the
following (and/or any and all amendments and supplements to any or all thereof):
such Registration Statement under the Securities Act of 1933, as amended, and
all such registration statements, petitions, applications, consents to service
of process and other instruments, and any and all documents in support thereof
or supplemental thereto, under such securities laws, regulations and
requirements as may be applicable.
IN WITNESS WHEREOF, NationsBank Corporation has caused this power of
attorney to be signed on is behalf, and each of the undersigned Officers and
Directors in the capacity or capacities noted has hereunto set his or her hand
as of the date indicated below.
NationsBank Corporation
(Registrant)
By: /s/ Hugh L. McColl, Jr.
------------------------------------
Hugh L. McColl, Jr.
Chairman of the Board and
Chief Executive Officer
Dated: December 17, 1996
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Hugh L. McColl, Jr. Chairman of the Board, Chief December 17, 1996
- ------------------------------- Executive Officer and Director
Hugh L. McColl, Jr. (Principal Executive Officer)
/s/ James H. Hance, Jr. Vice Chairman and Chief December 17, 1996
- ------------------------------- Financial Officer (Principal
James H. Hance, Jr. Financial Officer)
/s/ Marc D. Oken Executive Vice President and December 17, 1996
- ------------------------------- Chief Accounting Officer
Marc D. Oken (Principal Accounting Officer)
/s/ Ronald W. Allen Director December 17, 1996
- -------------------------------
Ronald W. Allen
/s/ Ray C. Anderson Director December 17, 1996
- -------------------------------
Ray C. Anderson
/s/ William M. Barnhardt Director December 17, 1996
- -------------------------------
William M. Barnhardt
/s/ Thomas E. Capps Director December 17, 1996
- -------------------------------
Thomas E. Capps
/s/ Charles W. Coker Director December 17, 1996
- --------------------------------
Charles W. Coker
/s/ Thomas G. Cousins Director December 17, 1996
- --------------------------------
Thomas G. Cousins
/s/ Alan T. Dickson Director December 17, 1996
- --------------------------------
Alan T. Dickson
/s/ W. Frank Dowd, Jr. Director December 17, 1996
- --------------------------------
W. Frank Dowd, Jr.
/s/ Paul Fulton Director December 17, 1996
- --------------------------------
Paul Fulton
/s/ Timothy L. Guzzle Director December 17, 1996
- --------------------------------
Timothy L. Guzzle
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ W. W. Johnson Director December 17, 1996
- -----------------------------
W. W. Johnson
Director
- -----------------------------
John J. Murphy
/s/ John C. Slane Director December 17, 1996
- -----------------------------
John C. Slane
/s/ O. Temple Sloan, Jr. Director December 17, 1996
- ------------------------------
O. Temple Sloan, Jr.
/s/ John W.Snow Director December 17, 1996
- ------------------------------
John W. Snow
/s/ Meredith R. Spangler Director December 17, 1996
- ------------------------------
Meredith R. Spangler
/s/ Robert H. Spilman Director December 17, 1996
- ------------------------------
Robert H. Spilman
/s/ Ronald Townsend Director December 17, 1996
- ------------------------------
Ronald Townsend
/s/ E.Craig Wall, Jr. Director December 17, 1996
- ------------------------------
E. Craig Wall, Jr.
/s/ Jackie M. Ward Director December 17, 1996
- ------------------------------
Jackie M. Ward
/s/ Virgil R. Williams Director December 17, 1996
- ------------------------------
Virgil R. Williams
3
<PAGE>
NATIONSBANK CORPORATION
BOARD OF DIRECTORS
RESOLUTIONS
ACQUISITION OF FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA
DECEMBER 17, 1996
WHEREAS, the Superior Court of Glynn County, Georgia (the "Court") has
entered an Order dated December 16, 1994 and an Order dated October 11, 1996
(the "Orders") obligating NationsBank Corporation (the "Corporation") to
specifically perform the terms of an Acquisition Agreement (as defined below)
between the Corporation (as successor to C&S/Sovran Corporation ("C&S/Sovran"))
and First Federal Savings Bank of Brunswick, Georgia ("First Federal"); and
WHEREAS, the Acquisition Agreement is deemed to include the following
documents: Agreement and Plan of Reorganization, dated as of April 19, 1988,
among NationsBank (as successor to C&S/Sovran) and First Federal; Amended and
Restated Agreement and Plan of Reorganization, dated as of November 20, 1989,
among NationsBank (as successor to C&S/Sovran) and First Federal; Amendment
Number One to the Amended and Restated Agreement and Plan of Reorganization,
dated as of August 20, 1990, among NationsBank (as successor to C&S/Sovran) and
First Federal; Amendment Number Two to the Amended and Restated Agreement and
Plan of Reorganization, dated as of December 19, 1990, among NationsBank (as
successor to C&S/Sovran) and First Federal; the Orders; letter from First
Federal to NationsBank, dated November 12, 1996; and draft letter to be sent
from First Federal to NationsBank waiving certain provisions of the Agreement
(the "Waiver Letter"); and
WHEREAS, pursuant to the Agreement, the Corporation will purchase all
of the outstanding capital stock of First Federal pursuant to a merger of an
interim federal stock savings bank subsidiary of the Corporation with and into
First Federal (the "Acquisition"); and
WHEREAS, the purchase price for the Acquisition will be paid in shares
of the Corporation's common stock (the "NationsBank Common Stock") in accordance
with the terms of the transaction as described to the Board of Directors and to
be reflected in the provisions of the Acquisition Agreement; and
<PAGE>
WHEREAS, it is deemed to be advisable and in the best
interests of the Corporation to effect the Acquisition;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the
Corporation hereby approves the Acquisition and the other transactions
contemplated in connection therewith, which has been negotiated and evidenced by
the Acquisition Agreement, including the issuance of NationsBank Common Stock in
exchange for the outstanding shares of First Federal capital stock (the "First
Federal Stock") upon consummation of the Acquisition; and
RESOLVED FURTHER, that the Board of Directors of the Corporation hereby
determines that the First Federal Stock as the consideration to be received by
the Corporation in exchange for shares of NationsBank Common Stock is adequate;
and
RESOLVED FURTHER, that the Board of Directors of the Corporation hereby
authorizes the appropriate officers of the Corporation to perform the
Acquisition Agreement; and
RESOLVED FURTHER, that the appropriate officers of the Corporation are
hereby authorized, empowered and directed, subject to the terms and conditions
of the Acquisition Agreement, to do any and all things necessary to effectuate
and consummate the transactions contemplated by the Acquisition Agreement as may
be prescribed by law or as they may deem necessary or advisable; to prepare all
documentation and to effect all filings and obtain appropriate permits,
consents, approvals and authorizations of all third parties, including the Board
of Governors of the Federal Reserve System, the Office of Thrift Supervision,
the Georgia Department of Banking and Finance and any other applicable federal
or state regulatory authority; and to execute personally or by attorney-in-fact
such required filings or amendments or supplements to such required filings, and
otherwise to cause such filings and any amendments thereto to become effective
or otherwise approved; and
RESOLVED FURTHER, that the appropriate officers of the Corporation are
hereby authorized, empowered and directed to do any and all things necessary,
appropriate or convenient to cause an interim federal stock savings bank (or any
other subsidiary) to be organized as a subsidiary of the Corporation for
purposes of effecting the Acquisition by means of a merger of such interim
2
<PAGE>
federal stock savings bank with and into First Federal (or for any
other form of merger, acquisition or consolidation); and
RESOLVED FURTHER, that the appropriate officers of the Corporation are
hereby authorized, empowered and directed to vote any shares of any subsidiary
of the Corporation (other than those shares held by any subsidiary in a
fiduciary capacity, in which event the fiduciary shall make all decisions
related to such shares, including whether or not and how to vote any shares held
by it in such capacity) as may be necessary to effect the consummation of the
Acquisition; and
RESOLVED FURTHER, that the Corporation hereby reserves, sets aside and
authorizes for issuance up to 1,500,000 shares of the authorized but unissued
shares of NationsBank Common Stock (the "Shares"), and that the appropriate
officers of the Corporation are hereby authorized and empowered to cause the
Corporation to issue the Shares, or such portion thereof, as may be necessary in
connection with the conversion and exchange of the First Federal Stock, as well
as outstanding stock options of First Federal, if any, in accordance with the
provisions of such conversion and exchange as set forth in the Acquisition
Agreement; and
RESOLVED FURTHER, that the appropriate officers of the Corporation are
hereby authorized, empowered and directed to convert any rights with respect to
First Federal Stock pursuant to stock options which are outstanding as of the
closing of the Acquisition into rights with respect to NationsBank Common Stock,
such conversion and the terms of any converted stock options to be in accordance
with the terms of the Acquisition Agreement; and
RESOLVED FURTHER, that, in connection with the issuance of the Shares
pursuant to the Acquisition Agreement, the appropriate officers of the
Corporation are hereby authorized, empowered and directed to execute and file
with the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-4 (or such other form as such officers, upon advice of
counsel, may determine to be necessary or appropriate) under the Securities Act
of 1933, as amended (the "Securities Act"), to execute and file all such other
instruments and documents, and to do all such other acts and things in
connection with the Registration Statement, including the execution and filing
of such amendment or amendments (including any post-effective amendments)
thereto, as they may deem necessary or advisable to effect such filings and to
procure the
3
<PAGE>
effectiveness of the Registration Statement (and any such post-effective
amendments thereto) and to make such supplements to the Proxy
Statement-Prospectus forming a part of said Registration Statement as may be
required or otherwise as they may deem advisable; and
RESOLVED FURTHER, that Paul J. Polking and Charles M. Berger, and each
of them with full power to act without the other, are hereby authorized and
empowered to sign the aforesaid Registration Statement and any amendment or
amendments thereto (including any post-effective amendments) on behalf of and as
attorneys for the Corporation and on behalf of and as attorneys for any of the
following: the Principal Executive Officer, the Principal Financial Officer, the
Principal Accounting Officer and any other officer of the Corporation; and
RESOLVED FURTHER, that Paul J. Polking is hereby designated as Agent
for Service of the Corporation with all such powers and functions as are
provided by the General Rules and Regulations of the Commission under the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); and
RESOLVED FURTHER, that the Shares, when issued and distributed in accordance
with and pursuant to the Acquisition Agreement, shall be fully paid and
non-assessable and the holders of such Shares shall be subject to no further
call or liability with respect thereto; and
RESOLVED FURTHER, that the appropriate officers of the Corporation are
hereby authorized, empowered and directed, in the name of and on behalf of the
Corporation, to take all such actions and to execute all such documents as such
officers may deem necessary or appropriate for compliance with the Securities
Act or the Exchange Act in connection with the transactions contemplated by the
Acquisition Agreement; and
RESOLVED FURTHER, that the listing of the Shares to be issued pursuant
to the Acquisition Agreement on the New York Stock Exchange, the Pacific Stock
Exchange and the London Stock Exchange hereby is approved, and that the
appropriate officers of the Corporation are hereby authorized, empowered and
directed, with the assistance of counsel, to prepare, execute and file listing
applications and any requests for determinations as to the application of
certain rules to the Acquisition with the New York
4
<PAGE>
Stock Exchange, the Pacific Stock Exchange and the London Stock Exchange and to
take all actions necessary or appropriate to effect such listings and requests;
and
RESOLVED FURTHER, that it is desirable and in the best interests of the
Corporation that the Shares to be issued in accordance with and pursuant to the
Acquisition Agreement be qualified or registered for distribution in various
states where appropriate, that the Chairman and Chief Executive Officer, the
Chief Financial Officer, any Executive Vice President, any Senior Vice President
or any Associate General Counsel and the Secretary or any Assistant Secretary
hereby are authorized, empowered and directed to determine the states in which
appropriate action shall be taken to qualify or register for distribution the
Shares as such officers may deem advisable; that said officers are hereby
authorized, empowered and directed to perform on behalf of the Corporation any
and all such acts as they may deem necessary or advisable in order to comply
with the applicable laws of any such states, and in connection therewith to
execute and file all requisite papers and documents, including, without
limitation, resolutions, applications, reports, surety bonds, irrevocable
consents and appointments of attorneys for service of process; and the execution
by such officers of any such paper or document or the doing by them of any act
in connection with the foregoing matters shall establish conclusively their
authority therefor from the Corporation and the approval and ratification by the
Corporation of the papers and documents so executed and the actions so taken;
and
RESOLVED FURTHER, that the foregoing officers are hereby authorized,
empowered and directed to do any and all things which in their judgment may be
necessary or appropriate to obtain a permit, exemption, registration or
qualification for, and a dealer's license with respect to, the distribution of
the Shares in accordance with and under the securities or insurance laws of any
one or more of the states as such officers may deem advisable, and in connection
therewith to execute, acknowledge, verify, deliver, file and publish all
applications, reports, resolutions, consents, consents to service of process,
powers of attorneys, commitments and other papers and instruments as may be
required under such laws and to take any and all further action which they may
deem necessary or appropriate to secure and to maintain such permits,
exemptions, registrations and qualifications in effect for so long as they shall
deem in the best interests of the Corporation; and
5
<PAGE>
RESOLVED FURTHER, that the appropriate officers of the Corporation are
hereby authorized, if they deem it necessary or advisable, to appoint Chase
Mellon Shareholder Services, L.L.C., transfer agent and registrar for the
Shares; that, if so appointed, Chase Mellon Shareholder Services, L.L.C., will
be vested with all the power and authority as transfer agent and registrar with
respect to the Shares as it has heretofore been vested with for the shares of
NationsBank Common Stock currently issued and outstanding; and that, if
determined to be necessary or advisable by the appropriate officers of the
Corporation, Chase Mellon Shareholder Services, L.L.C., may be appointed
exchange agent for the Acquisition; and
RESOLVED FURTHER, that the Board of Directors of the Corporation hereby
adopts, as if expressly set forth herein, the form of any resolution required by
any authority to be filed in connection with any applications, consents to
service, issuer's covenants or other documents, applications, reports or filings
relating to the foregoing resolutions if (i) in the opinion of the officers of
the Corporation executing same, the adoption of such resolutions is necessary or
desirable and (ii) the Secretary or an Assistant Secretary of the Corporation
evidences such adoption by inserting in the minutes of this meeting copies of
such resolutions, which will thereupon be deemed to be adopted by the Board of
Directors of the Corporation with the same force and effect as if presented at
this meeting; and
RESOLVED FURTHER, that the appropriate officers of the Corporation
hereby are authorized, empowered and directed to do any and all things
necessary, appropriate or convenient to carry into effect the foregoing
resolutions, including the execution and delivery of all such instruments,
agreements, certificates, reports, applications, notices, letters and other
documents.
6
<PAGE>
CERTIFICATE OF SECRETARY
I, Allison L. Gilliam, Assistant Secretary of NationsBank Corporation,
a corporation duly organized and existing under the laws of the State of North
Carolina (the "Corporation"), do hereby certify that the foregoing is a true and
correct copy of the resolutions duly adopted by the Board of Directors of the
Corporation at a meeting of the Board of directors held on December 17, 1996, at
which meeting a quorum was present and acting throughout and that said
resolution is in full force and effect and has not been amended or rescinded as
of the date hereof.
IN WITNESS WHEREOF, I have hereupon set my hand and affixed the seal of
the Corporation as of this 13th day of January, 1997.
/S/ ALLISON L. GILLIAM
Assistant Secretary
(CORPORATE SEAL)
7
<PAGE>
</TABLE>
<PAGE>
EXHIBIT 99.1
FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA
777 GLOUCESTER STREET
BRUNSWICK, GEORGIA 31520
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
APRIL 11, 1997
Notice is hereby given that a Special Meeting of Stockholders of First
Federal Savings Bank of Brunswick, Georgia ("First Federal") will be held at the
main office of First Federal located at 777 Gloucester Street, Brunswick,
Georgia 31520, on Friday, April 11, 1997, at 10:30 A.M., Eastern Standard Time
(the "Special Meeting"), for the following purposes:
1. ACQUISITION BY NATIONSBANK CORPORATION. To consider and vote upon
approval of an Amended and Restated Agreement and Plan of Reorganization, dated
as of November 20, 1989, between NationsBank Corporation ("NationsBank") (as
successor to C&S/Sovran Corporation, The Citizens and Southern Corporation,
Citizens and Southern Georgia Corporation and The Citizens and Southern National
Bank (collectively, "C&S/Sovran")) and First Federal; Amendment Number One to
the Amended and Restated Agreement and Plan of Reorganization, dated as of
August 20, 1990, between NationsBank (as successor to C&S/Sovran) and First
Federal; Amendment Number Two to the Amended and Restated Agreement and Plan of
Reorganization, dated as of December 19, 1990, between NationsBank (as successor
to C&S/Sovran) and First Federal; Order of the Superior Court of Glynn County,
Georgia, dated December 16, 1994; Order of the Superior Court of Glynn County,
Georgia dated October 11, 1996; letter from First Federal to NationsBank, dated
November 12, 1996, regarding the calculation of the number of shares of
NationsBank common stock to be received by First Federal stockholders in the
transaction; and letter from First Federal to NationsBank, dated January 17,
1997, waiving certain provisions of the foregoing Amendments Number One and Two
(collectively, the foregoing are referred to as the "Agreement") and the
transactions contemplated thereby. Pursuant to the Agreement, First Federal
would merge with and into a wholly owned subsidiary of NationsBank, and each
outstanding share of First Federal common stock would be converted into the
right to receive .80 shares of NationsBank common stock, all as described more
fully in the accompanying Proxy Statement-Prospectus.
2. OTHER BUSINESS. To transact such other or further business as may
properly come before the Special Meeting and any adjournment or postponement
thereof.
Only stockholders of record at the close of business on ,
1997, are entitled to notice of and to vote at the Special Meeting or any
adjournment or postponement thereof.
BY ORDER OF THE BOARD OF DIRECTORS
BEN T. SLADE, III
CHAIRMAN OF THE BOARD
, 1997
BECAUSE THE AFFIRMATIVE VOTE OF AT LEAST TWO-THIRDS OF THE OUTSTANDING
SHARES OF FIRST FEDERAL COMMON STOCK IS REQUIRED TO APPROVE THE AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, WE URGE YOU TO SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU INTEND TO ATTEND THE
MEETING IN PERSON. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE IN
THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT-PROSPECTUS. ANY STOCKHOLDER
PRESENT AT THE SPECIAL MEETING, INCLUDING ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF, MAY REVOKE HIS OR HER PROXY AND VOTE IN PERSON ON EACH MATTER BROUGHT
BEFORE THE SPECIAL MEETING.
<PAGE>
EXHIBIT 99.2
REVOCABLE
PROXY
FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA
PROXY SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 11, 1997.
The undersigned hereby appoints Robert E. Strange and Gerry Earp, or either
of them with individual power of substitution, proxies to vote all shares of the
Common Stock of First Federal Savings Bank of Brunswick, Georgia ("First
Federal") which the undersigned may be entitled to vote at the Special Meeting
of Stockholders to be held at the main office of Brunswick located at 777
Gloucester Street, Brunswick, Georgia, on Friday, April 11, 1997, at 10:30 A.M.,
Eastern Standard Time, and at any adjournment thereof.
SAID PROXIES WILL VOTE ON THE PROPOSALS SET FORTH IN THE NOTICE OF SPECIAL
MEETING AND PROXY STATEMENT AS SPECIFIED ON THIS CARD. IF A VOTE IS NOT
SPECIFIED, SAID PROXIES WILL VOTE IN FAVOR OF PROPOSAL 1. IF ANY OTHER MATTERS
PROPERLY COME BEFORE THE SPECIAL MEETING, SAID PROXIES WILL VOTE ON SUCH MATTERS
AS DETERMINED BY A MAJORITY OF THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR:
1. FOR or WITHOUT , authority to vote on the approval of: an Amended and
Restated Agreement and Plan of Reorganization, dated as of November 20,
1989, between NationsBank Corporation ("NationsBank") (as successor to
C&S/Sovran Corporation, The Citizens and Southern Corporation, Citizens
and Southern Georgia Corporation and The Citizens and Southern National
Bank (collectively, "C&S/Sovran")) and First Federal; Amendment Number
One to the Amended and Restated Agreement and Plan of Reorganization,
dated as of August 20, 1990, between NationsBank (as successor to
C&S/Sovran) and First Federal; Amendment Number Two to the Amended and
Restated Agreement and Plan of Reorganization, dated as of December 19,
1990, between NationsBank (as successor to C&S/Sovran) and First
Federal; Order of the Superior Court of Glynn County, Georgia, dated
December 16, 1994; Order of the Superior Court of Glynn County, Georgia
dated October 11, 1996; letter from First Federal to NationsBank, dated
November 12, 1996, regarding the calculation of the number of shares of
NationsBank common stock to be received by First Federal stockholders in
the transaction; and letter from First Federal to NationsBank, dated
January 17, 1997, waiving certain provisions of the foregoing
Amendments Number One and Two and the transactions contemplated thereby.
<PAGE>
PLEASE MARK, SIGN BELOW, DATE AND
RETURN THIS PROXY PROMPTLY IN THE
ENVELOPE FURNISHED.
PLEASE SIGN EXACTLY AS NAME APPEARS
BELOW. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN
SIGNING AS ATTORNEY, AS EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
SHARES
DATED , 1997
SIGNATURE
SIGNATURE IF HELD JOINTLY
PLEASE MARK HERE IF YOU INTEND TO ATTEND THE SPECIAL MEETING OF STOCKHOLDERS.
<PAGE>
EXHIBIT 99.3
FIRST FEDERAL SAVINGS BANK
OF BRUNSWICK, GEORGIA
,1997
TO THE STOCKHOLDERS OF
FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA
You are cordially invited to attend a Special Meeting of Stockholders of
First Federal Savings Bank of Brunswick, Georgia ("First Federal"), which will
be held at the main office of First Federal located at 777 Gloucester Street,
Brunswick, Georgia, on Friday, April 11, 1997, at 10:30 A.M., Eastern Standard
Time ("Special Meeting").
At the Special Meeting you will be asked to consider and vote upon
agreements pursuant to which First Federal would merge with and into a wholly
owned subsidiary of NationsBank Corporation (the "Merger"). Upon consummation of
the Merger, each outstanding share of First Federal common stock would be
converted into the right to receive .80 shares of NationsBank common stock.
NationsBank common stock is traded on the New York Stock Exchange, Inc.
The proposed Merger has been unanimously approved by your Board of
Directors as being in the best interests of First Federal and its stockholders.
Accordingly, your Board unanimously recommends that you vote FOR approval of the
agreements and the Merger.
Consummation of the Merger is subject to certain conditions, including
approval of the agreements and the Merger by First Federal's stockholders and
approval of the Merger by various regulatory agencies. The enclosed Notice of
Special Meeting of Stockholders and Proxy Statement-Prospectus describes the
Merger and provides specific information concerning the Special Meeting. Please
read these materials carefully and consider the information contained in them.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING, REGARDLESS OF WHETHER YOU PLAN TO ATTEND IN PERSON. The affirmative
vote of at least two-thirds of all of the outstanding shares of First Federal
common stock is required to approve the agreements and the Merger. Consequently,
a failure to vote will have the same effect as a vote against the proposal.
