-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TVHg4XJil4TA80glXKQQMFSbnCExF1E6JAIiXP96GxI0iU5zCzcschXECTVyo5/r rUy3ijtPf5bOP+ZmgSCR9w== 0000950168-97-000138.txt : 19970123 0000950168-97-000138.hdr.sgml : 19970123 ACCESSION NUMBER: 0000950168-97-000138 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 19970122 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONSBANK CORP CENTRAL INDEX KEY: 0000070858 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 560906609 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-20175 FILM NUMBER: 97509035 BUSINESS ADDRESS: STREET 1: NATIONSBANK CORPORATE CENTER STREET 2: NC1007 19 04 CITY: CHARLOTTE STATE: NC ZIP: 28255 BUSINESS PHONE: 7043865000 MAIL ADDRESS: STREET 1: NATIONALSBANK CORPORATE CENTER STREET 2: NC1007 19 04 CITY: CHARLOTTE STATE: NC ZIP: 28255 FORMER COMPANY: FORMER CONFORMED NAME: NCNB CORP DATE OF NAME CHANGE: 19920107 S-4 1 NATIONSBANK S-4 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) 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.)
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: 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
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: CALCULATION OF REGISTRATION FEE [CAPTION] 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 Common Stock................ 1,224,200 shares (1) $123,567,688 (2)
TITLE OF EACH CLASS AMOUNT OF OF SECURITIES TO REGISTRATION BE REGISTERED FEE Common Stock................ $37,445
(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. 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. 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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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
2 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 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 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 5 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 6 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 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 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
FIRST FEDERAL NATIONSBANK FIRST FEDERAL EQUIVALENT October 10, 1996.................................................................... $ 87.50 $ 72.00 $ 70.00 , 1997................................................................... $ $ $
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 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 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.
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1996 1995 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
YEAR ENDED SEPTEMBER 30, 1996 FIRST FEDERAL HISTORICAL Earnings per common share.................................................................................... $ 1.42 Cash dividends per common share.............................................................................. .93 Shareholders' equity per common share (period end)........................................................... 17.29
NINE MONTHS ENDED SEPTEMBER YEAR ENDED 30, DECEMBER 31, 1996 1995 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
(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 (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 SELECTED HISTORICAL FINANCIAL DATA OF NATIONSBANK
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, 1996 1995 1995 1994 1993 1992 1991 (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
(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 SELECTED HISTORICAL FINANCIAL DATA OF FIRST FEDERAL
THREE MONTHS ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30, 1996 1995 1996 1995 1994 1993 1992 (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
(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 SELECTED PRO FORMA FINANCIAL DATA FOR NATIONSBANK REFLECTING THE BOATMEN'S ACQUISITION (1) (DOLLARS IN MILLIONS, EXCEPT PER-SHARE INFORMATION AND RATIOS)
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1996 1995 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
(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 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 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 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 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 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. 21 (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 22 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 23 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 24 123.5% 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. 25 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 26 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; 27 (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 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. 29 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 30 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. 31 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.
OPTIONS WEIGHTED EXERCISABLE AVERAGE UPON EXERCISE OPTIONS CONSUMMATION PRICE AGGREGATE OPTIONS CURRENTLY OF THE PER VALUE OF HELD EXERCISABLE MERGER OPTION OPTIONS (1) 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
(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 32 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." 33 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. 34 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."
SALES PRICES HIGH LOW DIVIDENDS 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)........................... $ $ $
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."
SALES PRICES HIGH LOW DIVIDENDS 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)...........................
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 35 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 36 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 37 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. 38 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 39 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.
AMOUNT PERCENT ACTUAL ACTUAL EXCESS REQUIRED REQUIRED AMOUNT PERCENT AMOUNT (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
(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. 40 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 41 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. 42 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 43 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 44 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. 45 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. A-1 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 A-2 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. II-1 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
EXHIBIT NO. 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)
* 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 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 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.
SIGNATURE TITLE DATE 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
II-4
SIGNATURE TITLE DATE 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
II-5
SIGNATURE TITLE DATE 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
II-6 EX-2 2 EXHIBIT 2.1 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 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) 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) 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) 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) 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) 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) 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 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- 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- 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. -4- 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 -5- 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. -6- 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 -7- 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 -8- 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 -9- 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 -10- 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 -11- 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. - 12 - 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 - 13 - 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 - 14 - 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. - 15 - 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 - 16 - 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, - 17 - 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 - 18 - 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, - 19 - 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 - 20 - 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: - 21 - 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 - 22 - 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. - 23 - 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 - 24 - 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 - 25 - 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 - 26 - 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 -27- 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 -28- 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 -29- 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 -30- 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 -31- 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. - 32 - 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 - 33 - 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 - 34 - 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 - 35 - 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 - 36 - 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: - 37 - 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. - 38 - 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. - 39 - 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. - 40 - 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 - 41 - (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 - 42 - 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 - 43 - 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: - 44 - 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) - 45 - 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) - 46 - 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 - 47 - EX-2 3 EXHIBIT 2.2 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. 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. - 2 - 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 - 3 - 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 -4- 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 -5- 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 -6- 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 -7- 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 -8- 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 -9- 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 -10- 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. -11- 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 -12- 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: -13- (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. -14- 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] -15- 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] -16- 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 EX-2 4 EXHIBIT 2.3 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. 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- 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- EX-2 5 EXHIBIT 2.4 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: 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 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 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 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 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 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 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 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 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 ultimately reject Defendants' offer, Plaintiff's entitlement to attorneys fees will need to be determined, and that will require further proceedings herein. 