Therefore, I urge you to execute, date and return the enclosed Proxy Card in the
enclosed postage-paid envelope as soon as possible to ensure that your shares
will be voted at the Special Meeting. You should not forward any of your stock
certificates at this time.
On behalf of the Board of Directors, I urge you to vote FOR approval of the
agreements and the Merger.
Sincerely,
BEN T. SLADE, III
CHAIRMAN OF THE BOARD
OFFICE OF THRIFT SUPERVISION
Washington, D.C. 20552
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Office of Thrift Supervision
September 30, 1996 Docket Number: 3175
FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA
(Exact name of registrant as specified in its charter)
Chartered by the Office of Thrift Supervision
under the laws of the United States 58-0175025
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
777 Gloucester Street, Brunswick, Georgia 31520
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (912) 265-1410
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of Class)
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant is $83,031,444, based on the price at which shares of Common
Stock were sold on December 24, 1996.
As of December 24, 1996 there were issued and outstanding 1,499,939
shares of the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the 1996 Annual Report to Stockholders for year ended
September 30, 1996 are incorporated into Part II, Items 5 - 9 of this Annual
Report on Form 10-K.
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders
to be held on January 22, 1997, to be filed with the Office of Thrift
Supervision pursuant to Regulation 14A within 120 days of the registrant's
fiscal year end are incorporated into Part III, Items 10 - 13 of this Annual
Report on Form 10-K.
<PAGE>
PART I
Item 1. Business
General
First Federal Savings Bank of Brunswick, Georgia ("Brunswick") began its
operations in 1926 as a Georgia-chartered building and loan association.
Brunswick converted to a federal savings and loan association in 1935,
conducting its business under the name of Brunswick Federal Savings and Loan
Association, and changed its name to First Federal Savings and Loan Association
of Brunswick in 1959. Brunswick converted to a federal mutual savings bank on
December 5, 1983, and became a federal capital stock savings bank on July 21,
1984. Brunswick is subject to supervision and regulation by the Office of Thrift
Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC"), and
its deposits are insured through the Savings Association Insurance Fund ("SAIF")
of the FDIC. Brunswick's operations are conducted from its headquarters, two
branch offices in Brunswick, and two branch offices on St. Simons Island,
Georgia.
Brunswick primarily engages in the business of attracting deposits from
the general public and investing those funds in real estate, commercial and
consumer loans.
Lending Activities
General. As a federally chartered thrift institution, Brunswick may
invest in real estate loans throughout the United States. Brunswick has,
however, limited its lending area primarily to Southeast Georgia. Historically,
Brunswick's lending activities have concentrated on the origination of
conventional permanent loans on single-family dwellings and, to a lesser degree,
on construction loans for residential dwellings. Brunswick's loans are
predominantly conventional loans, i.e., loans that are not insured by the
Federal Housing Administration ("FHA") or guaranteed by the Veterans
Administration ("VA").
In recent years Brunswick has sought to increase the amount of
construction, commercial, and consumer loans in its portfolio. The shorter term
and the normally higher interest rates available on these loans are consistent
with Brunswick's efforts to shorten the term of its loan portfolio and to
improve the spread between the average yield on its assets and its cost of
funds. In addition, in an effort to increase the interest-sensitivity of
Brunswick's loan portfolio, Brunswick offers a variety of adjustable-rate loan
products. By originating adjustable-rate loans, management believes that
Brunswick is better able to match increases in the rates paid on its liabilities
with increased rates received on its assets.
First Mortgage Loans. On September 30, 1996, Brunswick held in its loan
portfolio approximately $150.3 million of first mortgage loans (including $19.9
million in construction loans) secured by one-to four-family residential units,
which represented 71.6% of its total net loan portfolio. As of that date,
Brunswick also held $42.3 million, or 20.2% of its total net loan portfolio of
first mortgage loans secured by commercial real estate, multi-family residential
property and land. For purposes of this discussion, the term "net" when used
with respect to Brunswick's total loan portfolio, means (i) net of loans in
process, deferred loan fees and other, and the allowance for possible loan
losses and (ii) inclusive of mortgage loans held for sale.
Reflecting prior federal regulations, approximately $67 million or 37.7%
of Brunswick's total mortgage loans due subsequent to one year after September
30, 1996 provided for fixed rates of interest and for repayment of principal
over a fixed period. Regulatory changes in recent years have provided
substantial flexibility to federally chartered institutions such as Brunswick in
structuring the terms of mortgage loans to adjust more easily to changes in
interest rates. These regulations permit, among other things, mortgage loans
1
<PAGE>
to be written for shorter maturities and at adjustable interest rates, as
compared to longer term, fixed rate mortgage instruments. Approximately $110
million or 62.3% of Brunswick's total mortgage loans due subsequent to one year
after September 30, 1996 were adjustable rate loans, compared to 67.4% and 63.2%
due subsequent to one year after September 30, 1995 and 1994, respectively. The
adjustable-rate loans that are currently being made have terms of 30 years or 15
years and interest rate adjustment periods of one or three years. However, the
extent of this interest-sensitivity is limited by annual and lifetime "caps" on
interest rate adjustments. The terms of such loans also increase the likelihood
of delinquencies in periods of high interest rates, particularly if such loans
are offered with initial discounted interest rates. Generally, Brunswick offers
adjustable-rate mortgage loans with annual adjustment caps of 2.0% and lifetime
adjustment caps of 6.0%.
Permanent residential mortgage loans originated by Brunswick have
generally been 30-year fixed and adjustable rate loans amortized on a monthly
basis with principal and interest due monthly. Based upon historical experience,
these loans generally have average lives of approximately 12 years. Most of the
residential loans originated by Brunswick are conventional loans. Brunswick's
permanent loans on commercial real estate have been 15 to 25 year loans with
principal and interest due monthly. The loans generally have a three or five
year adjustable rate or balloon feature.
Construction Loans. As of September 30, 1996, construction loans totalled
$21.6 million, or 10.3% of Brunswick's net total loan portfolio. This amount is
composed of $19.9 million of construction loans secured by one- to four-family
residential units. In past years, Brunswick has solicited construction loans for
a variety of structures, including residences, nursing homes, strip shopping
centers, medical buildings, warehouses, condominiums and motels. Generally, the
loans are made for six to 12 months at interest rates tied to the prime rate and
adjusted monthly. Because of certain lending restrictions based on the amount of
the institution's regulatory capital, Brunswick sometimes sells participations
in the construction loans that it originates. Brunswick also makes combined
construction and permanent loans.
Commercial Loans. A federally chartered savings institution is permitted
to invest up to 10% of its assets in commercial loans not secured by real
estate. Brunswick makes commercial loans for purposes such as working capital,
inventory accumulations, equipment acquisition and similar purposes. These loans
are either made at a fixed rate of interest or at an interest rate tied to a
regional bank's prime rate, with rate adjustments at monthly, annual or less
frequent intervals. At September 30, 1996, commercial loans totalled
approximately $7.4 million, or 3.5% of Brunswick's total net loan portfolio.
Consumer Loans. A federally chartered savings institution is permitted to
make secured and unsecured consumer loans up to 35% of the institution's assets.
Certain consumer loans may be made without being included in the 35% limitation.
At September 30, 1996, Brunswick's consumer loans included $1.5 million of loans
secured by deposit accounts at Brunswick, $9.6 million of consumer loans
(including unsecured loans, boat loans, automobile loans, equipment loans and
educational loans) and $17.3 million of home equity loans secured in part by a
mortgage on the borrower's home. At September 30, 1996, all consumer loans
comprised 13.6% of Brunswick's total net loan portfolio. Home equity consumer
loans generally have adjustable rates of interest tied to a regional bank's
prime rate, with monthly rate adjustments. Other consumer loans are generally
made for a term of three to five years and have fixed rates of interest.
Brunswick also offers lines of credit secured by home equity. This type of loan,
which is made at an interest rate at a margin above the prime rate that adjusts
monthly, is intended to combine both high quality and high yield.
2
<PAGE>
The composition of Brunswick's loan portfolio at the end of the fiscal
years during the three-year period ended September 30, 1996 is set forth below.
At September 30, 1996, Brunswick's total net loan portfolio represented 84.2% of
its total assets.
<TABLE>
<CAPTION>
At September 30,
1996 1995 1994
------------ --------------- ----------
<S> <C>
Conventional real estate
loans:
Interim construction loans ............... $ 21,564,508 $ 12,951,880 $ 11,016,556
Loans on existing property ............... 129,083,083 140,932,677 136,781,662
Loans refinanced ......................... 31,803,954 9,439,855 10,234,595
Insured or guaranteed real
estate loans............................. 446,415 507,609 564,504
Commercial loans........................... 7,441,666 4,512,256 5,046,800
Consumer loans
Education loans........................... 48,490 74,523 106,314
Savings account loans..................... 1,525,713 1,379,482 1,262,012
Home improvement loans.................... 17,279,232 15,836,687 14,018,318
Others.................................... 9,585,484 6,866,660 5,183,438
------------ ------------ -----------
Total loans receivable.................. $218,778,545 $192,501,629 $184,214,199
Less:
Undisbursed loans in process............... $ 7,279,329 $ 4,212,944 $3,458,863
Deferred loan fees and other............... 830,384 763,316 925,589
Allowance for possible
loan losses ............................. 800,786 861,356 812,585
------------- --------- ------------
Total net loan portfolio............ $209,868,046 $186,664,013 $179,017,162
=========== =========== ===========
Type of Security:
Residential real estate
Single-family............................. $ 150,261,872 $ 136,233,631 $124,195,721
2-to-4 family............................. 3,323,157 5,074,844 5,754,995
Other dwelling units...................... 4,255,430 2,324,341 2,971,440
Commercial or industrial
real estate ............................ 42,336,733 36,035,892 39,693,479
Savings accounts.......................... 1,525,713 1,379,482 1,262,012
Other..................................... 17,075,640 11,534,439 10,336,552
----------- ---------- -----------
Total loans receivable.................. $218,778,545 $192,501,629 $184,214,199
Less:
Undisbursed loans in process............... 7,279,329 4,212,944 3,458,863
Deferred loan fees and other............... 830,384 763,316 964,957
Allowance for possible
loan losses.............................. 800,786 861,356 812,585
------------- --------- ------------
Total net loan portfolio ........... $209,868,046 $186,664,013 $179,017,162
=========== =========== ===========
</TABLE>
FIRREA makes applicable to savings associations the current national bank
limits on loans to one borrower. Generally, national banks may lend to a single
or related group of borrowers, on an unsecured basis, an amount equal to 15% of
its unimpaired capital and surplus. An additional amount, equal to 10% of
unimpaired capital and surplus, may be loaned if such loan is secured by readily
marketable collateral, which is defined to include certain securities and
bullion, but generally does not include real estate. Under such provisions, as
of September 30, 1996, Brunswick could lend to a single borrower and its related
entities
3
<PAGE>
on an unsecured basis an amount not to exceed $3.9 million. Also, as of such
date, it could lend an additional $2.6 million secured by readily marketable
collateral. As of September 30, 1996, the amount outstanding to the largest
single borrower of Brunswick was approximately $3.3 million.
Loan Originations. Loan originations were approximately $91.9 million for
the year ended September 30, 1996. Loan originations come from a number of
sources. Most real estate loans are attributable to walk-in customers at
Brunswick's offices, real estate brokers and referrals by a mortgage broker. In
addition, Brunswick has solicited applications for consumer loans through
newspaper advertisements.
Each loan is underwritten by qualified personnel in Brunswick's main
office, and independent appraisers are engaged to appraise property intended to
secure real estate loans. The underwriting procedures of Brunswick are intended
to assess a borrower's ability to repay the loan and the value of any collateral
property. Loan applications must be reviewed and approved by authorized officers
or directors in accordance with Brunswick's loan policy. After a loan
application is approved, Brunswick customarily gives the applicant a commitment
to make the loan at any time within 30 days thereafter on terms determined on
the basis of market conditions as of the date of the commitment. Commitments for
longer periods are issued at rates to be set at the time of closing, and,
generally, a 1% commitment fee is charged.
Federal regulations require boards of directors of federally chartered
savings institutions to establish their own loan-to-value ratios for loans made
on the security of real estate, subject to certain conditions. The regulations
provide that an institution must require appropriate credit enhancement in the
form of mortgage insurance or readily marketable collateral for all
owner-occupied family or home equity loans which at the time of origination are
in excess of 90% of the appraised value of the collateral property. Brunswick
makes permanent residential mortgage loans with up to a 95% loan-to-value ratio.
Brunswick usually lends up to 75% of the appraised value for construction loans
on commercial real estate and 80% of the appraised value for permanent loans on
commercial real estate.
Although Brunswick continues to originate long-term fixed-rate loans,
most of the loans are originated with documentation and underwriting guidelines
which will allow their sale in the secondary market to the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"). All other long-term loans originated by Brunswick are adjustable-rate
loans.
Brunswick includes due-on-sale provisions in its permanent real estate
loans. Due-on-sale clauses give Brunswick the right to declare a loan
immediately due and payable in the event that the borrower sells the property
securing the mortgage. This provides Brunswick with a means of increasing the
interest rate on existing low interest fixed-rate loans. It is Brunswick's
policy to waive the due-on-sale clause, subject to the approval of the borrower,
and to increase the interest rate to the market rate of interest at the time of
the sale if the loan is saleable or to charge an adjustable rate of interest if
it is not saleable. The effect of this policy, however, is essentially the same
as enforcing the due-on-sale clause.
Brunswick requires title insurance to insure the priority of its property
lien on its mortgage loans. It also requires fire and casualty insurance to be
maintained on all security property in amounts at least equal to the principal
balance on the loans.
4
<PAGE>
The following table sets forth certain information at September 30, 1996,
regarding the dollar amount of loans maturing in Brunswick's portfolio based on
their contractual terms to maturity. Demand loans, loans having no stated
schedule of repayments and no stated maturity, and overdrafts are reported as
due in one year or less.
Principal Repayments Contractually Due
in the Year(s) Ending September 30,
<TABLE>
<CAPTION>
2012
and
2000 2002 2007 there-
1997 1998 1999 2001 2006 2011 after Total
---- ---- ---- ---- ---- ---- ------- -----
(Dollars in Thousands)
<S> <C>
Real estate mortgage....... $14,038 $ 6,855 $2,231 $7,603 $20,928 $44,617 $65,061 $161,333
Real estate construction... 21,565 0 0 0 0 0 0 21,565
Consumer................... 4,888 3,675 3,526 7,118 8,580 605 47 28,439
Commercial................. 1,801 618 844 1,055 3,124 0 0 7,442
------ ------ ----- ------ ------- -------- -------- --------
Total.................... $42,292 $11,148 $6,601 $15,776 $32,632 $45,222 $65,108 $218,779
====== ====== ===== ====== ====== ====== ====== =======
</TABLE>
The following table sets forth the dollar amount of all loans due more
than one year after September 30, 1996, which have pre-determined interest rates
and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Predetermined Floating or
Rates Adjustable Rates
(Dollars in Thousands)
<S> <C>
Real estate mortgage................ $51,781 $ 95,514
Real estate construction............ -- --
Consumer............................ 13,971 9,580
Commercial.......................... 825 4,816
------- -----
Total......................... $66,577 $109,910
====== =======
</TABLE>
In comparison, at September 30, 1995, Brunswick had total loans due more
than one year after such date with predetermined interest rates and floating or
adjustable interest rates of approximately $56.5 million and $104.1 million,
respectively.
Loan Purchases and Sales. Most of the loans in Brunswick's portfolio have
been originated by Brunswick. However, prior to 1986, Brunswick purchased
construction or adjustable-rate mortgage loans during periods when it was unable
to originate a sufficient amount of such loans to meet its intended investment
goals. After fiscal year 1985, Brunswick deemphasized such activities because
management believed that there was a lack of such loans that met Brunswick's
underwriting standards.
Brunswick is active in the sale of participations and whole loans in the
secondary market to thrift institutions, commercial banks, FNMA and FHLMC.
Participations in construction loans are sold particularly to ensure compliance
with regulatory limitations on investment in loans to a single borrower.
Brunswick also sells loans to provide additional funds for lending or to reduce
Brunswick's investment in long-term, fixed-rate mortgage loans. Brunswick also
has exchanged participating interests in pools of mortgage loans. From time to
time, Brunswick converts additional amounts of its fixed-rate, long-term
mortgage loans into mortgage-backed securities through similar transactions. The
purpose of these transactions is to convert the loans into marketable securities
which can be easily sold for cash or used as collateral for borrowings.
Brunswick did not sell any loans with recourse against Brunswick in fiscal years
1996, 1995, and 1994. At September 30,
5
<PAGE>
1996, Brunswick was servicing approximately $133.3 million in loans for others,
on which it receives an average of 27% per annum in servicing fees.
The Bank sells loans on a cash gain or loss basis, a method which does
not necessitate the creation of an excess servicing balance upon sale. The Bank
has continued this policy during fiscal year 1996, and generally all gains
(losses) recorded during fiscal year 1996 reflect such treatment.
Set forth below is a table showing Brunswick's loan origination,
purchase, and sales for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994
--------------- -------------- ---------
<S> <C>
Loans Originated:
Conventional real
estate loans:
Construction loans............. $18,367,505 $11,274,329 $14,069,125
Loans on existing
property ..................... 30,886,985 49,630,201 51,947,624
Loans refinanced .............. 33,423,992 10,392,350 22,627,910
Other Loans (1) ................ 9,246,959 9,128,733 7,263,905
---------- ---------- -----------
Total Loans
Originated................... $91,925,441 $80,425,613 $95,908,564
========== ========== ==========
Loans Sold:
Participation loans............. $ 950,000 $ -0- $ -0-
Whole Loans (2) ................ 32,330,171 12,019,672 33,500,598
---------- ---------- ----------
Total loans sold............... $33,280,171 $12,019,672 $33,500,598
========== ========== ==========
</TABLE>
- -------------------
(1) Includes consumer loans on a net change basis. Total consumer loan
originations, including multiple rollovers of short term credits, for the
fiscal years 1996, 1995, and 1994 were $25,263,332, $22,500,501, and
$20,400,473, respectively.
(2) Fiscal year 1996 amount includes $6,445,235 in loans exchanged with the
Federal Home Loan Mortgage Corporation for mortgage-backed securities.
Income from Lending Activities. Brunswick's primary source of income is
from the interest earned on the loans that it has in its loan portfolio.
Interest rates charged on loans originated by Brunswick are primarily determined
by the level of prevailing interest rates, the availability of lendable funds,
the demand for such loans and competitive conditions.
In addition to interest earned on loans, Brunswick receives fees in
connection with loan originations, long-term commitments to lend funds and the
servicing of loans sold by Brunswick. Brunswick also receives other income
relating to existing loans in its portfolio, including loan prepayment
penalties, late charges and fees collected in connection with loan
modifications. Income realized from these sources varies significantly from
period to period with the volume and types of loans made in response to
competitive factors.
6
<PAGE>
At September 30, 1996, Brunswick had $690,856 in deferred mortgage loan
fees. Pursuant to Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards No. 91, loan fees and costs are deferred and
amortized net as an adjustment of yield over the life of the related loan.
Nonperforming Assets. Brunswick's collection procedures on delinquent
loans provide that the borrower will be contacted by mail and payment will be
requested when a loan payment is 15 days past due and again after 30 days. If
the delinquency continues, subsequent efforts will be made to contact the
delinquent borrower by telephone. If the loan continues in a delinquent status
for 90 days, Brunswick generally will initiate foreclosure proceedings. Any
property acquired by Brunswick as a result of foreclosure or by deed in lieu of
foreclosure is then sold to recover all or part of Brunswick's investment.
The table below sets forth the amounts and categories of Brunswick's
non-performing assets, as computed by Brunswick.
<TABLE>
<CAPTION>
At September 30,
1996 1995 1994
------------ ------------ --------
<S> <C>
Non-accrual loans (1)............... $261,193 $ 788,116 $1,080,021
Restructured Loans (2) ............. 779,706 1,143,462 776,959
Real estate owned (3)............... 954,904 2,208,679 1,743,374
--------- --------- ---------
Total non-performing
assets............................. 1,995,803 4,140,257 3,600,354
--------- --------- ---------
Potential problem
loans (4).......................... 2,904,673 210,416 1,422,471
Total non-performing
assets and potential
problem loans...................... $4,900,476 $4,350,673 $5,022,825
Non-performing assets
and potential problem
loans as a percentage
of assets.......................... 1.97% 1.72% 2.17%
</TABLE>
- --------------------
(1) Generally refers to (i) certain loans (based primarily on the age of the
loans) that are contractually delinquent for 60 to 90 days, or (ii)
certain mortgage loans on which taxes on the security property are
delinquent for two or more years.
(2) Refers to certain loans wherein concessions have been granted to the
borrower(s) for economic reasons related to the borrower's financial
difficulties, as defined by FASB Statement No. 15, "Accounting by Debtors
and Creditors for Troubled Debt Restructuring."
(3) Refers to real estate acquired by Brunswick through foreclosure or
voluntary deed.
(4) Potential problem loans are those loans that management has identified as
having certain characteristics that could impair the ability of the
borrower to comply with the present loan repayment terms and that may
result in such loans being placed on non-accrual status or becoming a
troubled debt restructuring, or real estate owned in the future. These
loans are generally 60 days past due and are monitored by management to
facilitate further attention if necessary.
Also, at September 30, 1996, Brunswick had 10 properties that were real
estate owned, which were composed of five residential and five commercial
properties. The five residential properties consist of one
7
<PAGE>
apartment building having a value of $47,109, one developed tract of residential
lots valued at $45,932, and one individual residential lot valued at $4,979.
Residential properties also include two single family units valued at $27,953 in
aggregate, net of amounts owned by investors. Of the five commercial properties,
three represent improved properties having a value in aggregate of $303,708. The
remaining commercial properties consist of two developed parcels of land having
values of $212,034 and $313,189, respectively. The properties are recorded at
the lower of cost or fair value at the date of acquisition and are carried at
the lower of acquisition value or net realizable value subsequent to the date of
acquisition. If the amount is less than cost, the difference is charged to
operations.
Loans on which accrual of interest has been discontinued amounted to
approximately $1.0 million at September 30, 1996. If interest on these loans had
been accrued in accordance with the original contractual terms, such income for
the year ended September 30, 1996 would have approximated $32,000. Interest
payments on these loans of approximately $100,000 were received and recorded as
interest income in the year ended September 30, 1996.
Provision and Allowance for Probable Loan Losses. The following table
sets forth an analysis of loan losses for the periods indicated:
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994
----------- ---------- -------
<S> <C>
Balance at beginning
of period.......................... $834,882 $786,111 $869,297
Provision for possible
loan losses....................... 240,000 195,000 180,000
Amounts charged off................ (299,318) (189,497) (300,605)
Recoveries......................... 25,222 43,768 37,419
------- ------ --------
Balance at end of
period............................. $800,786 $834,882 $786,111
======= ======= =======
</TABLE>
Management establishes an allowance for probable loan losses based upon
management's evaluation of the pertinent factors underlying the types and
quality of loans, current and anticipated economic conditions, collection
experience, detailed analysis of individual loans to which full collectibility
may not be assured, and determination of the existence and realizable value of
the collateral and guarantees securing such loans. At September 30, 1996,
Brunswick had $800,786 in general and $-0- in specific reserves for potential
losses. Brunswick's total reserves at September 30, 1996 were allocated at
approximately 43%, 25% and 32% to its three primary loan types, i.e., first
mortgages, commercial loans, and consumer loans, respectively. Management
believes that the allowance for probable loan losses was adequate at September
30, 1996. Although management believes that it uses the best information
available to make determinations with respect to loan loss reserves, subsequent
adjustments to reserves may be necessary if future economic conditions differ
substantially from the assumptions used in making the initial determinations.
SFAS No. 114 and 118. On October 1, 1994, Brunswick adopted Statements of
Financial Accounting Standards No. 114 and 118 ("SFAS 114 and 118"). These
Statements address the accounting by creditors for impairment of certain loans.
The Statements generally require Brunswick to identify loans for which Brunswick
probably will not receive full payment of principal and interest, as impaired
loans. The Statements require that impaired loans be valued at the present value
of expected future cash flows, discounted at the loan's effective interest rate,
or at the observable market price of the loan, or the fair value of the
underlying collateral if the loan is collateral dependent. Brunswick has
implemented the Statements by modifying its periodic review of the adequacy of
the allowance for loan losses to also identify in value impaired loans in
accordance with guidance in the Statements. The adoption of the Statements did
not have any material effect on the results of operations for the year ended
September 30, 1996.
8
<PAGE>
For impairment recognized in accordance with SFAS 114 and 118, the entire
change in the present value of expected cash flows, or the entire change in
estimated fair value of collateral for collateral dependent loans, is reported
as a provision for credit losses in the same manner in which impairment was
initially recognized or as a reduction in the amount of the provision that
otherwise would be reported. Brunswick maintains an allowance for the possible
loss of accrued but uncollected interest on impaired loans when management
believes that the collection of the interest is doubtful. If the ultimate
collectibility of principal, either in whole or in part, is in doubt, any
payment received on a loan for which the accrual of interest has been
discontinued is applied to reduce principal to the extent necessary to eliminate
such doubt. If the ultimate collectibility of principal is not in doubt,
interest is credited to income in the period of recovery.
The following summarizes the September 30, 1996 amounts that were
reclassified as a result of Brunswick adopting SFAS 114 and 118, the amounts of
impaired loans at September 30, 1996, and the average net investment in impaired
loans and interest income recognized and received on impaired loans during the
years ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
September 30,
1996
<S> <C>
Insubstance foreclosures reclassified to loans receivable $ 0
Allowance for loss on insubstance foreclosures reclassified
to allowances for losses 0
Loans identified as impaired:
Gross loans with no related allowance for losses 779,706
Gross loans with related allowance for losses recorded 0
Less: Allowances on these loans 0
----------
Net investment in impaired loans 779,706
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30
1996 1995
------------ -----------
<S> <C>
Average investment in impaired loans $ 951.646 $ 831,869
Interest income recognized on impaired loans 78,466 113,610
Interest income received on impaired loans 78,466 85,169
</TABLE>
Other Investment Activities
Brunswick invests in short-term and long-term government securities
primarily for the purpose of meeting the federal regulation requiring savings
institutions to maintain a ratio of cash and short-term securities to net
withdrawable deposit accounts and short-term borrowings of 5%. At September 30,
1996, Brunswick maintained a liquidity ratio of 8.4%. See "Regulation and
Supervision -- Liquidity." It has been Brunswick's policy to maintain liquidity
above the required amounts.
9
<PAGE>
Investment Securities and Mortgage-Backed Securities
Brunswick's investment securities at September 30, 1996, 1995, and 1994
consisted of U.S. Government treasury and agency and tax-free municipal
obligations. The carrying values and estimated market values of investment
securities on the dates indicated were as follows:
Amortized Estimated
Cost Market Value
September 30, 1996 $ 8,032,109 $ 8,024,132
September 30, 1995 $ 16,353,511 $ 16,488,815
September 30, 1994 $ 15,976,701 $ 15,815,769
At September 30, 1996, Brunswick had unrealized gains and losses in its
investment securities portfolio of $33,366 and $41,343, respectively, as
compared to unrealized gains and losses at September 30, 1995 of $156,286 and
$20,982, respectively. At September 30, 1996, Brunswick had unrealized gains and
losses of $3,612 and $246,354, respectively, as compared to unrealized gains and
losses of $77,895 and $89,917, respectively, at September 30, 1995 on
mortgage-backed securities.
The amortized cost and estimated market values of debt securities held as
investments at September 30, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Cost Market Value
<S> <C>
Due in one year or less $3,004,145 $3,010,320
Due after one year
through five years 4,027,964 4,040,681
Due after five years
through ten years 1,000,000 973,131
Due after ten years -- --
-------------- -------------
$8,032,109 $8,024,132
Mortgage-backed securities 8,582,633 8,339,891
---------- ----------
$16,614,742 $16,364,023
========== ==========
</TABLE>
Sources of Funds
General. Savings accounts and other types of deposits have traditionally
been the primary source of funds for Brunswick's lending activities and for
other general business purposes. In addition, Brunswick derives funds from loan
repayments and Federal Home Loan Bank ("FHLB") advances, as well as other
borrowings. Loan repayments are a relatively stable source of funds while
deposit inflows and outflows vary widely and are influenced by prevailing
interest rates and market conditions. Borrowings may be used to compensate for
reductions in deposits or deposit inflows at less than projected levels and may
be used on a longer term basis to support expanded lending activities.
10
<PAGE>
Deposits. Brunswick offers a variety of savings programs and related
services. Deposits are obtained primarily from the communities in which
Brunswick's offices are located. Brunswick does not advertise outside of these
areas and does not solicit deposits from brokers. It offers premiums on certain
accounts in order to attract funds.
Savings deposits in Brunswick as of September 30, 1996, were represented
by the various types of savings programs set forth below.
<TABLE>
<CAPTION> Percentage
Interest Minimum Minimum Total of
Category Rate (1) Term Balance Amount Savings
- --------------------------- -------- -------- ------- ------ -----------
<S> <C>
Now Account-Non Interest None None $ -- $ 10,099,015 4.63%
Now Account 2.25% None 50 21,309,582 9.77
Passbook Statement Account 2.50% None 50 20,104,167 9.22
Wall Street Checking 2.25%(3) None 2,500 4,161,181 1.91
Money Market Deposit Account 2.25%(4) None 2,500 10,570,806 4.85
Commercial Check-Interest 2.25% None 50 5,525,179 2.53
Commercial Checking None None 50 7,729,774 3.55
Gold Edge 2.50% 90 days 50 524,762 .24
----------- ------
$ 80,024,466 36.70%
---------- -----
Certificates of Deposit:
Fixed-Term - Fixed-Rate 5.50% 48 months 500 7,415,705 3.40
Fixed-Term - Fixed-Rate 5.30% 12 months 500 46,392,962 21.27
Fixed-Term - Fixed-Rate 5.30% 18 months 500 3,297,778 1.51
6-Month Money Market 5.00% 182 days 1,000 12,758,797 5.85
3-Month Money Market 4.25% 91 days 1,000 2,142,585 .98
Fixed-Term - Fixed-Rate 5.50% 36 months 500 5,756,833 2.64
Negotiated Jumbo 5.30%(2) 1-12 mos. 100,000 27,261,881 12.50
Fixed-Term - Fixed-Rate 5.30% 24 months 500 15,676,559 7.19
Fixed-Term - Fixed-Rate * % 30 months NONE 163,335 .08
Fixed-Term - Fixed-Rate 5.50% 60 months 500 17,184,958 7.88
------------ ------
138,051,393 63.30
$218,075,859 100.00%
* Plan no longer offered ============ ======
- -----------------
</TABLE>
(1) Rates offered as of September 30, 1996.
(2) Rate on 12-month term.
(3) Rate tiers up to 3.00%.
(4) Rate tiers up to 3.50%.
11
<PAGE>
The following table sets forth the time deposits in Brunswick classified
by rates being paid as of the dates indicated.
<TABLE>
<CAPTION>
At September 30,
1996 1995 1994
------------- ------------- ---------
<S> <C>
1.75% - 3.75% $ 325,001 $ 658,691 $ 25,931,085
3.76% - 5.75% 72,406,637 31,124,375 62,478,823
5.76% - 7.75% 64,594,186 111,556,545 27,855,210
7.76% - 9.75% 334,156 608,452 1,795,672
9.76% - 11.75% 391,413 451,427 529,075
11.76% - 13.75% -0- -0- 78,433
---------------- ---------------- -------------
$138,051,393 $144,399,490 $118,668,298
=========== =========== ===========
</TABLE>
The following table sets forth the amount and maturities of time deposits
in Brunswick at September 30, 1996.
<TABLE>
<CAPTION>
Amount Due
Less than 3 Years and
Rate One Year 1-2 Years 2-3 Years Thereafter Total
<S> <C>
2 - 4% $ -0- $ 135,344 $ 221,393 $ -0- $ 356,737
4 - 6% 1,086,629 77,439,888 12,390,921 7,532,768 98,450,206
6 - 8% 5,329,589 17,702,328 8,656,900 6,895,066 38,583,883
8 - 10% -0- 52,307 567,885 -0- 620,192
10 - 12% -0- -0- 40,375 -0- 40,375
------------- --------------- ------------ --------------- -------------
$6,416,218 $95,329,867 $21,877,474 $14,427,834 $138,051,398
============ ========== ========== ========== ===========
</TABLE>
As part of its strategy to maintain its interest rate sensitivity within
desired tolerances, Brunswick periodically seeks to lengthen the term of its
liabilities so as to match such liabilities with assets of similar terms.
Brunswick seeks to attract such deposits through advertising campaigns and by
offering competitive rates, gifts and incentives to employees.
12
<PAGE>
The following table sets forth the deposit activities of Brunswick for
the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994
------------------ ------------------ -----------
<S> <C> <C>
Deposits......................... $1,268,795,400 $1,144,975,849 $1,063,073,724
Withdrawals ..................... 1,282,953,549 1,131,564,224 1,065,862,680
------------- -------------
Net cash increase
(decrease) before
interested credited............ (14,158,149) 13,411,625 (2,788,956)
Interest credited................ $9,428,012 $ 8,678,990 6,957,844
---------- ---------- ---------
Net increase (decrease) in
deposits...................... $ (4,730,137 $ 22,090,615 $ 4,168,888
========== ========== =========
</TABLE>
The following table sets forth time deposits of $100,000 or more (jumbo
deposits) by remaining time to maturity, as of September 30, 1996.
0 - 3 months........................... $ 7,198,719
4 - 6 months........................... 5,316,189
7 - 12 months........................... 8,844,676
Greater than 12 months........................... 10,639,697
----------
$31,999,281
==========
Borrowings. Brunswick periodically obtains funds through borrowings from
the FHLB of Atlanta. At September 30, 1996, Brunswick had $1,500,000 in advances
at interest rates ranging from 7.90% to 7.91% compared to advances of $2,200,000
and $4,000,000 at September 30, 1995 and 1994, respectively. FHLB borrowings
have been made on the security of Brunswick's FHLB stock, mortgage-backed
securities, investment securities and cash. Brunswick had no other short-term
borrowings during fiscal years 1996, 1995, and 1994.
A savings institution is required to be a "qualified thrift lender" in
order to have full access to FHLB advances. Generally, an institution must have
at least 65% of its portfolio assets invested in housing and housing related
investments in order to qualify. As of September 30, 1996, Brunswick satisfied
the qualified thrift lender test. For information regarding the "qualified
thrift lender" requirements, see "Regulation and Supervision" below.
Interest Rate Comparison and Profitability
Brunswick's earnings are affected by its "spread", that is, the
difference between the rate of return on its loan and investment portfolios and
its cost of money (consisting principally of interest paid on savings deposits
and on borrowings). The return on its loan portfolio changes primarily as a
result of the rates and volumes of new and existing loans, and the return on its
investment portfolio depends on the interest rates paid on such securities and
the amount of funds invested. The cost of money is primarily dependent on
short-term interest rates, which are subject to volatile movements. Expanded
investment authority and the ability to make adjustable rate mortgage loans has
provided Brunswick with better means to match the maturities of its assets and
liabilities.
Brunswick has implemented a number of measures in recent years in an
effort to make the yields on its loan and investment portfolios more responsive
to changes in its cost of money. These steps include an emphasis on consumer,
construction and other short-term or variable rate loans, and efforts to reduce
the amount of long-term, fixed-rate real estate loans with low interest rates in
Brunswick's portfolio. Moreover,
13
<PAGE>
substantially all long-term, fixed-rate loans currently being originated are
being sold in the secondary market. In addition, Brunswick is trying to solicit
deposits with longer terms, to increase core deposits and to match assets with
liabilities to the extent possible.
The following tables set forth for the periods and at the dates indicated
the weighted average yields earned on Brunswick's assets and the weighted
average interest rates paid on Brunswick's liabilities (e.g., deposits and
borrowings), together with the net spread on interest-earning assets for the
periods indicated (loan portfolio data includes mortgage-backed securities and
non-accrual loans) and selected performance ratios.
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994
-------------- -------------- ---------
<S> <C>
Weighted average yield
on loan portfolio.................... 8.64% 8.68% 8.10%
Weighted average yield
on mortgage-backed
securities........................... 6.74 6.99 6.84
Weighted average yield
on investment securi-
ties ............................. 6.56 6.43 5.81
Weighted average yield
on other investments................. 5.65 6.36 4.24
Weighted average
yield on all
interest-earning
assets ............................. 8.31 8.27 7.62
Weighted average rate
paid on savings
deposits............................. 4.66 4.40 3.71
Weighted average rate
paid on FHLB advances................ 6.96 5.87 5.99
Weighted average rate
paid on short-term borrowings....... 2.25 2.50 --
Weighted average rate
paid on all
interest-bearing
liabilities.......................... 4.69 4.42 3.77
Net yield on average
interest earning assets.............. 4.05 4.21 4.16
Return on assets...................... .86 1.28 1.42
Return on equity...................... 8.31 12.82 13.89
Equity to assets...................... 10.31 10.01 9.80
14
<PAGE>
<CAPTION>
At September 30,
1996 1995 1994
---------------- ---------------- ----------
<S> <C>
Weighted average yield
on loan portfolio........................ 8.62% 8.59% 8.34%
Weighted average yield
on mortgage-backed
securities............................... 6.44 6.99 6.88
Weighted average yield
on investment
securities............................... 6.48 6.41 6.08
Weighted average yield
on other investments..................... 5.47 5.74 4.77
Weighted average
yield on all
interest-earning
assets................................... 8.30 8.08 7.90
Weighted average rate
paid on savings
deposits................................. 4.43 4.81 3.77
Weighted average rate
paid on FHLB advances.................... 7.91 6.82 6.32
Weighted average rate
paid on all
interest-bearing
liabilities.............................. 4.46 4.83 3.82
Net spread on average
interest earning
assets................................... 3.84 3.25 4.08
Equity to assets ratio.................... 10.45 10.07 10.24
</TABLE>
15
<PAGE>
The following table sets forth certain information regarding changes in
interest income and interest expense of Brunswick for the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume of
assets or liabilities outstanding (changes in volume multiplied by old rate),
(ii) changes in the interest rate earned or paid on those balances (changes in
rate multiplied by old volume), and (iii) a combination of changes in rate and
volume (change in rate multiplied by the change in volume).
<TABLE>
<CAPTION>
Year Ended September 30,
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
Rate/ Rate/ Rate/
(Dollars in Thousands) Volume Rate Volume Volume Rate Volume Volume Rate Volume
------ ------ --------- ------ ------ ------ ------- ------- ------
<S> <C>
Interest earning
assets:
Loans ...................... $1,359 $(75) $(6) $643 $1,043 $46 $1,074 $(434) $(34)
Mortgage-backed
securities................. 242 (29) (8) (6) 18 -- 108 (38) (6)
Investment securities....... (232) 20 (5) (119) 109 (13) (372) (154) 38
Other interest..............
earning assets............. (174) (121) 19 162 281 81 57 71 10
Total interest earning
assets .................... 893 93 4 736 1,446 63 811 (467) (23)
Interest bearing
liabilities:
Savings deposits............ 397 544 24 375 1,375 70 274 (654) (23)
Advances from the
FHLB....................... (62) 39 (11) (96) (6) 2 72 (30) (8)
Short-term borrowings....... -- (1) -- -- -- 3 -- -- --
Total interest-bearing
liabilities................ 334 576 20 337 1,328 58 325 (668) (27)
</TABLE>
Service Corporation Activities
Federally chartered thrift institutions may invest in service
corporations as a vehicle to engage in securities, real estate development and
other activities that may not be directly permissible. Brunswick is permitted to
invest an amount equal to 3% of its assets in its service corporation. In
addition, a federal thrift institution meeting its applicable minimum regulatory
capital requirements may invest, but subject to restrictions on loans to one
borrower, up to 50% of the institution's total capital in conforming loans to
service corporations.
Brunswick formed a wholly owned service corporation, First Shelter
Service Corporation ("First Service"), in 1971 primarily for the purpose of
providing appraisal and construction inspection services to Brunswick. In the
past, First Shelter had engaged in limited land development and joint venture
activities, in addition to providing appraisal and construction inspection
services. At present, First Shelter is inactive. As of September 30, 1996, the
net book value of Brunswick's investment in its service corporation, which
consisted of its investment in the stock and accumulated undistributed retained
earnings of the service corporation, was approximately $304,000 or .12% of
assets.
16
<PAGE>
Regulation and Supervision
General. Brunswick is a member of the FHLB system ("FHLB System") and its
deposit accounts are insured up to applicable limits by the SAIF of the FDIC.
Brunswick is subject to extensive regulation by the OTS and the FDIC and must
file reports with the OTS concerning its activities and financial condition, in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with or acquisitions of other depository
institutions. The OTS conducts periodic examinations to determine Brunswick's
compliance with various regulatory requirements.
In 1989, the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") was enacted. This law was designed to reduce the number of
problem savings and loan associations, to recapitalize the thrift insurance
fund, and to reform and reorganize the regulatory structure applicable to
savings associations that were regulated by the Federal Home Loan Bank Board
("FHLBB") prior to FIRREA. Under FIRREA, the Federal Savings and Loan Insurance
Corporation ("FSLIC") was dissolved and the SAIF was created as the new
insurance fund for savings institutions. The insurance fund for commercial banks
was renamed the Bank Insurance Fund ("BIF"), the assets of which are not
commingled with those of the SAIF. The OTS, which replaced the FHLBB and is the
primary federal regulator for all thrift institutions, is a bureau of the
Department of the Treasury.
In 1991, a comprehensive deposit insurance and banking reform plan, the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), became
law. FDICIA, which was enacted to recapitalize the BIF, effects a number of
regulatory reforms that impact both savings institutions and banks. FDICIA
authorizes the regulators to take prompt corrective action to solve the problems
of critically undercapitalized institutions. As a result, the banking regulators
are required to take certain supervisory actions against undercapitalized
institutions, the severity of which increases as an institution's level of
capitalization decreases. Pursuant to FDICIA, the federal banking agencies have
established the levels at which an insured institution is considered to be "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." See "Capital Requirements"
below for a discussion of the applicable levels. In addition, FDICIA requires
each federal banking agency to establish standards relating to internal
controls, information systems, and internal audit systems that are designed to
assess the financial condition and management of the institution; loan
documentation; credit underwriting; interest rate exposure; asset growth; and
compensation, fees and benefits. FDICIA lowered the qualified thrift lender
(QTL) investment percentage applicable to SAIF-insured institutions. FDICIA
further requires annual on-site full examinations of depository institutions,
with certain exceptions, and annual reports on institutions' financial and
management controls.
The following material summarizes certain of the regulatory requirements
applicable to Brunswick.
Federal Home Loan Bank System. The FHLB System, which consists of 12
regional FHLBs, provides a central credit facility primarily for member
institutions. As a member of the FHLB of Atlanta, Brunswick is required to
acquire and hold shares of capital stock in that FHLB in an amount at least
equal to the greater of 1% of the aggregate principal amount of Brunswick's
unpaid residential mortgage loans, home purchase contracts, and similar
obligations at the beginning of each year, or 5% of its aggregate outstanding
advances (borrowings) from the FHLB of Atlanta. As of September 30, 1996,
Brunswick was in compliance with this requirement, with an investment in FHLB of
Atlanta stock of approximately $1.6 million.
The FHLB of Atlanta serves as a reserve or central bank for the member
institutions within its assigned region. It is funded primarily from the sale of
consolidated obligations of the FHLB System. It makes advances to members in
accordance with policies and procedures established by the Federal Housing
Finance Board and the Board of Directors of the FHLB of Atlanta. At September
30, 1996, Brunswick had $1.5 million in advances from the FHLB of Atlanta, at
interest rates ranging from 7.90% to 7.91%. The advances will mature by January
27, 1997.
17
<PAGE>
Liquidity. Brunswick is required to maintain an average daily balance of
liquid assets (cash, balances maintained in or passed through to a Federal
Reserve Bank, certain time deposits, certain bankers' acceptances, specified
United States government, state or Federal agency obligations, shares of certain
mutual funds, certain corporate debt securities, certain commercial paper, and
certain mortgage-related securities) equal to a monthly average of not less than
a specified percentage of its net withdrawable accounts plus borrowings payable
on demand or in one year or less ("Short Term Borrowings"). This liquidity
requirement may be changed from time to time by the Director of the OTS
("Director") to between 4% to 10%; it is currently 5%. OTS regulations also
require each member savings institution to maintain an average daily balance of
short-term liquid assets at a specified percentage (currently 1%) of the total
of its net withdrawable accounts and short-term borrowings. Monetary penalties
may be imposed for failure to meet those liquidity requirements. The daily
average liquidity of Brunswick for September 1996 was 10.47% and exceeded the
then-applicable 5% liquidity requirement. Its short-term daily average liquidity
ratio for September 1996 was 4.14% and exceeded the then-applicable 1%
short-term liquidity requirement.
In addition, Federal Reserve regulations generally require that reserves
of 3% be maintained against aggregate transaction accounts of $49.3 million or
less (subject to adjustment by the Federal Reserve), and that an initial reserve
of 10% (subject to adjustment by the Federal Reserve between 8% and 14%) be
maintained against that portion of total transaction accounts in excess of such
amount. In addition, the Federal Reserve may require an initial reserve of
between 0% and 9% to be maintained on nonpersonal time deposits with, or
regarded as having, an original maturity of less than one and one-half (1.5)
years. Money market deposit accounts are subject to the reserve requirement
applicable to nonpersonal time deposits when not held by a natural person. The
first $4.4 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve) are exempted from the reserve requirements.