11 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 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 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 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 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 EX-2 6 EXHIBIT 2.5 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 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 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 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 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 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 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 Page 7 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. - ---------------------------------- 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. Page 8 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 - ---------------------------------- 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. Page 9 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. - ---------------------------------- 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. Page 10 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 Page 11 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, - ---------------------------------- 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). Page 12 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 - ---------------------------------- 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. Page 13 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 Page 14 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 - ---------------------------------- 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. Page 15 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 - ---------------------------------- 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, Page 16 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 - ---------------------------------- 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. Page 17 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 - ---------------------------------- 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; Page 18 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 - ---------------------------------- (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. Page 19 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 - ---------------------------------- 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 Page 20 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 - ---------------------------------- 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. Page 21 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, Page 1 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 Page 2 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 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 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 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 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 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 EX-2 7 EXHIBIT 2.6 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 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 EX-2 8 EXHIBIT 2.7 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 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 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 EX-5 9 EXHIBIT 5.1 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. EX-10 10 EXHIBIT 10.1 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 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 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 EX-10 11 EXHIBIT 10.2 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 EX-10 12 EXHIBIT 10.3 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. 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 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 - ------------------------------- ------------------------------ EX-10 13 EXHIBIT 10.4 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. 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 EX-23 14 EXHIBIT 23.1 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 EX-23 15 EXHIBIT 23.2 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 EX-23 16 EXHIBIT 23.3 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 EX-24 17 EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each of NationsBank Corporation, and the several undersigned Officers and Directors thereof whose signatures appear below, hereby makes, constitutes and appoints 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
Signature Title Date /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
2
Signature Title Date /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 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 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 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 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 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 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 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
EX-99 18 EXHIBIT 99.1 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. EX-99 19 EXHIBIT 99.2 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. 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. EX-99 20 EXHIBIT 99.3 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 EX-99 21 EXHIBIT 99.4 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. 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 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 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.
At September 30, 1996 1995 1994 ------------ --------------- ---------- 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 =========== =========== ===========
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 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 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,
2012 and 2000 2002 2007 there- 1997 1998 1999 2001 2006 2011 after Total ---- ---- ---- ---- ---- ---- ------- ----- (Dollars in Thousands) 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 ====== ====== ===== ====== ====== ====== ====== =======
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.
Predetermined Floating or Rates Adjustable Rates (Dollars in Thousands) Real estate mortgage................ $51,781 $ 95,514 Real estate construction............ -- -- Consumer............................ 13,971 9,580 Commercial.......................... 825 4,816 ------- ----- Total......................... $66,577 $109,910 ====== =======
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 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.
Year Ended September 30, 1996 1995 1994 --------------- -------------- --------- 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 ========== ========== ==========
- ------------------- (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 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.
At September 30, 1996 1995 1994 ------------ ------------ -------- 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%
- -------------------- (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 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:
Year Ended September 30, 1996 1995 1994 ----------- ---------- ------- 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 ======= ======= =======
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 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:
September 30, 1996 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
Year Ended September 30 1996 1995 ------------ ----------- 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
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 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.
Estimated Amortized Cost Market Value 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 ========== ==========
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 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.
Percentage Interest Minimum Minimum Total of Category Rate (1) Term Balance Amount Savings - --------------------------- -------- -------- ------- ------ ----------- 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 ============ ====== - -----------------
(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 The following table sets forth the time deposits in Brunswick classified by rates being paid as of the dates indicated.
At September 30, 1996 1995 1994 ------------- ------------- --------- 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 =========== =========== ===========
The following table sets forth the amount and maturities of time deposits in Brunswick at September 30, 1996.
Amount Due Less than 3 Years and Rate One Year 1-2 Years 2-3 Years Thereafter Total 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 ============ ========== ========== ========== ===========
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 The following table sets forth the deposit activities of Brunswick for the periods indicated.
Year Ended September 30, 1996 1995 1994 ------------------ ------------------ ----------- 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 ========== ========== =========
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 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.
Year Ended September 30, 1996 1995 1994 -------------- -------------- --------- 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 At September 30, 1996 1995 1994 ---------------- ---------------- ---------- 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
15 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).
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 ------ ------ --------- ------ ------ ------ ------- ------- ------ 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)
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 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 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 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 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. 20 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. 21 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.
Amount Percent Actual Actual Excess (Dollars in 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 26,758 15.4 (1) 12,884
(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 22 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. 23 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. 24 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 25 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 26 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. 27 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 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 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 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 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 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 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 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 Exhibit 13.1 First Federal Savings Bank of Brunswick, Georgia Annual Report to Stockholders For Fiscal Year Ended September 30, 1996 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 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
1996 1995 1994 1993 1992 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
1 Calculated based on fully diluted shares outstanding. 2 Calculated assuming all options exercised. 3 Includes mortgage loans held for sale. 4 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 (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 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 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 FIRST FEDERAL SAVINGS BANK OF BRUNSWICK, GEORGIA, AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION SEPTEMBER 30, 1996 AND 1995 (Note 17)
ASSETS 1996 1995 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
The accompanying notes are an integral part of these consolidated statements. 9 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 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)
Net Unrealized Appreciation (Depreciation) Additional on Securities Common Paid-In Retained Available for Stock Capital Earnings Sale Total 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
The accompanying notes are an integral part of these consolidated statements. 11 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)
1996 1995 1994 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
The accompanying notes are an integral part of these consolidated statements. 12 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, 13 $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. 14 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 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. 16 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. 17 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 18 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 19 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:
1996 1996 1994 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
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 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. 21 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- 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 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 Exhibit 21.1 First Federal Savings Bank of Brunswick, Georgia Subsidiary of Registrant First Shelter Service Corporation -----END PRIVACY-ENHANCED MESSAGE-----