The balances maintained to meet the reserve requirements imposed by the
Federal Reserve may be used to satisfy liquidity requirements that may be
imposed by the OTS. Because required reserves must be maintained in the form of
either vault cash, a non-interest-bearing account at a Federal Reserve Bank, or
a "pass-through account," as defined by the Federal Reserve, the effect of the
reserve requirement is to reduce Brunswick's interest-earning assets.
FHLB System members also are authorized to borrow from the Federal
Reserve discount window, but Federal Reserve regulations require institutions to
exhaust all FHLB sources before borrowing from a Federal Reserve Bank.
Insurance of Deposit Accounts. Brunswick's deposit accounts are insured
by the FDIC to the maximum amount permitted by law, currently $100,000 for each
insured account, through the SAIF fund. With respect to assessments paid by
associations, the FDIC historically imposed assessments on each association
based on the institution's assessment risk classification. The rates ranged from
$.23 to $.31 for each $100 of domestic deposits. The rate at which a SAIF member
institution paid assessments was determined on the basis of capital and
supervisory measures. For the fiscal year ended September 30, 1996, Brunswick's
assessment rate was $.23 for each $100 of domestic deposits. On September 30,
1996, legislation was enacted which, among other things, imposed a special
one-time assessment on SAIF member institutions, including Brunswick, in order
to recapitalize the SAIF and allocate to SAIF and BIF-insured institutions an
annual assessment to cover interest payments on Financing Corp. (FICO) bonds
issued in the 1980's to assist the thrift industry. The special one-time
assessment levied by the FDIC amounts to 65.7 basis points on SAIF assessable
deposits held by an institution as of March 31, 1995. SAIF-insured institutions
were required to recognize the special assessment, which is tax deductible, as
of September 30, 1996. Accordingly, Brunswick took a charge of $2.36 million
before taxes as a result of the FDIC special assessment. Beginning on January 1,
1997, SAIF members will pay an annual assessment of 6.4 basis points on
SAIF-insured deposits to cover interest payments on the FICO bonds. The FDIC
also has proposed a base assessment schedule for SAIF institutions which would
range from 4 to 31 basis points, with an adjusted assessment schedule that would
immediately reduce those rates by 4 basis points. Accordingly, well-capitalized
thrifts, similar to BIF-insured members, would
18
<PAGE>
effectively have an assessment rate of zero for deposit insurance, excepting the
FICO assessment of 6.4 basis points discussed above. The new rate would apply to
all SAIF-insured institutions beginning January 1, 1997.
The FDIC has the authority to suspend the deposit insurance of any thrift
without tangible capital. However, if a thrift achieves positive capital by
including qualifying supervisory goodwill, the FDIC cannot suspend deposit
insurance unless the FDIC's Board of Directors determines that: (i) the thrift's
capital has declined materially; (ii) the thrift is engaging in an unsafe or
unsound practice or is in an unsafe or unsound condition; or (iii) the thrift
has violated an applicable law, rule, regulation, or order, or any condition
imposed by, or written agreement entered into with, a federal banking agency, or
has failed to enter timely into an acceptable capital improvement plan. At
September 30, 1995, Brunswick had tangible capital of 10.01% of total assets.
Loans to One Borrower and Certain Loan Limits. FIRREA provides that the
same limits on loans to one borrower that apply to national banks apply to
savings institutions. Generally, a savings association may lend to a single or
related group of borrowers, on an unsecured basis, an amount equal to 15% of its
unimpaired capital and surplus. An additional amount equal to 10% of unimpaired
capital and surplus, may be loaned if secured by readily marketable collateral,
which is defined to include securities and bullion, but generally does not
include real estate. Notwithstanding such provisions, a savings association may
make loans to one borrower (i) for any purpose, up to $500,000, or (ii) to
develop domestic residential housing units, up to the lesser $30 million or 30%
of the association's unimpaired capital and unimpaired surplus, if certain
conditions are satisfied. In addition, a savings association's loans to one
borrower to finance a sale of real property acquired in satisfaction of debts
previously contracted in good faith may not exceed the 15% limit.
Under the regulations described above, as of September 30, 1996,
Brunswick could lend to a single borrower and its related entities on an
unsecured basis an amount not to exceed $3.9 million based upon its unimpaired
capital and surplus. Also as of that date, it could lend an additional $2.6
million if secured by readily marketable collateral. As of September 30, 1996,
the amount outstanding to the largest single borrower of Brunswick was $3.3
million.
FIRREA also imposes limits on a federal savings association's aggregate
"nonresidential real property loans." FIRREA generally limits the aggregate
amount of "loans on the security of liens upon nonresidential real property" to
400% of the association's capital as determined under the capital standards of
FIRREA. FIRREA also permits the Director to allow an association to exceed the
aggregate limitation if the Director determines that exceeding the limitation
would pose no significant risks to the safe and sound operation of the
association, and would be consistent with prudent operating practices.
Qualified Thrift Lender Test. The QTL test generally requires that a
savings association's qualified thrift investments equal or exceed 65% of the
association's "portfolio assets" (total assets less (i) specified liquid assets
up to 20% of total assets, (ii) intangibles, including goodwill, and (iii) the
value of property used to conduct business) on a monthly average basis in nine
of every twelve months.
"Qualified thrift investments" include all investments related to
domestic residential real estate or mobile homes, the book value of property
used by the savings association in conducting its business and stock issued by
any FHLB. "Investments related to domestic residential real estate" include:
home mortgages; homeimprovement loans; other loans on the security of
residential real estate; obligations of the FHLB System; investments in deposits
of other insured institutions; securities issued or guaranteed by the FHLMC,
Federal National Mortgage Association, or Government National Mortgage
Association, or issued by the FSLIC Financing Corporation; mortgage servicing
rights; and other mortgage-related securities. Investments related to domestic
residential real estate also include investment in a corporation, partnership,
or trust in proportion to the amount of gross revenues derived by that entity
from activities related to domestic housing. In addition to investments related
to domestic residential real estate and property used in conducting the
association's business, qualified thrift investments also include specified
liquid assets and 50% of the residential mortgage
19
<PAGE>
loans originated by the association and sold within 90 days of origination, but
those liquid assets and mortgage loans may not exceed 20% of the association's
tangible assets.
Any savings institution that fails to become or remain a QTL must either
convert to a commercial bank charter or be subject to restrictions specified in
the OTS regulations. A savings institution that converts to a bank must pay all
SAIF insurance assessments until the date of its conversion to BIF membership.
Any such institution that does not become a bank is prohibited from: (i)
engaging in any new activity not permissible for a national bank; (ii) paying
dividends not permissible under national bank regulations; (iii) obtaining
advances from any FHLB; and (iv) establishing any new branch office in a
location not permissible for a national bank in the association's home state. In
addition, beginning three years after the association failed the QTL test, the
association would be prohibited from engaging in any activity not permissible
for a national bank and would have to repay any outstanding advances from an
FHLB as promptly as possible. A savings institution may requalify as a QTL if it
thereafter complies with the QTL test. As of September 30, 1996, Brunswick was
in compliance with the QTL test as amended by FDICIA.
Enforcement Powers. Pursuant to FIRREA, the OTS was granted enhanced,
extensive enforcement authority over all savings associations. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Since the
enactment of FIRREA, the OTS has significantly increased the use of written
agreements to correct compliance deficiencies with respect to applicable laws
and regulations and to ensure safe and sound practices; violations of such
written agreements are grounds for initiation of cease and desist proceedings.
FIRREA significantly increased the amount of and grounds for civil money
penalties assessable against savings associations and "institution-affiliated
parties." FDICIA granted the FDIC back-up enforcement authority to recommend
enforcement to an appropriate federal banking agency (i.e., the OTS) and to
bring such enforcement action against a savings association or an
institution-affiliated party if such federal banking agency fails to follow the
FDIC's recommendation. In addition, FIRREA requires, except under certain
circumstances, public disclosure of final enforcement actions by the OTS. FIRREA
also expanded the group of persons subject to administrative enforcement
proceedings to include any "institution-affiliated party," including (i)
controlling shareholders, (ii) certain persons who participate in the affairs of
an institution, and (iii) attorneys, appraisers, and accountants who knowingly
or recklessly participate in wrongful action that had or is likely to have an
adverse effect on an insured depository institution. The FDIC Act, as amended by
FIRREA, provides that an institution-affiliated party may be subject to removal
or suspension whenever such person has violated any law, regulation, or order or
has engaged in an unsafe or unsound practice that causes the institution to
suffer financial loss.
FIRREA substantially increased the civil money penalties that may be
assessed for violations of law to as much as $1 million per day. Sentences now
range from up to 30 years for most financial institutions-related crimes
involving theft, fraud, and embezzlement to as much as life imprisonment in the
case of "financial kingpins" who derive more than $5 million from their crimes
within a certain period. Federal financial institutions agencies also have the
authority to prevent the dissipation of assets wrongfully obtained by
institution-affiliated parties and amends federal bankruptcy laws to prevent
such persons from using bankruptcy to avoid payment of civil and criminal money
penalties. It also is a crime to knowingly conceal an asset or property from the
FDIC or the Resolution Trust Corporation ("RTC") or to obstruct the examination
of a financial institution.
FIRREA also expanded the grounds for appointment for a conservator or
receiver for a savings association. Grounds for such appointment include:
insolvency; substantial dissipation of assets or earnings; existence of an
unsafe or unsound condition to transact business; likelihood that the
association will be unable to pay its obligations in the normal course of
business; and insufficient capital or the likely incurring of losses that will
deplete substantially all capital with no reasonable prospect for replenishment.
FIDIC added additional grounds for the appointment of a conservator or receiver
of a savings association.
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As a result of FIRREA and FDICIA, federal regulators have greater
flexibility to impose enforcement action on an institution that fails to comply
with its regulatory requirements, particularly with respect to the capital
requirements. Possible enforcement action ranges from the imposition of a
capital plan to the termination of deposit insurance. While the OTS has primary
responsibility over savings associations, the FDIC is empowered to recommend
enforcement action to the Director. If the Director does not take action, the
FDIC has authority to compel such action under certain circumstances.
Capital Requirements. FIRREA and the implementing regulations of the OTS
and the FDIC changed the capital requirements applicable to savings
associations, including Brunswick, and the consequences of failing to comply
with those requirements. The capital standards include (i) a core capital
requirement, (ii) a tangible capital requirement, and (iii) a risk-based capital
requirement. As described in more detail below, if an association fails to meet
any of the three capital standards, it must submit a capital restoration plan to
be approved by the OTS. Such failure may also result in the imposition of
various restrictions on the association.
The core capital standard requires a savings association to maintain
"core capital" of not less than 3% of adjusted total assets. "Core capital"
includes common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts, pledged deposits of mutual savings associations, and
certain goodwill resulting from prior regulatory accounting practices.
While the items mentioned above are included in core capital, intangible
assets must be deducted in computing core capital because they are excluded from
assets under FIRREA's capital rules. There are exceptions to that rule of
deduction, however. Purchased credit card relationships and mortgage servicing
rights may be included in core capital, in an amount not in excess of 50% of
core capital computed before deducting any disallowed intangible assets or
mortgage servicing rights. Purchased mortgage servicing rights, provided that
such rights must be valued at the lower of 90% of fair market value to the
extent determinable, or current amortized book value, and that any amount
written off must be deducted from core capital. Qualifying supervisory goodwill
held by an eligible savings association must be deducted from assets in
determining core capital. Finally, investments in subsidiaries engaged in
activities not permissible for a national bank generally must be deducted from
assets in determining core capital.
The tangible capital requirement requires a savings association to
maintain tangible capital in an amount not less than 1.5% of adjusted total
assets. "Tangible capital" is defined as core capital minus intangible assets.
FIRREA authorizes the inclusion of up to 90% of purchased mortgage servicing
rights in calculating tangible capital, but OTS regulations prohibit the
inclusion of supervisory goodwill in calculating tangible capital.
The risk-based capital requirement requires a savings association to
maintain risk-based capital of not less than 8% of risk-weighted assets.
Risk-based capital includes core capital and supplementary capital, provided
that the amount of supplementary capital counting toward the requirement may not
exceed core capital.
In calculating the risk-based capital requirement for a savings
association, risk-weighted assets equals total assets plus consolidated
off-balance sheet items, where each asset or item is multiplied by the
appropriate risk weight as described below. Before an off-balance sheet item is
assigned a risk weight, it must be converted to an on-balance sheet credit
equivalent amount. That conversion generally is accomplished by multiplying the
item by either 100%, 50%, 20%, or 0%, whichever is applicable under the OTS
regulations. Each asset and each credit equivalent amount is assigned a risk
weight as follows: (i) 0%, for cash and certain government securities; (ii) 20%,
for securities of the United States government or its agencies not backed by the
full faith and credit of the United States government and for high-quality
mortgage-related securities; (iii) 50%, for certain revenue bonds and qualifying
residential mortgage loans; or (iv) 100%, for most other loans.
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For purposes of determining the core and tangible capital components,
FIRREA requires that investments in certain "nonincludable subsidiaries" be
deducted from assets. Nonincludable subsidiaries are generally those engaged in
activities not permissible for national banks. However, certain exemptions
generally apply where the subsidiary: (i) is engaged in the activities solely as
an agent for its customers; (ii) is engaged solely in mortgage-banking
activities; (iii) (a) is an insured depository institution or a company whose
sole investment is an insured depository institution and (b) was acquired by the
association prior to May 1989; or (iv) is a federal savings association that
existed as such on August 9, 1989, and was, or acquired its principal assets
from, an association that was chartered before October 15, 1982, as a state
savings or cooperative bank. At September 30, 1996, Brunswick had no investments
in or advances to nonincludable subsidiaries.
OTS regulations provide that a savings association's total capital is
equal to its core capital plus its supplementary capital (up to 100% of its core
capital). However, in addition to assets otherwise required to be deducted in
calculating core capital, reciprocal holdings of depository institution capital
instruments must be deducted from assets in determining total capital. In
addition, that portion of land and nonresidential construction loans in excess
of 80% loan-to-value ratio, as well as all equity investments, must be deducted
from assets in determining total capital. At September 30, 1996, Brunswick's
investment in the portion of land and nonresidential construction loans in
excess of 80% loan-to-value ratio and all equity investments was not
significant.
Brunswick must maintain core capital at least equal to 3.0% of total
adjusted assets and risk-based capital at least equal to 8.0% of risk-weighted
assets. Additionally, Brunswick must maintain tangible capital at least equal to
1.5% of total adjusted assets.
The following table presents Brunswick's capital levels at September 30, 1996,
relative to these requirements.
<TABLE>
<CAPTION>
Amount Percent Actual Actual Excess
(Dollars in thousands) Required Required Amount Percent Amount
<S> <C>
Core Capital..................... $7,478 3.0% $26,174 10.5% $18,696
Tangible Capital................. 3,739 1.5 26,174 10.5 22,435
Risk-Based Capital............... 13,874 8.0 26,758 15.4 (1) 12,884
</TABLE>
(1) Represents risk-based capital as a percentage of risk-weighted
assets.
Although those capital ratios exceed the minimum capital requirements
imposed by the implementing OTS regulations at September 30, 1996, future
events, such as increased interest rates, asset write-downs, or a downturn in
the economy in areas where Brunswick has most of its loans, could adversely
affect future earnings and, consequently, the ability of Brunswick to meet its
future minimum capital requirements.
Savings associations with "above normal" interest rate risk exposure are
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association's interest rate risk is
measured by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates
(except when the 3-month Treasury bond equivalent yield falls below 4%, then the
decrease will be equal to one-half of that Treasury rate) divided by the
estimated economic value of the association's assets, as calculated in
accordance with guidelines set forth by the OTS. A savings association whose
measured interest rate risk exposure exceeds 2% must deduct an interest rate
component in calculating its total capital under the risk-based capital rule.
The interest rate risk component is an amount equal to one-half of the
difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial
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data and the effective date for the new capital requirement based on that data.
The rule also provides that the Director of the OTS may waive or defer an
association's interest rate risk component on a case-by-case basis.
The OTS also has adopted regulations to implement the system of prompt
corrective action established by FDICIA. The rules permit the OTS to take
certain supervisory actions when an insured association falls within one of five
specifically enumerated capital categories. Under the rules, an institution will
be deemed to be (i) "well-capitalized" if the association has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, and a leverage ratio of 5% or greater, and the association is not
subject to any enforcement agreement relating to capital; (ii) "adequately
capitalized" if the association exceeds a riskbased capital ratio of 8%, a Tier
1 risk-based capital ratio of 4%, and a leverage ratio of 4% (3% if the
association has a composite one rating); (iii) "under capitalized" if the
association's risk-based capital ratio is less than 8%, Tier 1 capital ratio is
less than 4%, or leverage ratio is less than 4% (3% if it has a composite one
rating); (iv) "significantly under capitalized" if the association's risk-based
capital is less than 6%, Tier 1 capital ratio is less than 3%, or leverage ratio
is less than 3%; and (v) "critically under capitalized" if the association has a
ratio of tangible equity to total assets that is 2% or below. The regulations
provide a framework of supervisory actions based on the capital level of an
insured association. Generally, an association may not declare any dividends,
make any other capital distribution, or pay a management fee if, following the
distribution or payment, the institution would be within any one of the three
under capitalized categories. There is a limited exception to this prohibition
for stock redemptions that do not result in any decrease in an association's
capital and would improve the association's financial condition, provided the
redemption has been approved by the OTS. Institutions that are classified as
under capitalized also are subject to additional mandatory supervisory actions,
including increased monitoring by the OTS, a requirement to submit a capital
restoration plan, and restrictions on growth of the institution's assets as well
as a limitation on its ability to make acquisitions and open branches. In
addition to the foregoing, a significantly under capitalized institution may not
pay bonuses or raises to its senior executive officers without prior OTS
approval and also must comply with additional mandatory requirements regarding
the operation of the association in the interim. Based upon the foregoing
regulations and First Federal's capital ratios as of September 30, 1996, First
Federal would be considered in the well-capitalized category.
The Director may grant an exemption from a capital directive imposing
operational restrictions or corrective actions if: (i) the exemption would pose
no significant risk to the affected deposit insurance fund; (ii) the
association's management is competent; (iii) the association is in substantial
compliance with all applicable statutes, regulations, orders, and supervisory
agreements and directives; and (iv) the association's management has not engaged
in any activities that have jeopardized the association's safety and soundness
or contributed to impairing its capital. In addition, a savings association that
does not meet applicable capital standards may not increase its assets without
the Director's prior written approval, and in no event may increase its assets
beyond the amount of net interest credited to its deposit liabilities.
In addition to the foregoing prompt corrective action provisions, FDICIA
also sets forth requirements that the federal banking agencies, including the
OTS, review their capital standards every two years to ensure that their
standards require sufficient capital to facilitate prompt corrective action and
to minimize loss to the SAIF and the BIF.
Appointment of Receiver or Conservator. FIRREA and FDICIA significantly
expand the grounds upon which a receiver or conservator may be appointed for a
savings association. That expansion enhanced the ability of regulatory
authorities to engage in "early intervention" to take control of an association
before it is insolvent. Included in the new grounds for appointment are (i)
"having substantially insufficient capital," (ii) incurrence or likely
incurrence of losses that will substantially deplete all of the association's
capital and no reasonable prospect for replenishing that capital without federal
assistance, and (iii) a violation of law or regulation that is likely to weaken
the association's condition.
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Limitation on Capital Distributions. The OTS has promulgated a rule
governing capital distributions such as dividends, stock repurchases, and
cash-out mergers by savings associations. The rule establishes three tiers of
institutions. An institution that meets or exceeds its fully phased-in capital
requirement after giving effect to a proposed distribution is considered a "Tier
1 Institution" under the rule and may make aggregate capital distributions
during a calendar year, without prior OTS approval, of up to the greater of (i)
all of its net income to date during the year plus an amount that would reduce
its excess capital ratio to one-half of such excess capital ratio at the
beginning of the calendar year or (ii) 75% of its net income over the most
recent four quarterly period. An institution that meets its current regulatory
capital requirement, but not its fully phased-in requirement, after giving
effect to a proposed distribution is a "Tier 2 Institution" and may make capital
distributions without prior OTS approval of up to the following percentage of
net income for the most recent four-quarter period: (i) 75% of such net income
if the association meets its fully phased-in risk-based capital requirements
before the distribution; or (ii) 50% of such net income if the association meets
only its current risk-based capital standards before the distribution. A savings
association that fails to meet its regulatory capital requirements (a "Tier 3
Institution") may not make capital distributions without the OTS's prior written
approval. An institution meeting the Tier 1 capital criteria but that has been
notified by the OTS that it is in need of more than normal supervision may be
treated as a Tier 2 or a Tier 3 institution. As of September 30, 1996, Brunswick
was a Tier 1 Institution and would be permitted to distribute 100% of net income
and one-half of its excess capital in a given year. However, there can be no
assurance that Brunswick will remain a Tier 1 Institution for purposes of the
rule.
The OTS also may determine that any capital distribution would constitute
an unsafe or unsound practice and prohibit the distribution, in particular if
Brunswick's capital were decreasing due to substantial losses.
Transactions with Affiliates. FIRREA made Federal Reserve Act ("FRA")
Sections 23A, 23B, and 22(h) applicable to savings associations. Those sections
limit extensions of credit to affiliated institutions, executive officers,
directors, and 10% stockholders. Generally, Sections 23A and 23B (i) limit the
extent to which the insured association or its subsidiaries may engage in
certain covered transactions with an affiliated institution to an amount equal
to 10% of such institution's capital stock and surplus, and place an aggregate
limit on all such transactions with all affiliated institutions of an amount
equal to 20% of such capital stock and surplus, and (ii) require that all such
transactions be on terms consistent with safe and sound banking practices.
"Covered transactions" include the making of loans, the purchasing of assets,
the issuance of a guarantee, and similar transactions. FIRREA also imposed three
additional rules on savings associations: (i) a savings association may not make
any extension of credit to an affiliate unless that affiliate is engaged only in
activities permissible for bank holding companies; (ii) a savings association
may not purchase or invest in securities insured by an affiliate, other than a
subsidiary; and (iii) the Director may impose more stringent restrictions on
savings associations than those set forth in Sections 23A, 23B, and 22(h) of the
FRA.
Brokered Deposits. FIRREA also added a new Section 29 to the FDI Act
generally prohibiting the acceptance or renewal of brokered deposits by any
under-capitalized insured depository institution after December 7, 1989, except
upon the specific application to and waiver of that prohibition by the FDIC. The
statute defines "brokered deposits" to include not only (i) deposits solicited
through the assistance of a third-party deposit broker, but also (ii) deposits
obtained by a depository institution by offering a rate of interest that is at
least 50 basis points (0.5%) higher than the prevailing rate offered by similar
depository institutions in the same market area. As of September 30, 1996,
Brunswick had no deposits that would be considered to be "brokered deposits"
under the statute and the FDIC's regulations.
Corporate Debt Securities Below Investment Grade. FIRREA also generally
prohibits savings associations and their subsidiaries from acquiring or
retaining any corporate debt security that, at the time of acquisition, is not
(or, in the case of previously acquired securities, was not) rated in one of the
four highest rating categories by at least one nationally recognized statistical
rating organization. At September 30, 1996, Brunswick had no corporate debt
securities below investment grade.
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Investment Portfolio Accounting. Savings associations are required to
account for transactions in accordance with GAAP, which requires that investment
securities held to maturity be accounted for at amortized cost; securities
available-for-sale, at the lower of cost or market; and trading securities, at
market.
Asset Classification. The OTS has a classification system for problem
assets of insured institutions which covers all problem assets, including assets
that previously had been treated as "scheduled items." Under that classification
system, problem assets of insured institutions are classified as "substandard,"
"doubtful," or "loss," depending on the presence of certain characteristics as
discussed below.
An asset is considered "substandard" if inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the insured institution will sustain "some loss" if
the deficiencies are not corrected. Assets classified as "doubtful" have all of
the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses make "collection or liquidation in full," on
the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either
substandard or doubtful, it is required to establish general allowances for loan
losses in an amount deemed prudent by management. General allowances represent
loss allowances that have been established to recognize the inherent risk
associated with lending activities, but that, unlike specific allowances, have
not been allocated to particular problem assets. When an insured institution
classifies problem assets as "loss," it is required either to establish a
specific allowance for losses equal to 100% of the amount of the asset so
classified or to charge off such amount. An institution's determination as to
the classification of its assets and the amount of its valuation allowances is
subject to review by the institution's Principal Supervisory Agent, who can
order the establishment of additional general or specific loss allowances.
Service Corporation Subsidiaries. The HOLA authorizes federally chartered
savings associations to invest up to 3% of their assets in the stock of service
corporation subsidiaries. In addition, federal thrift institutions meeting their
applicable minimum regulatory capital requirements may invest up to 50% of
regulatory capital in conforming loans to service corporations. The OTS's
implementing regulations require that the activities of a service corporation be
reasonably related to the activities of a federal association and generally
provide that OTS approval must be obtained before a service corporation may
commence any new activity. However, the regulations list a number of activities
in which a service corporation may engage without prior OTS approval, including:
(i) originating and servicing mortgage, consumer, educational, and commercial
loans; (ii) providing escrow, liquidity and credit analysis, and other backroom
services for other financial institutions; (iii) developing and managing real
estate; and (iv) providing certain securities brokerage services.
Under Section 18(m) of the FDI Act, also added by FIRREA, all savings
associations must provide the FDIC and the OTS with 30 days' notice prior to (i)
establishing or acquiring a new subsidiary or (ii) commencing a new activity
through an existing subsidiary, and, as part of the notice, must furnish such
information regarding the new subsidiary or activity as either agency may
require.
Assessments. FIRREA also amended the HOLA to allow the OTS to assess fees
on savings associations to fund the operations of the OTS, to recover the costs
of examining institutions under its jurisdiction, and to provide for the
processing of various types of applications, notices, requests, and securities
filings. Prior to the enactment of FIRREA, the FHLBB had obtained its funding
primarily from FHLB contributions and FSLIC insurance premiums. The OTS has
adopted regulations which implement these statutory provisions. The regulations
provide for OTS assessments to be made either quarterly or semiannually based on
the total consolidated assets of a savings association as shown on its most
recent report to the agency. Troubled savings
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<PAGE>
associations are to be assessed at a rate 50% higher than similarly sized
thrifts that are not experiencing problems.
Restrictions on Acquisition. Brunswick must obtain approval from the OTS
before acquiring control of any other savings association. Such acquisitions are
generally prohibited if they result in a savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association. Brunswick may
acquire up to 5%, in the aggregate, of the voting stock of any nonsubsidiary
savings association or savings and loan holding company without being deemed to
acquire "control" of the association or holding company. In addition, a savings
and loan holding company may hold shares of a savings association or a savings
and loan holding company for certain purposes, including a bona fide fiduciary,
as an underwriter or in an account solely for trading purposes. Under certain
conditions, a savings and loan holding company may acquire up to 15% of the
shares of a savings association or savings and loan holding company in a
qualified stock issuance; such acquisition is not deemed a controlling interest.
Federal statutes applicable to all depository institutions require a
person or entity seeking to obtain control of Brunswick to obtain the prior
approval of the OTS as the principal regulatory agency of federally chartered
savings banks. FIRREA amended the Change in Bank Control Act (the "Control Act")
to apply to savings associations. The Control Act provides that no person,
acting directly, indirectly, or through or in concert with one or more other
persons, may acquire "control" of a savings association without giving at least
60 days' prior written notice to the Director and having the Director not object
or extend such 60-day period. Federal law also generally provides that no
company may acquire "control" of an insured savings association without the
Director's prior approval, and that any company that acquires such control
becomes a "savings and loan holding company" subject to registration,
examination, and regulation under Section 10 of the HOLA and regulations adopted
pursuant thereto.
FIRREA also authorizes the Federal Reserve to approve bank holding
company acquisitions of savings associations and provides that the Federal
Reserve may not impose "tandem restrictions" in connection with such approvals.
Those provisions of FIRREA specifically reverse a long-standing policy of the
Federal Reserve precluding acquisitions of healthy thrift institutions by bank
holding companies.
Federal Income Taxation. Brunswick and its subsidiary are subject to
taxation as corporations under applicable provisions of the Internal Revenue
Code. Brunswick's federal income tax returns have been audited by the Internal
Revenue Service through September 30, 1992. Brunswick and its subsidiary file a
consolidated federal income tax return on the basis of a September 30 fiscal
year using the accrual method of accounting. Although Brunswick is included in a
consolidated tax return with its subsidiary, certain federal income tax rules
are applicable to Brunswick only.
For example, savings institutions like Brunswick that meet certain
definitional tests, primarily relating to their assets and the nature of their
business, are permitted to deduct annual additions to a reserve for bad debts,
within specified formula limits. In each tax year, the deductible addition may
be computed using the more favorable of either: (i) a method based generally on
the institution's average loan loss experience over the six-year period ending
with the taxable year (the "Experience Method"), or (ii) a method based on a
specified percentage of the institution's taxable income (the "Percentage
Method").
Brunswick uses the Percentage Method for computing additions to its bad
debt reserve for "qualifying real property loans" (generally those loans secured
by interests in real property). Additions to the reserve for nonqualifying real
property loans must be computed under the Experience Method.
Under the Percentage Method, the allowable deduction is computed as a
percentage of Brunswick's taxable income before the deduction, as adjusted for
certain items (such as the dividends-received deduction, withdrawals from excess
bad debt reserves, as discussed below, and certain gains), and is generally
equal to
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8% of adjusted taxable income, less any amounts deducted in connection with
nonqualifying real property loans. The allowable deduction for qualifying real
property loans computed under the Percentage Method is also subject to various
other limitations that historically have not affected Brunswick.
To the extent that Brunswick's reserve for losses on qualifying real
property loans exceeds the amount that would have been allowed under the
Experience Method, then amounts that are considered to have been withdrawn from
that excess reserve to make distributions to stockholders will be included in
Brunswick's taxable income. Dividend distributions in excess of Brunswick's
current or accumulated earnings and profits as calculated for federal income tax
purposes will be considered to result in withdrawals from its bad debt reserve.
Distributions in redemption of stock or in partial or complete liquidation also
are considered to result in withdrawals from the bad debt reserve regardless of
the level of current or accumulated earnings and profits. In the case of
Brunswick, no such distributions have taken place, nor does management
anticipate that any such distributions will take place in the near future.
Certain other special rules apply to financial institutions such as
Brunswick. For example, financial institutions are permitted to carry net
operating losses ("NOLs") back for three years or forward for fifteen years. In
addition, although taxpayers generally are not permitted to deduct interest
expense allocable to the purchase or carrying of tax-exempt obligations,
financial institutions are entitled to deduct 80% of their interest expense
deemed allocable to tax-exempt obligations acquired before August 8, 1986 (100%
for obligations acquired before 1983). A financial institution is not permitted
to deduct any portion of its interest expense allocable to tax-exempt
obligations acquired after August 7, 1986, other than designated tax-exempt
obligations issued by small municipal issuers, which remain subject to the 80%
limit.
Corporations are liable for an alternative minimum tax ("AMT") equal to
20% of alternative minimum taxable income (taxable income after making certain
"adjustments" and adding certain "preferences") if and to the extent the AMT
exceeds the regular income tax. The preference and adjustment items include (but
are not limited to): (i) the excess of the allowable bad debt deduction over the
deduction that would have been allowable on the basis of actual experience, (ii)
for taxable years beginning after 1989, 75% of the difference (positive or
negative) between "Adjusted current earnings" and alternative minimum taxable
income (as specifically determined for this purpose), (iii) interest on certain
"private activity" bonds( issued for the benefit of nongovernmental persons)
issued after August 7, 1986, and (iv) replacement of the regular NOL deduction
with the alternative minimum tax NOL deduction (computed with the AMT
adjustments and reduced by preference items) which may be utilized to offset
only 90% of the alternative minimum taxable income. Brunswick was not liable for
the AMT for its taxable year ended September 30, 1996.
State Income Taxation. Under Georgia law, financial institutions
generally are subject to the same taxes, state and local, as other corporations
in Georgia. The state corporation income tax rate to which Brunswick is subject
is 6% of Georgia taxable net income, which is equal to federal taxable income
with certain adjustments. In addition to the corporate income tax, financial
institutions in Georgia are subject to a corporate net worth tax, intangible,
tangible, real and personal property taxes, and a special occupation tax at a
rate of .25% of gross receipts. The appropriate county or city is also permitted
to levy a business license fee at a rate of .25% of gross receipts. The total
amount of the license fee and occupation tax is allowed as a credit against the
corporation income tax.
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Effect of Governmental Policies
The earnings and business of Brunswick are and will be affected by the
policies of various regulatory authorities of the United States, especially the
Federal Reserve Board. The Federal Reserve Board, among other things, regulates
the supply of credit and deals with general economic conditions within the
United States. The instruments of monetary policy employed by the Federal
Reserve Board for these purposes influence in various ways the overall level of
investments, loans, other extensions of credit and deposits, and the interest
rates paid on liabilities and received on assets.
Interest and Usury
Brunswick is subject to numerous state and federal statutes that affect
the interest rates that may be charged on loans. These laws do not, under
present market conditions, deter Brunswick from continuing the process of
originating loans.
Competition
Brunswick encounters significant competition in its market from
commercial banks, thrift institutions, other financial institutions and
financial intermediaries. Brunswick not only competes with other banks
performing banking services in its markets, but also competes with various other
types of financial institutions for deposits, certain commercial, fiduciary and
investment services and various types of loans and certain other financial
services. Brunswick also competes for interest-bearing funds with a number of
other financial intermediaries and investment alternatives, including
"money-market" mutual funds and brokerage firms.
Brunswick competes not only with financial institutions based in the State
of Georgia, but also with a number of out-of-state banks, bank holding companies
and other financial institutions which have an established market presence in
Georgia. Many of the financial institutions operating in Georgia are engaged in
local, regional, national and international operations and have more assets and
personnel than Brunswick. Most of the southeastern states, including Georgia,
have enacted legislation that allows bank holding companies (and in certain
cases, thrift institutions) in those states to acquire banks (and in certain
cases, thrift institutions) and bank holding companies in other states located
in the region, which has the effect of causing competition to intensify.
Employees
As of September 30, 1996, Brunswick and its subsidiary had 102 full-time
employees and 35 part-time employees. The employees are not represented by a
collective bargaining unit. Brunswick believes that its employee relations are
excellent.
28
<PAGE>
Item 2. Properties
Properties
The following table sets forth certain information concerning Brunswick's
offices. All were full service offices at September 30, 1996. The total net book
value of such offices at September 30, 1996 was approximately $1.4 million.
Year
Facility Title to
Office Location Opened the Building (1)
Main Office 1974 Leasehold. Lease
777 Gloucester Street terminates in
Brunswick, GA 31520 2003 and has one
ten-year renewal
option.
St. Simons Ocean Boulevard Office 1961 Fee Simple.
621 Ocean Boulevard
St. Simons Island, GA 31522
St. Simons Plaza Office 1986 Leasehold. Lease
1600 Frederica Road terminates in
St. Simons Island, GA 31522 2006 and has two
ten-year renewal
options.
Glynn Place Mall Office 1986 Fee Simple.
167 Altama Connector
Brunswick, GA 31520
Altama Office 1966 Leasehold. Lease
4401 Altama Avenue terminates in
Brunswick, GA 31520 1998 and has two
ten-year renewal
options.
- -----------------------
(1) Brunswick owns the land on which all of its offices, except the St. Simons
Plaza, is located.
Brunswick uses the services of an outside data processing firm for its
data processing and recordkeeping functions.
Item 3. Legal Proceedings
In 1988, Brunswick entered into an agreement with The Citizens & Southern
Corporation and certain related affiliates which provided for the acquisition of
Brunswick by C&S and the exchange of Brunswick common stock for C&S common
stock. The agreement was amended in 1990 to provide for receipt of C&S/Sovran
Corporation stock by Brunswick stockholders as a result of the merger in 1990 of
C&S with Sovran
29
<PAGE>
Financial Corporation (which was acquired by NationsBank Corporation
("NationsBank") in late 1991). On September 27, 1991, Brunswick filed a suit in
Glenn County Superior Court against C&S/Sovran and its affiliated entities
asserting that they had breached the agreement entered into with Brunswick. In
May, 1994, a jury found that C&S/Sovran breached the agreement in March, 1991 by
not filing certain regulatory applications to pursue the acquisition of
Brunswick. On December 16, 1994, the court issued an order which provided that
Brunswick would be entitled to the remedy of specific performance of the
agreement entered into with C&S/Sovran. The order also provided that a
subsequent jury trial would be held to determine when the merger should have
closed. The order also required the defendants to make an acquisition proposal
to Brunswick stockholders to acquire Brunswick stock in exchange for NationsBank
stock. On July 18, 1996, a Glynn County jury determined that the merger would
have closed on June 19, 1991. On October 15, 1996, the Court issued an Order
finding that the number of NationsBank shares required to be offered to
Brunswick stockholders is 1,280,268 shares, increased by the number of
NationsBank shares in an amount equal to the difference between dividends paid
by the defendants since December 1991 less dividends paid on all Brunswick
shares from June 19, 1991 to the date of the offer. The Order stated that the
number of NationsBank shares to be offered is subject to reduction by the amount
payable by First Federal pursuant to employment severance agreements as well as
legal fees paid by Brunswick which exceed amounts set forth in the Court's
Order. On November 12, 1996, Brunswick sent a share calculation letter to
NationsBank addressing the method by which the Order will be implemented and
advising NationsBank that, after Brunswick pays approximately $12.5 million for
its contractual obligations for litigation attorneys' fees and $1.3 million to
four senior executive officers pursuant to change of control agreements,
Brunswick's stockholders will receive .80 shares of NationsBank stock for each
share of Brunswick stock. The parties anticipate that the closing of the
NationsBank transaction will occur in the second quarter of 1997.
Brunswick and its subsidiary are party to various legal proceedings in
the normal course of their business; however, Brunswick management believes that
the ultimate outcome in such proceedings in the aggregate would not have a
material adverse effect on the financial position or results of operations of
Brunswick and its subsidiary on a consolidated basis.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information contained under the section captioned "Capital Stock" in
the Annual Report is incorporated herein by reference.
Item 6. Selected Financial Data
The information contained in the table captioned "Selected Financial
Highlights" in the Annual Report is incorporated herein by reference.
30
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements contained in the Annual Report are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The registrant has not had any disagreements with its accountants on any
matter of accounting principles or practices or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained under the sections captioned "Directors" and
"Executive Officers" under "Proposal One - Election of Directors" in the
registrant's definitive Proxy Statement for the Annual Meeting of Stockholders
to be held on January 22, 1997, to be filed with the OTS pursuant to Regulation
14A within 120 days of the registrant's fiscal year end (the "Proxy Statement"),
is incorporated herein by reference.
Item 11. Executive Compensation
The information contained in the sections captioned "Information About
the Board of Directors and Its Committees", "Executive Compensation and
Benefits" and "Information on Benefit Plans and Policies" under "Proposal One -
Election of Directors" in the Proxy Statement, is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information contained in the sections captioned "Directors" and
"Management Stock Ownership" under "Proposal One - Election of Directors," and
"Ownership of Equity Securities" in the Proxy Statement, is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
The information contained in the section captioned "Certain Transactions"
under "Proposal One Election of Directors" in the Proxy Statement, is
incorporated herein by reference.
31
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
The following are contained in the registrant's Annual Report to
Stockholders.
(a) 1. Financial Statements
Report of Independent Public Accountants - First
Federal Savings Bank of Brunswick, Georgia and
Subsidiary
Consolidated Statements of Financial Condition as of
September 30, 1996 and 1995
Consolidated Statements of Income for the Years Ended
September 30, 1996, 1995, and 1994
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended September 30, 1996, 1995 and
1994
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
All schedules have been omitted as the required
information is either inapplicable or included in the
Notes to Consolidated Financial Statements.
3. Exhibits
3.1 Charter and By-laws of First Federal Savings Bank of
Brunswick, Georgia (Incorporated by reference to
Exhibit 3 to Brunswick's Form 10 filed with the FHLBB
on June 28, 1984)
3.2 Assistant Secretary's Certificate dated November 18,
1991 setting forth Corporate Resolutions amending
Bylaws of First Federal Savings Bank of Brunswick,
Georgia (Incorporated by reference to Exhibit 3.2 to
Brunswick's Annual Report on Form 10-K for the fiscal
year ended September 30, 1993)
10.1 First Federal Savings Bank of Brunswick, Georgia 1984
Stock Option Plan, as amended (Incorporated by
reference to Exhibit 10 to Brunswick's Annual Report on
Form 10-K for the fiscal year ended December 31, 1986)
10.2 Form of Agreement entered into January 1, 1995 between
First Federal Savings Bank of Brunswick, Georgia and
each of Ben T. Slade, III, John J. Rogers and James H.
Gash (incorporated by reference to Exhibit 10.2 to
Brunswick's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994)
32
<PAGE>
13.1 First Federal Savings Bank of Brunswick, Georgia 1996
Annual Report
21.1 Subsidiary of the Registrant
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by Brunswick during
the last fiscal quarter covered by this report.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Brunswick, State of Georgia, on December 26, 1996.
FIRST FEDERAL SAVINGS BANK
OF BRUNSWICK, GEORGIA
By: /s/ Ben T. Slade, III
--------------------------------
Ben T. Slade, III, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on December 26, 1996.
Signature Title
/s/ Ben T. Slade, III Chairman of the Board and President
- ----------------------------
Ben T. Slade III
/s/ John J. Rogers Senior Vice President - Mortgage Banking,
- ---------------------------- Chief Financial
John J. Rogers Officer, and Director
/s/ Robert B. Sams Vice President and Controller
- ----------------------------
Robert B. Sams
/s/ James H. Gash Senior Vice President - Commercial Banking
- ---------------------------- and Director
James H. Gash
/s/ James F. Barger Director
- ----------------------------
James F. Barger
/s/ J. Dewey Benefield, Jr. Director
- ----------------------------
J. Dewey Benefield, Jr.
- ---------------------------- Director
William O. Faulkner
/s/ Mack F. Mattingly Director
- ----------------------------
Mack F. Mattingly
/s/ T. Gillis Morgan, III Director
- ----------------------------
T. Gillis Morgan, III
/s/ D. Paul Owens Director
- ----------------------------
D. Paul Owens
- ---------------------------- Director
Jack Torbett
/s/ L. Gerald Wright Director
- ----------------------------
L. Gerald Wright
34
<PAGE>
First Federal Savings Bank of Brunswick, Georgia
Form 10-K
For Fiscal Year Ending September 30, 1996
EXHIBIT INDEX
Exhibit Page
No. Exhibit No.
13.1 First Federal Savings Bank of Brunswick,
Georgia 1996 Annual Report
22.1 Subsidiary of the Registrant
35
<PAGE>
Exhibit 13.1
First Federal Savings Bank of Brunswick, Georgia
Annual Report to Stockholders
For Fiscal Year Ended September 30, 1996
<PAGE>
A MESSAGE FROM THE PRESIDENT
Our net income for the fiscal year ended __________________
September 30, 1996 was $2,156,717 (earnings per
share of $1.42) compared to $3,114,460 (earnings
per share of $2.05) for the prior year. The primary Picture
reason for the decline was the one-time expense to
the Bank of approximately $1,362,000 ($885,000 after
tax) representing a special assessment on deposits of of
65.7 basis points required to recapitalize the Savings
and Loan Insurance Fund ("SAIF"). Now that the fund is
recapitalized, our premiums for Federal Deposit Insurance The President
will decline dramatically and this will have a beneficial
effect on our future income. Another reason for the
decline in net income is the $171,518 increase in legal Goes Here
fee expense because of the July 1996 trial in our
litigation with NationsBank. ----------------
Return on average assets for the year ended September 30, 1996 was .86%
compared with 1.28% for 1995. Exclusive of the one-time SAIF assessment and the
net increase in legal fees, our return on average assets would have been 1.25%.
During July of 1996, we celebrated the 70th birthday of First Federal Savings
Bank. This was a delightful occasion and gave us the opportunity to thank many
long-time customers for their loyalty over the years. Several customers who have
been with us for the full seventy years attended the birthday party.
As previously reported, the NationsBank litigation has now been settled
pursuant to the Court Order of October 5, 1996. The result will be the
acquisition of First Federal by NationsBank Corporation in a tax-free exchange
of stock. Stockholders of First Federal will be offered .80 shares of
NationsBank stock for each First Federal share. The full details of the proposed
transaction will be described in the proxy materials that should be mailed in
March of 1997. The projected closing should occur between March 31, 1997 and
April 30, 1997.
We are, of course, pleased to have this lengthy litigation behind us and feel
that the result will be rewarding for all stockholders of First Federal. At
current prices for NationsBank stock, the transaction will be valued at
approximately $115 million. When you consider that our original stock issue was
approximately $2.7 million, this is quite a substantial increase in value over
the twelve-year period that we've been a public company.
We've been assured by NationsBank that they are eager to conclude this
transaction and bring their array of services to the people of Brunswick and
Glynn County. All of us at First Federal will do our best to provide for a
smooth transition and hope all of our stockholders and customers will be pleased
with the resulting changes.
Yours very truly,
/s/ Ben T. Slade, III
Ben T. Slade, III
President
3
<PAGE>
HIGHLIGHTS OF 1996
NET INTEREST INCOME DIVIDENDS PAID
(graph appears below (graph appears below
and plot points appears and plot points appears
as follows:) as follows:)
Millions of Dollars Thousands of Dollars
1992 7.74 1992 868
1993 8.57 1993 913
1994 9.26 1994 1,123
1995 9.78 1995 1,334
1996 9.84 1996 1,395
Shifts in net interest income are a function of volume, movements in interest
rates, and the positioning of the Bank with respect to interest rate risk
management. The Bank works to maximize net interest income within the parameters
of interest rate risk management so as to provide for stability in net interest
income over varying movements in interest rates.
The $5,633,000 in cash dividends paid to shareholders over the past five years
exceeds the net amount raised in 1984, in the Bank's only public offering, by
$3,250,000.
SELECTED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Gross Income $22,736,355 $21,309,238 $19,020,263 $19,217,317 $21,171,010
Total Interest Income 20,191,565 19,202,040 16,957,142 16,636,594 18,487,263
Total Interest Expense 10,353,532 9,423,311 7,700,190 8,069,801 10,750,488
Net Interest Income 9,838,033 9,778,729 9,256,952 8,566,793 7,736,775
Income Before Income Taxes 3,348,967 4,815,060 4,224,524 4,109,802 3,536,157
Net Income 2,156,717 3,114,460 3,280,424 2,660,712 2,245,357
Net Income Per Share1 1.42 2.05 2.17 1.77 1.50
Cash Dividends Declared .95 .89 .75 .61 .58
Book Value Per Share 2 17.29 17.00 15.44 14.33 13.19
Real Estate Loans 3 182,897,960 163,832,021 158,597,317 155,377,526 141,230,291
Total Net Loans 3 209,868,046 186,664,013 179,017,162 173,200,538 158,257,837
Mortgage-Backed
Securities 8,339,891 12,232,044 11,074,637 11,086,923 9,092,030
Investment Securities 8,024,132 16,488,815 15,976,701 20,247,531 22,164,392
Total Assets 249,117,444 253,287,453 231,514,862 228,145,524 220,644,738
Total Deposits 218,075,859 222,805,996 200,715,381 196,546,493 192,374,447
Total Borrowings 1,500,000 2,200,000 4,000,000 5,300,000 3,300,000
Total Net Worth 26,025,085 25,506,415 23,622,064 21,449,495 19,701,917
Total Regulatory Capital 26,758,000 26,101,000 24,114,000 22,318,000 20,445,000
Total Full Service Offices 5 5 5 5 5
</TABLE>
1 Calculated based on fully diluted shares outstanding.
2 Calculated assuming all options exercised.
3 Includes mortgage loans held for sale.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General Overview:
From the Bank's headquarters and two branch offices located in Brunswick, along
with two branch offices on St. Simons Island, the Bank is primarily engaged in
the business of attracting deposits from the general public and investing those
funds in real estate, consumer, and commercial loans. Deposits averaged $218.4
million in the current year compared to average deposits of $209.3 million in
the year ago period. The Bank's loan portfolio averaged $203.4 million in the
current year, rising from an average of $187.7 million during the period one
year ago.
The Bank recorded net income of $2,156,717 or $1.42 per share for the fiscal
year ended September 30,1996 compared to net income of $3,114,460 ($2.05 per
share) and $3,280,424 ($2.17 per share) for the years ended September 30,1995
and 1994. Fiscal year 1996 results included a charge of $1,362,018 representing
a provision made for the payment of a special assessment imposed by Congress
intended to re-capitalize the "thrift" portion of the Federal Deposit Insurance
Fund. This charge reduced net income by approximately $885,000 or 5.58 per
share.
Liquidity and Capital Resources:
The Bank is required to maintain minimum liquidity levels of cash and eligible
securities equal to 5% of withdrawable savings accounts and short-term
borrowings. Cash and eligible securities include cash and due from banks,
interest-bearing deposits in other banks, federal funds sold, other short-term
investments and certain investment securities. At September 30, 1996 and 1995,
cash and eligible securities totalled $24.0 million and $46.0 million,
respectively. It has been the Bank's policy to maintain liquidity in excess of
the required 5% amount. A secondary source of liquidity to the Bank has resulted
from the conversion of single family mortgage loans to Federal Home Loan
Mortgage Corporation ("FreddieMac") participation certificates ("PC's"). During
fiscal year 1996, $6.4 million in loans were exchanged with FreddieMac for PC's.
While not eligible to be considered for regulatory liquidity, these certificates
may be readily sold to raise additional cash and may also be used as collateral
for both short and long-term borrowings. At September 30,1996, the Bank held
approximately $3.9 million in PC's resulting from such exchanges with
FreddieMac. Average daily liquidity was 10.47% and 19.90% for the months of
September 1996 and 1995, respectively.
The Bank's one year interest rate gap was a positive $34.8 million at September
30,1996 compared to a positive $38.0 million at September 30,1995. The interest
rate gap calculation involves measuring the difference between maturing or
repricing interest earning assets and maturing or repricing interest bearing
liabilities over a given time frame, e.g., one year. Measurement of the Bank's
gap has historically categorized NOW and passbook deposit accounts as
non-interest rate sensitive liabilities. At September 30, 1996, NOW and passbook
accounts totalled, in aggregate, $55.9 million, and should interest rates remain
at or rise from current levels, the rates paid by the Bank on these accounts
could rise as well. The decrease in the Bank's positive one year gap resulted
primarily from a decrease in short term liquid investments from $23.4 million at
September 30,1995 to $14.1 million at September 30,1996. Funds held in
short-term liquid investments at September 30,1995, consisting of federal funds
sold, interest bearing deposits in other banks, and treasury and agency
securities maturing within one year, were shifted into mortgage, consumer, and
commercial loans throughout the current fiscal year as loan demand and interest
rate risk considerations allowed. This action provided for an increase in the
Bank's weighted yield on interest earning assets from 8.08% at September 30,
1995 to 8.30% at September 30, 1996, despite a decline in both the prime and
federal funds rates of 50 basis points during the current fiscal year.
Total loan originations for the year ended September 30, 1996 increased to $91.9
million from $80.4 million one year ago, reflective of a healthy economy
combined with accommodative levels of interest rates. Loans secured by real
estate increased to $200.2 million at September 30,1996 from $179.7 million at
September 30, 1995. Construction loans accounted for 40% of this increase,
rising from $13.0 million one year ago to $21.2 million at September 30,1996.
Total deposits decreased to $218.1 million at September 30, 1996 from $222.8
million at September 30,1995, as certificate of deposit balances declined $6.3
million in the current year. During the first two quarters of fiscal year 1995,
as the Federal Reserve board ("FRB") increased short term interest rates in
order to cool economic activity, the rates offered on certificates of deposit
increased to levels attractive to investors as certificate balances increased by
$25.7 million. During the fourth quarter of fiscal year 1995, the FRB began
lowering short-term interest rates in response to several months of acceptable
economic and inflation indicators and continued this posture into the first two
quarters of the current year. In response to this action, the rates offered on
certificates declined significantly and some proceeds from maturing accounts
were transferred to investments outside the Bank.
Advances from the Federal Home Loan Bank declined from $2.2 million at September
30,1995 to $1.5 million at September 30,1996. Twelve million dollars in new
short-term advances were drawn and repaid during the current fiscal year and an
additional $.7 million, drawn in prior years, was repaid as well.
At September 30,1996, the Bank had approximately $2.1 million in outstanding
commitments to fund loans. Of this amount, approximately $1.2 million were
commitments to fund loans on single family residential homes, approximately $.7
million were to fund loans on other real estate, and approximately $.2 million
were to fund various consumer and non-real estate commercial loans. The cash
needed to fund these loans will be derived from principal repayments on
outstanding loans and through the fulfillment of commitments to sell loans in
the secondary markets.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)
requires that savings associations must now satisfy three separate capital
standards. The Bank must maintain core capital at least equal to 3.0% of
adjusted total assets and risk- based capital at least equal to 8.0% of
risk-weighted assets. Additionally, the Bank must maintain tangible capital at
least equal to 1.5% of total adjusted assets. At September 30,1996, the Bank's
position with respect to these requirements was as follows:
5
<PAGE>
(Dollars in Amount Percent Actual Actual Excess
Thousands) Required Required Amount Percent Amount
Core Capital $7,478 3.0% $26,174 10.5% $18,696
Tangible Capital 3,739 1.5 26,174 10.5 22,435
Risk-Based Capital 13,874 8.0 25,758 15.4(1) 12,884
(1) Represents risk-based capital as a percentage of risk-weighted assets.
Impact of Inflation and Changing Prices:
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. The principal element of the Bank's earnings is
interest income which may be significantly affected by the level of inflation
and by government monetary and fiscal policies adopted in response to
inflationary or deflationary pressures.
During fiscal year 1994, in response to significantly higher levels of economic
activity, the FRB increased the federal funds rate from 3.00% to 3.25%, and
followed up with four additional increases to raise the rate to 4.75% at
September 30, 1994. During the first two quarters of fiscal year 1995, the FRB
continued its efforts to cool the economy and raised the federal funds rates to
6.00%. Early in the fourth quarter of fiscal year 1995, responding to several
months of acceptable economic and inflationary indicators the FRB reduced the
federal funds rate by 25 basis points to 5.75%. During December and January of
the current year the funds rate was cumulatively lowered an additional 50 basis
points to 5.25% and remained at this level through September 30,1996.
Any future measures designed to restrict the growth in the monetary supply could
cause an increase in short-term interest rates. These rates have a greater
effect on the Bank than the general level of inflation and changing prices
and give added importance to the need to manage the interest rate gap.
Results of Operations:
Net income for the fiscal year ended September 30,1996 was $2,156,717 ($1.42 per
share) compared to $3,114,460 ($2.05 per share) for the fiscal year ended
September 30,1995, which followed net income of $3,280,424($2.17 per share) for
the fiscal year ended September 30, 1994. Fiscal year 1996 included a one-time
charge to the Bank of approximately $1,362,000 representing a special assessment
on deposits of 65.7 basis points enacted by Congress on September 30,1996 as a
measure to recapitalize the Savings Association Insurance Fund. This charge
reduced net income by approximately $885,000 or approximately $.58 per share.
Fiscal year 1994 net income included income of $525,000 ($.35 per share)
resulting from the required adoption of the Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes". The rules set forth in SFAS No. 109 changed the
manner in which income tax expense is determined for financial statement
purposes. Adoption of SFAS No. 109 during the first quarter of fiscal year 1994
resulted in a reduction in the Bank's deferred tax liability with a resulting
benefit recorded through the income statement as a cumulative effect of a change
in accounting principle.
The largest components of the Bank's total income and total expenses are
interest income from loans and investments and interest expense on deposits and
borrowings. The difference between these items is net interest income, and the
difference between the combined yield on loans and investments and the cost of
deposits and borrowings is referred to as the yield spread.
Total interest income for the years ended September 30, 1996, 1995 and 1994 was
approximately $20,191,565, $19,202,040, and $16,957,142, respectively. Of the
increase in interest income from fiscal year 1995 to 1996 of approximately $l.0
million, approximately $.1 million was due to an increase in rate and
approximately $.9 million was due to an increase in volume.
The primary factor in the increase in interest income from fiscal year 1995 to
1996 was the increase in the Bank's earning assets. The fiscal year 1995
increase in the Bank's total assets of $21.8 million (resulting from
certificates of deposit inflow) occurred primarily during the third and fourth
quarters, and although total assets did decline during fiscal year 1996 by $4.2
million, interest earning assets averaged $242.7 million in the current year
compared to $232.2 million during fiscal year 1995. Additionally, the weighted
average yield on the Bank's interest earning assets increased from 8.27% during
fiscal year 1995 to 8.31% during fiscal year 1996, despite a 50 basis point
decline in both the prime and federal funds rates in the current year. This
improvement in yield resulted from a shift in funds from both federal funds sold
and securities available for sale accounts into higher yielding loan products.
The Bank's loan to deposit ratio increased from 83.8% at September 30,1995 to
96.2% at September 30, 1996.
Interest on mortgage-backed securities increased to $1,021,788 in the current
year from $817,223 during fiscal year 1995 resulting from an increase in the
average portfolio balance from $11.7 million during fiscal year 1995 to $15.1
million in the current year. During the first quarter of fiscal year 1996,
short-term liquid funds were invested in mortgage-backed securities so as to
lock-in yields in a then declining rate environment. During subsequent periods
of fiscal year 1996, certain of these mortgage-backed securities were sold to
provide funding for new loans.
Interest on investment securities declined from $1,002,301 in 1995 to $785,315
in the current year due primarily to lower average portfolio volume of
approximately $3.6 million.
The primary factor in the increase in interest income from fiscal year 1994 to
1995 was the increase in the weighted average yield on interest earning assets
from 7.62% during fiscal year 1994 to 8.27% in fiscal year 1995, reflective of
the 300 basis point increase in the federal funds rate over a period of five
quarters beginning in the second quarter of fiscal year 1994. Adjustable rate
loans represented 63.4% of the total loan portfolio during fiscal year 1994 and
64.1% during fiscal year 1995. The primary indices to which these loans are
tied, prime and one year treasury bills which averaged 6.69% and 4.61%,
respectively, during fiscal year 1994, rose to averages of 8.71% and 6.62% for
fiscal year 1995.
Total interest expense for the years ended September 30, 1996, 1995 and 1994 was
$10,353,532, $9,423,311, and $7,700,190, respectively. Of the increase in
interest expense from fiscal year 1995 to 1996 of approximately $.9 million,
approximately $.4 million was due to an increase in volume
6
<PAGE>
and approximately $.5 million was due to an increase in rate. The major
component of the Bank's interest expense is interest on deposits. The cost of
deposits increased from 4.40% for the fiscal year ended September 30, 1995 to
4.66% for the fiscal year ended September 30,1996, primarily resulting from an
increase in the cost of certificates of deposit from 5.70% one year ago to 6.13%
in the current period. Rates offered on certificates of deposit rose sharply
during the second and third quarters of fiscal year 1995. This rise in rates not
only affected the then maturing certificates of deposit, but also attracted
funds from outside the Bank as certificate balances increased from $130.2
million at March 31, 1995 to $144.4 million at September 30, 1995. The timing
of the rollover and acquisition along with the related maturity terms of these
higher yielding certificates served to impact the current fiscal year to a
greater extent than the year ended September 30,1995. Additionally, certificates
of deposit as a percentage of total deposits increased from 62.1% during fiscal
year 1995 to 64.0% for fiscal year 1996, serving to further increase the Bank's
cost of deposits. The increase in interest expense from $7.7 million for the
fiscal year 1994 to $9.4 million for fiscal year 1995 resulted primarily from
the increase in the weighted rate paid on certificates of deposit from 4.77% in
fiscal year 1994 to 5.70% in fiscal year 1995 as well as the significant
increase in certificates of deposit balances from $118.7 million at September
30,1994 to $144.4 million at September 30,1995.
Net interest income for the fiscal years ended September 30,1996, 1995 and 1994
was $9.84 million, $9.78 million and $9.26 million, respectively. The increase
from fiscal year 1995 to 1996 was the result of the Bank's growth of $10.5
million in average earning assets as the net yield on interest earning assets
declined from 4.21% in fiscal year 1995 to 4.05% in fiscal year 1996. The
growth in average interest earning assets was funded primarily by average
deposit growth of $9.0 million and to a lesser extent, earnings from operations.
Average advances outstanding from the Federal Home Loan Bank decreased $1.1
million during the current year as compared to fiscal year 1995.
The increase in the net yield from fiscal year 1994 to 1995, from 4.16% to
4.21%, was due primarily to the Bank's positive one year interest rate gap which
generally benefits the net spread during periods of rising interest rates. From
the second quarter of fiscal year 1994 to the fourth quarter of fiscal year
1995, the federal funds and prime rates increased by 300 basis points along with
a generally commensurate increase across the entire yield curve.
Noninterest income increased to $2,544 790 for the year ended September 30,1996
from $2,107,198 for the year ended September 30,1995, which followed $2,146,954
for the year ended September 30, 1994. Service charges and other fees were
$2,086,188 for the year ended September 30, 1996, compared to $1,894,101 and
$1,750,739 for the years ended September 30,1995 and 1994, respectively. The
increase in fiscal year 1996 over the two prior years resulted primarily from
increases in various service charges on deposit accounts due to increases in fee
structure, transaction activity, and volume of accounts.
Gains on the sale of loans increased to $211,688 for the year ended September
30,1996 from $121,398 for the year ended September 30,1995, Which followed
$195,954 for fiscal year 1994. Gains on the sale of loans have, for the past
three fiscal years, been generated primarily from the sale of thirty year fixed
rate conforming residential first mortgage loans. Gains realized are a function
of the Bank's pricing levels relative to local market competition. The general
trend and level of interest rates, and the volume of loans sold. The volume of
loans sold during fiscal year 1996 increased to $26.8 million from $11.0 million
and $16.7 million in fiscal years 1995 and 1994, respectively. During fiscal
year 1996, the Bank continued its policy of selling current production of
thirty year fixed rate residential mortgage loans in the secondary market,
while retaining ten to fifteen year fixed rate and thirty year adjustable
rate residential mortgage loans in its portfolio either in the form of
loans or mortgage backed securities, subject to liquidity and interest
rate risk parameters. A gradual decline in the general level of
interest rates which began during the fourth quarter of fiscal year
1995 continued throughout the first 5 months of fiscal year 1996, and
attracted residential mortgage customers to fixed rate fifteen
and thirty year loans for new purchases as well as for the refinancing of
existing residences. With this increase in thirty year fixed rate loan
production came increased loan sale activity in order to manage the Bank's
interest rate risk exposure. During the first three quarters of fiscal year
1995, the general trend of interest rates had been upward and the demand for
residential mortgage loans had favored adjustable rate and to a lesser extent,
shorter-term ten to fifteen year fixed rate products, while the volume of thirty
year fixed rate originations had declined significantly. The general trend of
long-term interest rates during the first two quarters of fiscal year 1994 had
been toward lower levels, and had thus provided a more favorable environment for
fixed rate loan originations and sales than was the case during the first three
quarters of fiscal year 1995. Although the Bank's market area has witnessed
increased competition for these loans, no significant changes in the Bank's
pricing of these loans has occurred.
The sale of securities available for sale generated losses of $47,420 and
$30,972, respectively, during fiscal years 1996 and 1995, compared to a gain of
$87,905 during fiscal year 1994. Securities available for sale include Treasury
and Agency securities with maturities of generally five years or less, as well
as various types of mortgage-backed securities acquired through both
securitization of the Bank's own portfolio of originations or through
purchases in the open market. Subject to interest rate risk and asset
quality considerations, securities are acquired for the purpose of
attaining the highest possible yield on funds not required to fund loan
demand or to satisfy short-term liquidity requirements. Gains and
losses recorded on the sale of these securities are dependent upon the
volume of securities sold as well as the market level of interest rates.
During primarily the third and fourth quarters of fiscal year
1996, the Bank sold securities totalling $19.7 million in order to meet
increasing loan demand. Securities sales totalled $4.0 and $14.2 million,
respectively, during fiscal years 1995 and 1994.
Other income increased to $294,334 in the current year compared to $122,671 and
$112,356, respectively, for the years ended September 30, 1995 and 1994. The
fiscal year 1996 amount includes income of $149,306 resulting from the Bank's
adoption of SFAS No. 122. "Accounting for Mortgage Servicing Rights". This
statement requires that the value of mort-
7
<PAGE>
gage servicing rights associated with mortgage loans originated and sold by the
Bank be capitalized as an asset. All capitalized amounts are amortized against
future servicing revenues, and are subject to subsequent measurement for
impairment based on the then fair value estimates. SFAS No. 122 is more fully
described in footnote 1 of these financial statements.
Noninterest expense increased to $8,793,856 for the year ended September 30,1996
from $6,875,867 for the year ended September 30,1995 which followed expense of
$6,999,382 for the year ended September 30, 1994. Salaries and related benefits
increased to $3,788,706 in fiscal year 1996 from $3,573,873 in the prior year,
which followed an increase from $3,491,966 in 1994. These increases have
resulted primarily from increased wages and payroll taxes related to general
year-to-year raises of approximately four percent, and additionally from
increases in the cost of employee medical insurance.
Federal deposit insurance premiums were $502,244, $463,010, and $452,181 for the
years ended September 30, 1996,1995 and 1994, respectively. Variances in these
amounts have resulted from changes in the volume of deposits subject to
coverage, as the underlying rate charged by the FDIC over these periods has
remained constant. The Bank was also assessed a one-time charge of $1,362,018
during fiscal year 1996 due to legislation enacted on September 30, 1996 to
recapitalize the SAIF. This legislation is more fully discussed in footnote
number 16 contained in this year's audited financial statements.
Net occupancy and equipment expense decreased to $997,586 in fiscal year 1996
from $1,031,636 and $997,091 in fiscal years 1995 and 1994, respectively. The
decrease from 1995 to 1996 resulted primarily from lower depreciation costs
related to furniture, fixtures and equipment, while the increase from fiscal
year 1994 to 1995 resulted primarily from increases in equipment repair and
maintenance charges as well as general branch site maintenance.
Data processing and outside service fees were $477,376 for the year ended
September 30, 1996 compared to $465,021 and $478,136 for the years ended
September 30,1995 and 1994, respectively. The increase in expense from fiscal
year 1995 to 1996 resulted primarily from increases in both transaction volume
and customer files. The decrease in expense from fiscal year 1994 to 1995 was
the result of a negotiated decrease in the Bank's contract with its outside data
processor.
Legal expense increased to $465,021 for the year ended September 30,1996 from
$293,503 and $510,370 for the years ended September 30,1995 and 1994,
respectively. Legal expense increased during the current fiscal year due to
increased litigation in connection with the Bank's lawsuit against NationsBank,
which is more fully described in footnote number 17 contained in this year's
audited financial statements. Legal expense decreased in fiscal year 1995 from
1994 due to very little activity occurring during fiscal year 1995 as we awaited
the damages trial, following a liability lawsuit in 1994 in which the Bank
prevailed.
Telephone and postage expense increased to $270,4)4 in the current year compared
to $248,965 and $235,970 for fiscal years 1995 and 199, respectively, due
primarily to increased postal rates.
Advertising expense rose to $111,094 for fiscal year 1996 from $78,020 and
$86,782 for fiscal years 1995 and 1994, respectively, resulting from increased
media exposure, including promotional requirements related to both the
introduction of the Bank's new credit card service as well as the commemorative
celebration of the Bank s seventieth anniversary of service to Glynn County.
Expense (income) from real estate owned, net was $45,182, $32,132, and ($26,611)
for the years ended September 30, 1996 1995, and 1994, respectively. Expense
from real estate owned encompasses the normal costs of ownership such as
property taxes, maintenance and repairs, utilities, and insurance. Additionally,
the above cited amounts include the results from both gains and losses
recognized upon disposal and write-downs subsequent to foreclosure and are thus
dependent upon various economic and market conditions. Expenses related to
ownership amounted to approximately $8,000, $11,000 and $49,000 for the years
ended September 30,1996, 1995, and 1994, respectively and are relatively
proportional to the level of real estate owned.
Other expense was $774,225, $689,707, and $793,497 for the years ended September
30,1996,1995, and 1994, respectively. The increase in expenses from fiscal year
1995 to 1996 resulted primarily from the disposal of various obsolete fixed
assets and from expenses incurred resulting from the commencement of the Bank's
proprietary credit card program. The decrease in expenses from fiscal year 1994
to 1995 resulted primarily from reductions in write-downs of excess servicing
fees and charges for equipment obsolescence along with lower premiums paid on
business insurance.
The ratio of noninterest expense to total income was 38.7%, 32.3%, and 36.6% for
the years ended September 30, 1996, 1995, and 1994, respectively. The increase
from fiscal year 1995 to 1996 was due primarily to an increase in legal expense
in the current fiscal year, as well as the one-time special assessment to
recapitalize the SAIF. The decrease from fiscal year 1994 to 1995 resulted
from a decrease in legal expense for fiscal year 1995.
The provision for loan losses was $240,000, $195,000 and $180,000 for the years
ended September 30,1996,1995, and 1994, respectively. Non-accrual loans
decreased to $261,193 at September 30,1996 from $788,116 at September 30,1995.
Potential problem loans increased to $2,904,673 at September 30,1996 from
$210,416 one year ago. Included in the current year amount are 12 loans
totalling $2.7 million, in aggregate, secured by commercial real estate, and are
generally delinquent sixty days. The Bank is well collateralized on these loans
and believes them to be fully collectible. Management believes the allowance for
loan losses to be adequate at September 30, 1996, based upon conditions
reasonably known to management; however, the allowance may be increased based
upon future economic changes or conditions.
The provision for income taxes decreased to $1,192,250 for the year ended
September 30,1996 from $1,700,600 for fiscal year 1995, which followed
$1,469,100 for fiscal year 1994. The decrease in provision for the current
fiscal year was due primarily to a decrease in taxable income due to increased
litigation expenses and the one-time SAlF assessment in 1996.
8
<PAGE>
FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA, AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1996 AND 1995
(Note 17)
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CASH AND DUE FROM BANKS $ 4,788,450 $ 7,077,786
INTEREST-BEARING DEPOSITS WITH OTHER BANKS 10,504,682 11,551,711
FEDERAL FUNDS SOLD 545,000 10,675,000
SECURITIES AVAILABLE FOR SALE (Note 3) 16,364,023 28,720,859
LOANS, net (Note 4) 209,868,046 186,664,013
REAL ESTATE OWNED, net 954,904 2,208,679
PREMISES AND EQUIPMENT, net (Note 6) 1,994,142 2,258,326
FEDERAL HOME LOAN BANK STOCK, at cost 1,598,700 1,598,700
ACCRUED INTEREST:
Loans 1,583,448 1,388,875
Investments 172,297 400,131
OTHER ASSETS 743,752 743,373
$249,117,444 $253,287,453
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS (Note 7):
Checking accounts $13,561,385 $10,860,048
NOW accounts 35,293,128 34,702,626
Savings accounts 20,598,108 20,000,808
Money market deposit accounts 10,571,845 12,843,024
Certificates of deposit 138,051,393 144,399,490
Total deposits 218,075,859 222,805,996
ADVANCES FROM THE FHLB (Note 8) 1,500,000 2,200,000
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE 1,251,325 1,475,065
ACCRUED EXPENSES AND OTHER LIABILITIES 2,192,353 796,255
DEFERRED INCOME TAXES (Note 14) 72,822 503,722
Total liabilities 223,092,359 227,781,038
COMMITMENTS AND CONTINGENCIES (Notes 13, 15 and 17)
STOCKHOLDERS' EQUITY (Note 10):
Common stock, $1 par value; 4,000,000 shares authorized,
1,499,939 shares issued and outstanding 1,499,939 1,499,939
Additional paid-in capital 1,550,208 1,550,208
Retained earnings 23,137,905 22,376,131
Net unrealized (depreciation) appreciation on securities
available for sale, net of tax of $87,752 and $43,145 in
1996 and 1995 (Note 1) (162,967) 80,137
Total stockholders' equity 26,025,085 25,506,415
$249,117,444 $253,287,453
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
9
<PAGE>
FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA, AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
ENDED SEPTEMBER 30, 1996, 1995, AND 1994
FOR THE YEARS
1996 1995 1994
INTEREST INCOME:
Interest on loans $17,573,029 $16,295,326 $14,563,642
Interest on securities
available for sale 1,807,103 1,819,524 1,830,475
Interest on federal funds sold
and interest-bearing deposits
with banks 695,088 972,291 472,833
Dividends on FHLB stock 116,345 114,899 90,192
Total interest income 20,191,565 19,202,040 16,957,142
INTEREST EXPENSE:
Interest on deposits (Note 11) 10,175,709 9,210,751 7,391,055
Interest on advances from the
FHLB and other 177,823 212,560 309,135
Total interest expense 10,353,532 9,423,311 7,700,190
NET INTEREST INCOME 9,838,033 9,778,729 9,256,952
PROVISION FOR LOAN LOSSES 240,000 195,000 180,000
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 9,598,033 9,583,729 9,076,952
NONINTEREST INCOME:
Service charges and other fees 2,056,188 1,894,101 1,750,739
Gain on sale of loans, net
(Note 1) 211,688 121,398 195,954
(Loss) gain on sale of securities
available for sale (47,420) (30,972) 87,905
Other 294,334 122,671 112,356
Total noninterest income 2,544,790 2,107,198 2,146,954
NONINTEREST EXPENSE:
Salaries and related benefits 3,788,706 3,573,873 3,491,966
SAIF assessment (Note 16) 1,362,018 0 0
Federal deposit insurance premiums 502,244 463,010 452,181
Net occupancy and equipment expense 997,586 1,031,636 977,091
Data processing and outside
service fees 477,376 465,021 478,136
Legal 465,021 293,503 510,370
Telephone and postage 270,404 248,965 235,970
Advertising 111,094 78,020 86,782
Expense (income) from real
estate owned, net 45,182 32,132 (26,611)
Other 774,225 689,707 793,497
Total noninterest expense 8,793,856 6,875,867 6,999,382
INCOME BEFORE INCOME TAXES 3,348,967 4,815,060 4,224,524
INCOME TAX EXPENSE (Note 14) 1,192,250 1,700,600 1,469,100
INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE 2,156,717 3,114,460 2,755,424
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE (Note 1) 0 0 525,000
NET INCOME $ 2,156,717 $3,114,460 $3,280,424
EARNINGS PER SHARE BEFORE
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE (Note 1) $1.42 $2.05 $1.82
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 0 0 0
EARNINGS PER SHARE $1.42 $2.05 $2 17
The accompanying note are an integral part of these consolidated statements.
10
<PAGE>
FIRST FEDERAL SAVINGS BANK OF BRUNSWICK GEORGIA, AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
(Note 10)
<TABLE>
<CAPTION>
Net
Unrealized
Appreciation
(Depreciation)
Additional on Securities
Common Paid-In Retained Available for
Stock Capital Earnings Sale Total
<S> <C> <C> <C> <C> <C>
BALANCE, September 30,1993 $1,496,939 $1,514,208 $18,438,348 $ 0 $21,449,495
Net income 0 0 3,280,424 0 3,280,424
Dividends declared ($.75 per share) 0 0 (1,122,855) 0 (1,122,855)
Stock options exercised 1,000 14,000 0 0 15,000
BALANCE, September 30, 1994 1,497,939 1,528,208 20,595,917 0 23,622,064
Net income 0 0 3,114,460 0 3,114,460
Dividends declared ($.89 per share) 0 0 (1,334,246) 0 (1,334,246)
Stock options exercised 2,000 22,000 0 0 24,000
Change in net unrealized
appreciation on securities
available for sale, net of taxes
of $43,145 (Note 1) 0 0 0 80,137 80,137
BALANCE, September 30, 1995 1,499,939 1,550,208 22,376,131 80,137 25,506,415
Net income 0 0 2,156,717 0 2,156,717
Dividends declared ($.93 per share) 0 0 (1,394,943) 0 (1,394,943)
Change in net unrealized
depreciation on securities
available for sale, net of taxes
of $87,752 (Note 1) 0 0 0 (243,104) (243,104)
BALANCE, September 30,1996 $1,499,939 $1,550,208 $23,137,905 $(162,967) $26,025,085
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
11
<PAGE>
FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA, AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
(Note 1)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received on loans $ 17,038,817 $ 15,648,553 $ 14,055,687
Interest and dividends received on securities available for sale 2,846,370 2,836,623 2,490,370
Loan fees collected 799,968 583,199 955,427
Service charges on deposit accounts 1,486,568 1,182,844 958,074
Other fees collected 1,009,549 875,841 962,965
Interest paid on deposits (10,234,098) (9,164,898) (7,381,855)
Payments for salaries and related benefits (3,954,050) (3,823,418) (4,002,239)
Payments for general and administrative expenses (3,231,601) (2,876,778) (3,094,923)
Income taxes paid, net (1,435,153) (1,498,000) (1,683,872)
Interest paid on borrowings (195,823) (212,560) (309,135)
Net cash provided by operating activities 4,130,547 3,551,406 2,950,499
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of loans 26,834,936 11,003,152 16,722,929
Purchases of securities available for sale (9,778,004) (9,188,300) (5,522,533)
Principal collected on loans and mortgage-backed securities 71,720,864 75,623,568 75,923,574
Loans funded (124,581,499) (94,936,408) (114,608,300)
Purchase of premises and equipment (101,892) (119,960) (340,842)
Proceeds from sales and maturities of securities available for
sale 24,865,055 7,507,264 25,268,555
Other, net 448,708 459,706 (745,836)
Cash flows used in investing activities (10,591,832) (9,650,978) (3,302,453)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Checking accounts 2,701,337 860,806 1,454,147
NOW accounts 590,502 (1,454,841) 3,674,259
Savings and money market deposit accounts (1,673,879) (3,046,542) (1,307,960)
Proceeds from issuance of certificates of deposit 240,267,682 223,502,234 179,412,768
Payments for maturing certificates of deposit (246,615,779) (197,771,042) (179,064,326)
Payments of maturing FHLB advances (12,700,000) 6,000,000 (2,000,000)
Proceeds from FHLB advances 12,000,000 (7,800,000) 700,000
Proceeds from other borrowed money 12,000,000 11,000,000 0
Payments of other borrowed money (12,000,000) (11,000,000) 0
Dividends paid (1,394,943) (1,334,246) (1,122,855)
Net cash (used in)provided by financing activities (6,825,080) 18,956,369 1,746,033
Net (decrease) increase in cash and cash equivalents (13,286,365) 12,856,797 1,394,079
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 29,304,497 16,447,700 15,053,621
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 16,018,132 $ 29,304,497 $ 16,447,700
NET INCOME $ 2,156,717 $ 3,114,460 $ 3,280,424
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 366,076 403,029 359,986
Provision for loan losses 240,000 195,000 180,000
(Benefit) provision for deferred income taxes (418,846) (602,470) 163,181
Loan and excess servicing fees deferred, net (64,521) (111,767) 33,335
(Increase) decrease in interest receivable 33,261 (251,358) 85,746
Increase (decrease) in interest payable (58,389) 45,853 9,200
Increase (decrease) in accrued expenses and other liabilities 1,412,221 (478,414) (314,961)
Other, net 464,028 1,237,073 (846,412)
Total adjustments 1,973,830 436,946 (329,925)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 4,130,547 $ 3,551,406 $ 2,950,499
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Loans exchanged for mortgage-backed securities $ 6,445,235 $ 1,016,520 $ 16,777,670
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
12
<PAGE>
FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA, AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995, AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Federal Savings Bank of Brunswick, Georgia (the "Bank"), is a savings bank
primarily engaged in the business of obtaining deposits and providing mortgage
and other loans to the general public. The more significant accounting and
reporting policies not described elsewhere in these notes to financial
statements are discussed below.
Principles of Consolidation and
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the
Bank and its wholly owned subsidiary, First Shelter Service Corporation ("First
Shelter"). All significant intercompany balances and transactions have been
eliminated in consolidation. As of September 30, 1996 and 1995, the investment
in First Shelter amounted to $304,398 and $303,954, respectively.
Certain 1995 and 1994 amounts have been reclassified to conform with the 1996
presentation.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the accompanying financial statements and disclosures. Actual results
could differ from those estimates.
Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks, interest-bearing deposits with banks, and federal funds sold,
all of which have an original maturity of less than 90 days from the date of
purchase.
Securities Available for Sale
The Bank adopted Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" as of October
1,1994. In accordance with SFAS No. 115, securities are classified as either
held-to-maturity, trading, or available-for-sale. Held-to-maturity securities
are carried at amortized cost. Trading securities are carried at fair value,
with unrealized gains and losses included in earnings. Available-for-sale
securities are carried at fair value, with unrealized gains and losses excluded
from earnings and reported in stockholders' equity. The Bank classifies all of
its securities as available-for-sale which were reported at their fair value of
$16,364,023 on September 30, 1996. The net unrealized depreciation on securities
available for sale of $250,719 was recorded net of taxes as a separate component
of stockholders' equity.
Premiums and discounts are recognized in interest income using the interest
method over the period of maturity.
Loans
During 1996, the Bank adopted SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures," which amended SFAS No.
114, "Accounting by Creditors for Impairment of a Loan." These statements
require that impaired loans, as defined, be measured based on the discounted
present value of expected future cash flows, the observable market price of the
loan, or the fair value of the collateral if the loan is collateral-dependent.
There was no effect on current period earnings as a result of the adoption of
SFAS No. 118. Additionally, as permitted by these statements, in-substance
foreclosures of $0 and $845,036 were reclassified to loans, net, from real
estate owned at September 30, 1996 and 1995, respectively.
Allowance for Loan Losses
The allowance for loan losses is based on management's estimate of the allowance
required to reflect the risks in the loan portfolio based on circumstances and
conditions known or anticipated at each reporting date. A provision for loan
losses is charged to operations based on management's periodic evaluation of
these risks. Provisions not specifically identified are based on the Bank's
experience and other factors. It is the opinion of management that the allowance
for loan losses is adequate at September 30, 1996 based on conditions reasonably
known to management; however, the allowance may be increased based on future
economic changes or conditions.
Real Estate Owned
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less costs to sell. Costs related to holding real estate
and charges to write down real estate for subsequent declines in net realizable
value are charged to operations. Real estate owned by the Bank at September 30,
1996 and 1995 is recorded net of a valuation allowance of $41,000 and $25,000,
respectively.
Gains on sales of real estate acquired through foreclosure are recognized using
cash down payment guidelines established by authoritative accounting
pronouncements.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are provided principally using the
straight-line method over the estimated useful lives of the assets of 20 to 30
years for buildings, 10 years for leasehold improvements, and 3 to 10 years for
furniture, fixtures, and equipment.
Federal Home Loan Bank Stock
The Bank, as a member of the Federal Home Loan Bank System, is required to
maintain an investment in capital stock of the Federal Home Loan Bank ("FHLB")
in an amount equal to the greater of 1% of its outstanding permanent residential
mortgage loans or 5% of its outstanding advances. No ready market exists for the
FHLB stock, and it has no quoted value. For disclosure purposes, such stock is
assumed to have a market value equal to cost.
Interest Income
Income on loans and investments is recognized when the interest is earned in
order to yield a constant rate of return on funds outstanding.
Uncollected Interest
Loans 90 days or more delinquent are placed on nonaccrual status. Non-accrual
and restructured loans totalled approximately $1,040,899 and $1,932,000 at
September 30,1996 and 1995, respectively. Interest on these loans, if ultimately
collected, is credited to income in the period of recovery. During 1996, 1995,
and 1994, additional gross interest income totaling approximately $31,000,
$62,000 and $113,000, respectively, would have been recorded on nonaccrual and
restructured loans if all such loans at September 30,1996, 1995, and 1994 had
been accruing interest at the original contractual rate. Interest payments
recorded in 1996,1995, and 1994 as income, excluding reversals of previously
accrued interest, for all such nonperforming loans at September 30,1996, 1995,
and 1994 were approximately $100,000,
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<PAGE>
$104,000, and $44,000, respectively. The Bank does not have significant
commitments to lend additional funds to any of these borrowers.
Loan Fees
Loan fees and direct costs of originating successful loans are being deferred
and amortized, net, as an adjustment to interest yield over the life of the
related loan.
Loan Sales and Loan Servicing
Additional funds for lending are provided by selling participating interests in
loans or whole loans. Under most sales agreements, the Bank continues to provide
loan servicing, which includes collecting payments and remitting its portion
thereof to the buyer, net of servicing fees. On October 1, 1996, the Bank
adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights" which, among
other provisions, requires that the value of mortgage servicing rights
associated with mortgage loans originated by an entity, which it intends to
sell, be capitalized as assets. The cost of these mortgage servicing rights is
amortized in proportion to, and over the period of, the estimated net servicing
revenues. In connection with the October 1, 1995 adoption of SFAS No. 122, the
Bank has capitalized mortgage servicing rights of $149,306 in 1996. Amortization
of mortgage servicing rights was $8,815 in 1996. No valuation allowance was
recorded during 1996. Accordingly, adoption of SFAS No. 122 increased net income
after taxes by $97,049, or $.06 per share. Impairment of mortgage servicing
rights is assessed based on the fair value of those rights. Fair values are
estimated using discounted cash flows based on a current market interest rate.
For purposes of measuring impairment, the rights are stratified based on the
predominant risk characteristics of the underlying loans. The predominant risk
characteristics of the Bank's loans are the interest rate and loan type. The
amount of impairment recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceed their fair value.
When participating interests in loans sold have an average contractual interest
rate, adjusted for normal servicing fees, that differs from the agreed yield to
the purchaser, gains or losses are recognized equal to the present value of such
differential over the estimated remaining life of such loans. The resulting
"excess servicing receivable," included in other assets, is amortized over the
estimated useful life using the level yield method.
Quoted market prices are not available for the excess servicing receivables.
Thus, the excess servicing receivables and the amortization thereon are
periodically evaluated in relation to estimated future servicing revenues,
taking into consideration changes in interest rates, current prepayment rates,
and expected future cash flows. The Bank evaluates the carrying value of the
excess servicing receivables by estimating the future servicing income of the
excess servicing receivables based on management's best estimate of remaining
loan lives and discounted at the original discount rate.
Income Taxes
Effective October 1,1993,the Bank adopted SFAS No.109, "Accounting for Income
Taxes" which requires the asset and liability method of accounting for deferred
income taxes. The Bank previously accounted for deferred taxes under the
deferral method required by Accounting Principles Board Opinion No. 11. This
change resulted in the Bank recording a cumulative effect of a change in
accounting principle in the consolidated statement of income for the year ended
September 30,1994 of $525,000.
Earnings per Share
Earnings per share are calculated based on the weighted average common shares
and common stock equivalents outstanding during the year of 1,523,693,
1,516,868, and 1,514,017 in 1996,1995, and 1994, respectively.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in determining
estimates of fair value disclosures for financial instruments:
Cash and Due From Banks, Interest-Bearing Deposits With
Banks, and Federal Funds Sold
The carrying amount for these cash equivalents approximates their fair value.
Securities Available for Sale
Fair values of securities available for sale are based on quoted market prices,
where available. In the event that quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments. The
estimated fair value of securities available for sale was $16,364,023 and
$28,720,859 at September 30,1996 and 1995, respectively.
Loans, Net
The fair values of conforming residential mortgage loans are based on quoted
market prices or quoted market prices of similar loans sold, adjusted for
differences in loan characteristics. The fair values of other loans are
estimated using discounted future cash flow analyses using interest rates or
secondary market yield requirements currently being offered for loans with
similar terms and credit quality. The carrying amount of accrued interest
approximates its fair value. The estimated fair value of loans, net, were
approximately $208,825,000 and $186,862,000 at September 30, 1996 and 1995,
respectively.
Off-Balance Sheet Instruments
The fair values of commitments to sell mortgage loans and commitments to extend
credit approximate their carrying amounts. Commitments or commercial letters of
credit are not significant, and their related fair value would be nominal.
Deposits
The fair values of checking, NOW, savings, and money market deposit accounts are
equal to the reported carrying amount, which is the amount payable on demand as
of the reporting date. Fair values for certificates of deposit are estimated
using a discounted future cash flow method, which applies rates currently
offered for deposits of similar remaining maturities. The estimated fair value
of certificates of deposit were approximately $138,824,000 and $145,154,000 at
September 30,1996 and 1995, respectively.
Borrowings
The fair value of the Bank's borrowings is determined by estimates using
discounted future cash flow analyses based on the Bank's current incremental
borrowing rates for similar types of instruments. The estimated fair value of
advances from the FHLB were approximately $1,509,000 and $2,200,000 at September
30,1996 and 1995, respectively.
The techniques used to estimate fair values are significantly affected by the
assumptions used, including the discount rate and estimated future cash flows.
Therefore, the fair value estimates for these financial instruments cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of a particular financial instrument of the
Bank. The aggregate fair value amounts presented herein do not represent the
aggregate underlying value of the Bank and may not be indicative of amounts that
might ultimately be realized upon disposition of those assets and liabilities
individually or in aggregate.
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<PAGE>
3. SECURITIES AVAILABLE FOR SALE
Securities available for sale at September 30, 1996 and 1995 consist solely of
U.S. Treasury notes, agency bonds, mortgage-backed securities, and tax-free
municipal securities.
The amortized cost and estimated fair value of securities available for sale
were as follows at September 30, 1996 and 1995:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
1996:
Investment securities $ 8,032,109 $ 33,366 $ 41,343 $ 8,024,132
Mortgage-backed securities 8,582,633 3,612 246,354 8,339,891
$16,614,742 $ 36,978 $ 287,697 $16,364,023
1995:
Investment securities $16,353,511 $ 156,286 $ 20,982 $16,488,815
Mortgage-backed securities 12,244,066 77,895 89,917 12,232,044
$28,597,577 $ 234,181 $ 110,899 $28,720,859
Gross realized gains and losses on sale of investments in securities were as
follows:
1996 1995 1994
Gross realized gains:
Investment securities $ 34,042 $ 0 $ 0
Mortgage-backed securities 17,660 0 139,528
$ 51,702 $ 0 $139,528
Gross realized losses:
Investment securities $ 11,231 $28,471 $ 0
Mortgage-backed securities 87,891 2,501 51,623
$ 99,122 $30,972 $ 51,623
The amortized cost and estimated market values of securities available for sale
at September 30,1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without penalties.
Estimated
Amortized Market
Cost Value
Due in 1 year or less $ 3,078,251 $ 3,085,253
Due after 1 year through 5 years 5,078,965 5,071,150
Due after 5 years through 10 years 2,160,170 2,112,830
Due after 10 years and thereafter 6,297,356 6,094,790
$16,614,742 $16,364,023
At September 30,1996 and 1995,certain of the Banks'assets(primarily investment
securities and mortgage-backed securities) with amortized cost of approximately
$14,356,136 and $16,277,639, respectively, were pledged to secure certain
certificates of deposit, public deposits, a letter of credit, advances from the
FHLB, and treasury tax and loan balances with the Federal Reserve Bank of
Atlanta.
15
<PAGE>
Loans at September 30,1996 and 1995 are summarized as follows:
1996 1995
Real estate loans:
Conventional mortgage $160,887,037 $150,372,532
Construction 21,564,508 12,951,880
Partially guaranteed by Federal Housing
Administration or Veterans Administration 446,415 507,609
Consumer loans 28,438,919 24,157,352
Commercial loans 7,441,666 4,512,256
218,778,545 192,501,629
Less:
Allowance for loan losses (800,786) (834,882)
Deferred loan fees and other, net (830,384) (789,790)
Undisbursed portions of loans in process (7,279,329) (4,212,944)
Net loans $209,868,046 $186,664,013
During fiscal years ended September 30,1996,1995, and 1994, loans foreclosed and
transferred to real estate owned totaled $825,255, $1,569,144, and $317,430,
respectively.
The Bank has made loans to directors and executive officers for the purchase of
their primary residences and other short-term loans aggregating $1,603,716 and
$1,838,969 at September 30,1996 and 1995, respectively. In the opinion of
management, these loans are fully collectible. No loans due from directors or
executive officers were charged off during the current fiscal year. The
following sets forth information regarding the activity during fiscal year 1996
in loans due from directors and executive officers:
Balance at September 30, 1995 $1,838,969
Repayments (588,481)
New borrowings 353,228
Balance at September 30,1996 $1,603,716
A reconciliation of the allowance for loan losses for the years ended September
30,1996,1995, and 1994 is as follows:
1996 1995 1994
Balance at beginning of year $834,882 $786,111 $869,297
Provision for loan losses 240,000 195,000 180,000
Amounts charged off (299,318) (189,497) (30,605)
Recoveries 25,222 43,268 37,419
Balance at end of year $800,786 $834,882 $786,111
5. LOAN SERVICING
The Bank was servicing mortgage loans (which are not included in the
accompanying statements of financial condition) with unpaid principal balances
totaling $133,264,664, $128,526,732, and $133,599,102 for the benefit of others
at September 30, 1996,1995, and 1994, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were $1,251,325 and $1,475,065 at September 30,1996 and 1995,
respectively.
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<PAGE>
6. PREMISES AND EQUIPMENT
Premises and equipment at September 30,1996 and 1995 consisted of the following:
1996 1995
Cost
Land $ 766,574 $ 766,574
Buildings 1,152,599 1,152,599
Furniture, fixtures, and equipment 2,760,477 2,758,403
Leasehold improvements 584,523 561,917
Total cost 5,264,173 5,239,493
Less accumulated depreciation and
amortization (3,270,031) (2,981,167)
$ 1,994,147 $ 2,258,326
7. DEPOSITS
Included in deposits at September 30,1996 and 1995 are certificates of deposit
in denominations of $100,000 or more aggregating $31,999,281 and $34,389,564,
respectively.
At September 30,1996, the scheduled maturities of CDs are as follows:
1997 $100,408,617
1998 18,052,590
1999 12,724,537
2000 5,680,789
2001 and thereafter 1,184,860
$138,051,393
8. ADVANCES FROM THE FHLB
Advances from the FHLB as of September 30,1996 and 1995 amounted to $1,500,000
and $2,200,000, respectively. The advances are due in their entirety in 1997.
The weighted average interest rate for outstanding FHLB advances was 7.9% and
6.82% at September 30,1996 and 1995, respectively.
9. RESTRICTIONS ON RETAINED EARNINGS
The Bank is subject to certain restrictions on the amount of dividends that it
may declare prior to regulatory approval. At September 30,1996, approximately
$6,819,000 of retained earnings were available for dividend declaration without
prior regulatory approval.
10. REGULATORY MATTERS
The Bank is subject to various capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined). Management believes, as of September 30,1996,
that the Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 1996 and September 30, 1995, the most recent notification
from the Office of Thrift Supervision categorized the Bank as well-capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well-capitalized, the Bank must maintain certain tangible capital, Tier I
(core) capital, and total risk-based capital ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the Bank's category.
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<PAGE>
The Bank's actual amounts (in thousands) and ratios are also presented
in the table.
Minimum To Be Well
for Capital Capitalized for
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Ratio Amount Ratio Amount Ratio Amount
Stockholder's equity,
and ratio to total
assets 10.4% 26,025
Unrealized loss on
securities available
for sale 163
Intangible assets (14)
Tangible capital, and
ratio to adjusted
total assets 10.5 26,174 1.5 $3,739
Tier I(core) capital,
and ratio to adjusted
total assets 10.5 26,174 3.0 7,478 5.0 $12,464
Tier I capital, and
ratio to risk-
weighted assets 15.1 26,174 6.0 10,406
Allowance for loan
losses 801
Assets required to
be deducted (217)
Tier 2 capital 584
Total risk-based
capital and ratio to
risk-weighted assets 15.4% $26,758 8.0% $13,874 10.0% $17,343
Total Assets $249,117
Adjusted total assets $249,266
Risk-weighted assets $173,425
11. INTEREST ON DEPOSITS
Interest on deposits at September 30, 1996, 1995, and 1994 is comprised
of the following:
1996 1995 1994
Checking accounts $ 155,806 $ 144,307 $ 123,974
NOW accounts 471,133 571,564 475,820
Savings accounts 502,580 510,523 575,075
Money market deposit
accounts 472,478 546,611 514,054
Certificates of deposit 8,573,732 7,437,746 5,702,132
$10,175,709 $9,210,751 $7,391,055
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<PAGE>
12. EMPLOYEE BENEFIT PLANS
The bank has a stock option plan for key employees authorizing the
granting of options for up to 199,800 shares of common stock. such stock is
to be issued from the Bank's authorized but unissued shares. These options are
exercisable in equal increments over three years and have a term of five years.
No charges are reflected in income as a result of the granting or exercising
of the stock options.
The following table presents further information on this plan:
1996 1995 1994
Number Option Number Option Number Option
of Price of Price of Price
Shares Per Share Shares Per Share Shares Per Share
Option outstanding at
end of
prior year 30,311 $12-$15 30,311 $12-$15 32,311 $12-$15
Granted 0 0 0 0 0 0
Exercised 0 0 2,000 12 1,000 15
Canceled or expired 0 0 0 0 0 0
Options out standing at
end of year 30,311 $12-$15 30,311 $12-$15 32,311 $12-$15
Shares exercisable at
end of year 30,311 $12-$15 30,311 $12-$15 32,311 $12-$15
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which the Bank is required to
adopt in fiscal year 1997. SFAS No. 123 will require the Bank to estimate the
value of all stock-based compensation using a recognized pricing model. The
Bank will have the option of recognizing this value as an expense or by
disclosing its effects on net income. The Bank's management has not yet
determined its method of adoption or the financial statement impact of the
adoption of SFAS No. 123.
The Bank and its subsidiary have a noncontributory profit-sharing plan
which covers substantially all of their employees. The annual contribution to
the plan is established each year by the board of directors. Profit-sharing
plan expense was $268,640, $298,156 and $271,210 for the years ended September
30, 1996, 1995, and 1994, respectively.
The Bank has also established a savings plan. Under the terms of the
plan, eligible employees can make tax-deferred 401(k) contributions. The
Bank matches the employee contribution 100% up to the first 2% contributed by
an employee, 75% of the next 2%, and 50% of the third 2%. For the years ended
September 30, 1996, 1995, and 1994, the Bank's 401(k) contributions were
$101,413, $92,644, and $96,849, respectively.
13. OPERATING LEASE OBLIGATIONS
At September 30, 1996, the Bank leased office facilities under agreements
with terms of more than one year. Amounts charged to retail expense for
operating leases were $342,809, $346,226, and $344,885 for the years ended
September 30 1996, 1995, and 1994, respectively.
At September 30, 1996 the Bank's minimum rental commitments under
noncancelable operating leases for office space with initial or remaining terms
of more than one year were as follows:
Fiscal Year:
1997 $ 344,904
1998 343,704
1999 314,544
2000 314,544
2001 314,544
Thereafter 687,212
$2,319,452
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<PAGE>
14. INCOME TAXES
Income tax expense for the three years ended September 30, 1996 is summarized
as follows:
1996 1995 1994
Federal
Current $1,467,123 $2,047,029 $734,511
Deferred (359,411) (512,099) 612,106
1,107,712 1,534,930 1,346,617
State:
Current 143,973 256,041 46,408
Deferred (59,435) (90,371) 76,075
84,538 165,670 122,483
Total $1,192,250 $1,700,600 $1,469,100
The differences between income taxes at the federal statutory rate and the
provision at the effective tax rate for the tree years ended September 30, 1996
are as follows, net of the cumulative effect of a change in accounting for
income taxes:
<TABLE>
<CAPTION>
1996 1996 1994
<S> <C> <C> <C>
Statutory federal income tax $1,138,649 $1,637,120 $1,436,338
Increases (reductions) in
taxes resulting from:
State income tax, net of
federal benefit 53,773 168,987 109,829
Tax-free interest income (27,285) (71,470) (81,600)
Other, net 27,113 34,037 4,533
$1,192,250 $1,700,600 $1,469,100
</TABLE>
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that gave rise to significant portions of the
deferred tax liability at September 30, 1996 and 1995 relate to the following:
1996 1995
Effect of loans mark-to-market deduction $360,969 $253,949
Deferred loan fees 195,578 178,460
Dividend received deduction 182,153 182,153
Sale of loan participations 58,214 81,624
Depreciation 55,827 101,608
SAIF assessment (517,567) 0
Effect of bad debt deduction (119,775) (215,141)
Other, net (142,577) (79,931)
$ 72,822 $503,722
Under the Internal Revenue Code (the "Code"), the Bank was allowed a special
bad debt deduction related to additions to tax bad debt reserves established
for the purpose of absorbing losses. The provisions of the Code permitted the
Bank to deduct from taxable income an allowance for bad debt equal to the
greater of 8% of taxable income before such deduction or actual charge-offs.
Retained earnings at September 30, 1996 include approximately $2,477,000 for
which no federal income tax has been provided. These amounts represent
allocations of income to bad debt reserves and are subject to federal income
tax in future years, at the then current corporate rate, if the Bank no longer
qualifies as a Bank for federal income tax purposes and in certain other
circumstances.
On August 2, 1996, Congress passed the Small Business Job Protection Act that
will, among other things, repeal the tax bad debt reserve method for thrifts
effective for taxable years beginning after December 31,1995. As a result, the
Bank must recapture into taxable income the amount of its post-1987 tax bad
debt reserves over a six-year period beginning in fiscal year 1997. The Bank
is expected to recapture approximately $187,000 of its tax bad debt reserves
into taxable income over six years as a result of this new law. The recapture
will not have any effect on the Bank's financial statements because the related
tax expense has already been accrued. Effective for the fiscal year ending
September 30, 1997, the Bank will be required to utilize the six-year average
experience method of loan charge-offs in determining its annual tax bad debt
deduction.
As discussed in Note 1, the Bank adopted SFAS No. 109 in the first fiscal
quarter of 1994.
15.FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include
20
<PAGE>
commitments to extend credit, standby letters of credit, and loans sold with
recourse. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the statements of
financial condition. The contract amounts of these instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments. The Bank, however, does not hold or issue futures, forward, swap,
or option contracts.
The Bank's exposure to credit loss in the event of nonperformance by the
counterpart to the financial instrument for commitments to extend credit and
standby letters of credit and to reimburse the investor for losses on loans
sold with recourse is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit, exclusive of the undisbursed portion of loans in
process, which amounted to $667,000 at fixed interest rates and $1,433,000 at
variable interest rates at September 30, 1996, represent legally binding
agreements to lend to customers with various expiration dates, but in no event
later than 30 days after September 30, 1996. As some commitments are expected
to expire without being funded, the total commitment amounts do not necessarily
represent future liquidity requirements.
Standby letters of credit are conditional commitments issued by the Bank
guaranteeing the performance of a customer to a third party. These guarantees
are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Bank had
approximately $1,798,000 in irrevocable standby letters of credit outstanding at
September 30, 1996.
The Bank generally sells participating interests in loans without recourse.
However, because of market conditions in certain prior years, the Bank sold
certain participating interests in loans with recourse in the event of default
by borrowers on the related residential mortgage loans. The credit risk
involved in selling loans with recourse is essentially the same as that involved
in extending loan facilities to customers. As of September 30, 1996, the
balance of loans sold with recourse that remains uncollected totals
approximately $4,000,000.
The majority of the Bank's business activity is with customers located within
its southeast Georgia market area. The Bank's only significant concentration of
credit at September 30, 1996 occurs in real estate loans (including certain
commercial real estate loans) which totaled $200,177,192 or 92% of total loans.
Of total real estate loans, 14% were for construction, land acquisition, and
development, 67% were for permanent mortgage loans for one-to-four-family
dwellings, and 19% were other loans secured by real estate, primarily commercial
properties. It is the Bank's policy to review each prospective credit in order
to determine an adequate level of security or collateral prior to making the
loan. The type of collateral will vary and ranges from liquid assets to real
estate.
16.LEGISLATION
The Bank's savings deposits are insured by the Savings Association Insurance
Fund ("SAIF"), which is administered by the FDIC. The assessment rate currently
ranges from .23% of deposits for well-capitalized institutions to .31% of
deposits for undercapitalized institutions. The FDIC also administers the Bank
Insurance Fund ("BIF"), which has the same designated reserve ratio as the SAIF.
On August 8, 1995, the FDIC adopted an amendment to the BIF risk-based
assessment schedule which lowered the deposits insurance assessment rate for
most commercial banks and other depository institutions with deposits insured by
the BIF to a range of .31% of insured deposits for undercapitalized BIF-insured
institutions to .04% of deposits for well-capitalized institutions, which
constitutes over 90% of BIF-insured institutions. The FDIC amendment became
effective for the quarter ended September 30, 1995. The amendment created a
substantial disparity in the deposit insurance premiums paid by BIF and SAIF
members.
Legislation was enacted on September 30, 1996 to recapitalize the SAIF in
order to eliminate the premium disparity. The Treasury Department, the FDIC,
and Congress provided for a one-time assessment of .657% of insured deposits on
all SAIF-insured deposits held at March 31, 1995. Under this legislation, the
BIF and SAIF will be merged into one fund as soon as practicable after they both
reach their designated reserve ratios, but no later than January 1, 1998,
provided that there are no longer any thrift chartered institutions. The
special assessment as described above resulted in a one-time charge to the Bank
of approximately $1,362,000, which is included in accrued expenses and other
liabilities on the consolidated statement of financial condition as of September
30, 1996, and SAIF assessment in noninterest expense on the consolidated
statement of income for the year ended September 30, 1996.
17.LITIGATION
In 1988, the Bank entered into an agreement with The Citizens and Southern
Corporation ("C&S") and certain related affiliates which provided for the
acquisition of the Bank by C&S and the exchange of bank common stock for C&S
common stock. The agreement was amended in 1990 to provide for receipt of C&S/
Sovran Financial Corporation ("Sovran") common stock by Bank stockholders as a
result of the merger in 1990 of C&S with Sovran (which was acquired by
NationsBank Corporation ("NationsBank") in late 1991). On September 27, 1991,
the Bank filed a complaint against C&S/Sovran for breach of their merger
agreement. C&S/Sovran answered denying liability. The trial court divided the
case into two trial, one on liability and a second on damages. In May 1994, in
the liability trial, a jury determined C&S/Sovran breached the merger agreement.
On December 19, 1994, the trial court ordered C&S/Sovran to specifically
perform the agreement with the Bank. On December 4, 1995, the Supreme Court
affirmed the trial court decision. The case then was remanded to the trial
court for determination of the closing date which would be utilized to determine
the terms of the specific performance remedy. A second jury trial was held on
July 8, 1996. On July 18, 1996, the second jury determined that the merger
agreement would have closed on June 19, 1991, had defendants filed and pursued
the regulatory approvals on March 8, 1991. On October 15, 1996 the trial court
entered judgment thereon. The Bank and NationsBank have, consistent with the
court's order, finalized the terms for consummation of the merger such that,
after the Bank pays its contractual obligations for attorneys' fees and senior
management agreements of approximately $13.8 million, the Bank's stockholders
will receive .80 shares of NationsBank stock for each share of the Bank's stock.
The parties anticipate a closing on or before April 30, 1997. Other assets at
September 30, 1996 and 1995 include approximately $182,000 of capitalized fees
related to the costs of the merger.
The Bank is party to various legal and administrative proceedings and claims.
While any litigation contains an element of uncertainty, management believes
that the outcome of such proceedings or claims pending or known to be threatened
will not have a material adverse effect on the Bank's consolidated financial
position.
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of First Federal Savings Bank of Brunswick, Georgia:
We have audited the accompanying consolidated statements of financial
condition of FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA (a federal
capital stock savings bank), AND SUBSIDIARY as of September 30, 1996 and 1995
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
September 30, 1996. These financial statements are the responsibility of the
Banks's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respect, the financial position of First Federal Savings Bank
of Brunswick, Georgia, and subsidiary as of September 30, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1996 in conformity with generally accepted
accounting principles.
Atlanta, Georgia
December 16, 1996
ARTHUR ANDERSEN LLP
Capital Stock:
At the present, there is no established market in which shares of the
Bank's capital stock are regularly traded, nor are there any uniformly quoted
prices for such shares. Buyers and sellers are matched as possible by a
national firm as an accommodation. On October 21, 1985, the Bank declared a
stock split in the form of a 100% stock dividend to stockholders of record as
of October 31, 1985. On June 16, 1986, the Bank declared an additional stock
split in the form of a 100% stock dividend to stockholders of record as of June
30, 1986. During fiscal year 1996, the Board of Directors approved the payment
of cash dividends on its common stock totalling approximately $1,395,000.
The Bank may not declare or pay a cash dividend on any of its stock if the
effect thereof would cause the Bank's net worth to be reduced below (i) the
amount required for the liquidation account or (ii) the regulatory net worth
requirements. Additionally, the Bank may make aggregate capital distribution
during a calendar year, without prior approval of the Office of Thrift
Supervision, of up to all of its net income to date during the year plus an
amount that would reduce its excess capital ratio to one-half of such excess
capital ratio at the beginning of the calendar year. Further, for a period of
three years after July 21, 1984, the date of the Bank's conversion to stock
form, the Bank was not permitted (except with the prior approval of the FSLIC)
to declare or pay a cash dividend on any of its stock in an amount in excess
of one-half of the greater of (i) the Bank's net income for the fiscal year in
which the dividend is declared or (ii) the average of the Bank's net income for
the current fiscal year and no more that two of the immediately preceding
fiscal years.
As of September 30, 1996, the Bank had 552 stockholders.
Business of the Bank
First Federal Savings Bank of Brunswick is a federally chartered capital
stock saving bank headquartered in Brunswick, Georgia. The Bank began its
operations in 1926 as a Georgia-chartered mutual building and loan association.
In 1935, it converted to a federal mutual savings and loan association, and in
1983, First Federal became a federal mutual saving bank. It completed its
conversion to a federal capital stock savings bank in July 1984. First Federal
is a member of the Federal Home Loan Bank system, and its deposits are insured
by the Federal Deposit Insurance Corporation, through its savings association
conduit, the Savings Association Insurance Fund.
The Bank is primarily engaged in the business of obtaining funds in the
form of deposits and investing such funds in mortgage loans on residential and
commercial real estate, various types of consumer and commercial loans,
mortgage-backed securities, and other types of securities. First Federal, like
most other federal thrift institutions, has traditionally concentrated its
lending activities on the origination of conventional first mortgage loans
secured by residential property and, to a lesser extent, construction loans and
loans secured by commercial property. Since 1982, the Bank has been seeking
(i) to reduce the amount of low interest rate loans in its loan portfolio, (ii)
to increase the origination of loans with shorter terms, such as construction
loans, consumer loans and commercial loans, and (iii) to originate long-term,
fixed-rate loans for sale in the secondary market and to retain variable-rate
loans.
- -22-
<PAGE>
BOARD OF DIRECTORS
James F. Barger J. Dewey Benefield, Jr. William O. Faulkner, Jr.
Partner, Tiller, Director, Sea Island Retired, Citizens &
Stewart & Co. Company Southern National
LLC CPA Bank
James H. Gash (FIRST FEDERAL SAVINGS Mack F. Mattingly
Senior Vice Pres. BANK logo appears here) Former U.S. Senator
Commercial Banking
First Federal
Savings Bank
T. Gillis Morgan, III D. Paul Owens John J. Rogers
President Retired Senior Vice President
Tidewater Coastal Chevrolet Mortgage Banking
Companies, Inc. First Federal Savings
Bank
Ben T. Slade, III Jack Torbett L. Gerald Wright
President Manufacturers Investor
First Federal Representative
Savings Bank
23
<PAGE>
OFFICERS & CORPORATE INFORMATION
Chairman and President
BEN T SLADE, III
Senior Vice Presidents
JAMES H. GASH
Commercial Banking
JOHN J. ROGERS
Mortgage Banking
Group Vice Presidents
JERRY E. BUTLER
Commercial Banking
ROBERT B. SAMS
Controller
ROBERT E. STRANGE
Mortgage Banking
Vice Presidents
NANCY BARNA
Human Resources
DONALD L. BLALOCK
Commercial Banking
JAMES L. DAVIS
Consumer Lending
SALLY B. MILES
Operations
WANDA T. MILLER
Branch Coordination
GREGORY T. STRICKLAND
Manager
Glynn Place Mall Office
JO USHER
Mortgage Loan Servicing
BETTY WHITWORTH
Credit Control
Assistant Vice Presidents
CHESTER ANDERSON
Manager
Altama Avenue Office
STEPHEN PARKER
Manager
Ocean Boulevard Office
LINDSAY VINYARD
Marketing
Banking Officers
HELEN BEECHER
Mortgage Lending
BERT CASON
Consumer Lending
GERRY EARP
Corporate Secretary
Stockholder Relations
ALICE EDENFIELD
Account Processing
ANGIE FERRA
Training
DONNA GIBBS
Assistant manager
Altama Avenue Office
JANE S. GREENE
Loan Servicing
GAIL T. JACKSON
Assistant Manager
Plaza Office
LYNETTE MAASSEN
Assistant Manager
Glynn Place Mall Office
KATHY D. MILLS
Assistant Controller
MARY SLAUGHTER
Account Servicing
DAWN SMITH
Internal Auditor
TARA T. STEPHENS
Construction Lending
Main Office
777 Gloucester Street
Brunswick, Georgia 31520
Telephone: (912) 265-1410
Annual Meeting
The annual meeting of First Federal Savings Bank will be held Wednesday,
January 22, 1997 at 5 p.m. in the lobby of the Main Office, 777 Gloucester
Street, Brunswick, Georgia
Stock Transfer Agent and Registrar
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P.O. Box 3001
Winston-Salem,
North Carolina 27102-3001
Common Stock Listing
First Federal's common stock is traded in the National Market System under the
NASDAQ symbol FFBG and is listed as "FFdBrun" in newspapers. For further
information, contact Mrs. Gerry Earp.
Independent Public Accountants
Arthur Andersen LLP
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
Legal Counsel
Smith, Mackinnon, Harris, Greeley, Bowdoin & Edwards, P.A.
Suite 800
255 South Orange Avenue
Orlando, Florida, 32801
Form 10-K
A copy of the Form 10-K, including financial statement schedules as filed
with the Office of Thrift Supervision, will be furnished without charge to
stockholders as of the record date upon written request to:
Mrs. Gerry Earp, First Federal Savings Bank, P.O. Box 1877, Brunswick,
Georgia 31521
24
<PAGE>
Exhibit 21.1
First Federal Savings Bank of Brunswick, Georgia
Subsidiary of Registrant
First Shelter Service Corporation
